DIRECTOR'S STATUTORY OBLIGATIONS

Introduction

Over the past two newsletters, I have described some of the common law (law developed by historical precedent) responsibilities owed by directors of charitable organizations. These are directives that dictate how a director is to behave generally. However, there are laws all over Canada that give directors specific responsibilities in specific circumstances. This newsletter will outline some of the more common statutory responsibilities common to directors of charitable and not-for-profit organizations.

As regular readers of this newsletter would have noticed, it has been sometime since my last newsletter. I usually publish an issue every 6 – 8 weeks, unfortunately, it has been considerably longer than that since my last newsletter. While certainly no excuse, part of the reason for the delay is the time spent on bringing a new website online (see www.aptlaw.com or www.charitytaxlaw.ca), I would appreciate any comments on the website you may have. For those of you who have missed reading the newsletter, I will endeavor to keep a more regular schedule.

As always, please remember that this newsletter is for informative purposes only and if you have any specific questions or comments about the items below or any other aspect of charity law, please contact me.

Director’s Statutory Responsibilities

Many federal and provincial statutes impose liability for the activities of a corporation on its directors. Many, if not most, make no distinction as to whether the corporation is for, or not-for, profit. For example, if a charitable or not-for-profit corporation were to breach the Criminal Code provisions for criminal breach of trust or gross negligence in workplace safety the directors of the organization could be charged criminally. Directors could also bear responsibility for breaching the provisions of the Excise Tax Act (GST), the Canada Pension Plan Act, the Employee Insurance Act, and the various Employment Standards acts, provincial Sales Tax Acts, Workplace Safety Acts, and Pension Benefits acts across the provinces. (It should go without saying that if an organization is not incorporated those running the organization are responsible for their actions taken in the name of the organization).

Generally, laws apply to members of society (including corporations and unincorporated organizations) because they help govern the relationship between different members. Directors, as the operating mind of the corporation, are ultimately responsible for the actions of the corporation and their own actions if the corporation breaks the law. However, there are also duties imposed upon the directors of charities specifically because charities occupy a special place in society. Unlike a for-profit corporation, a charity exists to aid third party people or causes and therefore directors bear an even higher degree of responsibility to ensure that the charity acts on its charitable objects and in a proper fashion.

Laws of Particular Interest

The Income Tax Act imposes a variety of duties on directors. Some, such as the responsibility of directors for the remittance of employee income tax, or signing a false tax return on behalf of the corporation apply to directors of every type of corporation. Others apply only to directors of charities, such as if a charity fails to comply with the numerous reporting requirements (such as the annual T3010 form or tax receipts) or if the director accepts any benefit from his or her role as a director of the charity.

Of particular note is the Anti-Terrorism Act, which has a special impact on any charity, fundraiser or donor involved with raising money for what the Act would consider a terrorist group. Directors of a charity accused of violating this Act run the risk of Criminal Code charges and the charity could have its property seized and lose its charitable status.

In Ontario, directors are also subject to the Charities Accounting Act, which allows the Office of the Public Guardian and Trustee to call directors to account for improper use of charitable property as well as its fundraising practices and the mingling of donor-restricted funds. Finally, as outlined in a previous newsletter there are a variety of statutes which concern themselves exclusively with fundraising in different parts of the country.

Directors are not held to the standard of perfection, the law allows for the fact that reasonable people can make honest mistakes. However, a director is likely to be found liable (or guilty) where the director does not exercise due diligence in the circumstances. In the context of some statutes that may mean simply paying attention at meetings or hiring the appropriate professional advice. Other statutes may require you to go on record as opposing an illegal action.

Adam Aptowitzer distributes the above newsletter on the understanding that it does not constitute legal advice or establish the solicitor/client relationship by way of any information contained herein. The contents are intended for general information purposes only and under no circumstances can it be relied upon for legal decision-making. This newsletter is current only as of the date above and does not reflect any subsequent changes in the law. Readers are advised to consult with a qualified lawyer and obtain a written opinion concerning the specifics of their particular situation.