A range of laws, policies, contractual terms and voluntary standards can apply to personal support networks. These vary by jurisdiction and a particular network’s legal structure and relationships. An informal circle of support will be subject to little, if any, formal regulation. On the other hand, incorporated networks have a number of legal obligations.
1. Standards relating to incorporation and corporate maintenance
Incorporated networks – like every not-for-profit corporation – must comply with laws relating to incorporation and corporate maintenance. Organizations may incorporate federally or provincially. Those incorporating provincially will be subject to slightly different rules (and different terminology) in Ontario and British Columbia. Moreover, both provinces are the process of overhauling their laws in this area. In Ontario, personal support networks that choose to provincially incorporate currently do so under Part III of the Corporations Act. However, the Ontario government has passed the new Not-for-Profit Corporations Act, 2010, which will come into force on a date to be named by proclamation (not expected before 2016). In British Columbia, not-for-profit organizations are governed by the Society Act . However, the Ministry of Finance is in the process of developing a new Act, and in August 2014 published a White Paper with draft legislation, inviting comments.
As the laws currently stand, a number of the rules in the two provinces are substantially similar. Persons proposing to incorporate a not-for-profit organization (a “society” in British Columbia and a “corporation” in Ontario) must follow steps that include, in varying forms and stages:
– Obtaining approval of the organization’s proposed name ;
– Paying a fee and filing an application along with information such as: the purposes of the organization (called the “constitution” in British Columbia, and “objects” in Ontario); the organization’s head office address; and the names and addresses of the first directors;
– Naming a minimum of three first directors (and British Columbia also requires that there be a minimum of five initial “applicants” for incorporation );
– Adopting bylaws that meet the standards set out in legislation .
Once established, the directors of the society or corporation must comply with laws governing corporate structure, maintenance, reporting and filing. For instance, they must hold annual general meetings ; have adequate financial arrangements and, if required, an auditor; keep certain records (for instance, relating to minutes, accounting and member lists) ; and file certain reports with the government with information about the corporation and its finances. While not-for-profit organizations are not generally required to pay income tax, they must nonetheless file an annual Corporate Income Tax Return. Some may also need to file an annual Non-Profit Organization Information Return with the Canada Revenue Agency. Not-for-profits may also have additional filing obligations, depending on their activities and jurisdiction. Indeed, this area of the law is complicated and in flux. Incorporated networks must ensure that they keep apprised of their legal obligations, which may require time and jurisdiction specific legal advice.
2. Duties and liability of directors of not-for-profit corporations
The rules discussed above relate primarily to the organization’s obligations to government. Importantly, however, incorporation changes the organization’s status and legal obligations to third parties. In the case of a personal support network, it arguably also affects the legal relationship between network members and the supported person.
Directors are not generally liable for the actions of the corporation, such as contracts validly entered into, because the corporation has the status of a separate legal person (protection that is referred to as the “corporate veil”). Directors do, however, have significant duties and can be liable in a variety of circumstances. As a general matter, directors are responsible for managing the corporation and for complying with its objects and bylaws, the relevant corporations statute, any other applicable statutes, and the common law. Directors owe a fiduciary duty to the corporation that requires them to carry out these responsibilities with (i) the necessarily levels of skill and diligence (in Ontario’s new Act the standard is that of a “reasonably prudent person”); and (ii) with loyalty, meaning “honestly and in good faith”. These duties are set out in s. 43(1) of Ontario’s new Not-for-Profit Corporations Act, 2010:
43. (1) Every director and officer in exercising his or her powers and discharging his or her duties to the corporation shall,
(a) act honestly and in good faith with a view to the best interests of the corporation; and
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. 2010, c. 15, s. 43 (1).
The duty of loyalty generally requires, for example, that directors attend meetings and be as informed as possible regarding matters affecting the corporation. This “requires active and concerted effort on the part of directors to be knowledgeable and ready to make informed decisions affecting the corporation”.
A director may be held liable if he or she breaches any part of the fiduciary duty to the corporation and this results in harm. Directors can also be liable if they enter into a contract without legal authority, or commit a tort (for instance, acting negligently), while acting as a director. There is also a range of specific statutory provisions that can make directors personally liable. For instance, under s. 40(1) of the Not-for-Profit Corporations Act, 2010, directors can be jointly and severally liable to employees of the corporation for up to 6 months’ wages and 12 months’ vacation pay under the Employment Standards Act. Indeed, Director liability is a vast topic that cannot be fully canvassed here; these are only some possible sources of liability.
A corporation may indemnify its directors for costs incurred in the course of a legal action stemming from the execution of their duties as director. Corporations may also purchase directors’ and officers’ liability insurance, and are generally encouraged to do so. However, these protections may not extend to directors who have breached their fiduciary duty or acted illegally.
It is unclear what directors’ fiduciary duties mean for the relationship between directors and the supported person. The fiduciary duty is owed to the corporation. However, where the purpose of the corporation is solely to support the individual, arguably this could have the effect of also applying a fiduciary standard to relationship between directors and the supported person. On the other hand, the supported person is very often a director him or herself, creating the somewhat awkward proposition of a person having a fiduciary duty to support himself, and inserting a degree of ambiguity into the legal relationship with other directors. The supported person’s dual roles – (i) as corporate director, and (ii) as beneficiary of some form of (arguably fiduciary) duty – do not sit together easily or intuitively. We can only speculate as to how these legal relationships might play out in the event of conflict, as there does not appear to be any case law on point.
3. Legal obligations relating to particular network activities
As noted above, an incorporated support network that is receiving and managing funds and employing workers will be subject to a range of legal obligations relating to that role. These may include:
– contractual obligations, such as contracts with government ministries or agencies (in British Columbia), or with transfer payment agencies (in Ontario), relating to receipt and management of funds;
– federal and provincial tax laws; and
– laws pertaining to the employer role, such as e