New Not for Profit Act Committee - Looking for volunteers

[Vladimir Drkulec]

The not for profit act committee is looking for volunteers to serve on this important committee with an initial report to the governors in January. So far the members of the committee are Pierre Denommee, Frank Lee who is also CFC Youth Coordinator and myself. I would like to get one or two additional members.

Send email to president@chess.ca.

[Paul Leblanc]

Don't know if I have time to devote to this but two things I'd like to see are:
- spending authority up to a specified amount for the President; perhaps up to $1,000 between governors' meetings
- maintenance of some version of the executive and governors where the executive has authority to act on normal business matters and the governors are kept informed at the governors' meetings; governors would also need to agree by a majority vote to change policy outlined in the CFC Handbook

[Bob Armstrong]

Don't know if I have time to devote to this but two things I'd like to see are:
- spending authority up to a specified amount for the President; perhaps up to $1,000 between governors' meetings
- maintenance of some version of the executive and governors where the executive has authority to act on normal business matters and the governors are kept informed at the governors' meetings; governors would also need to agree by a majority vote to change policy outlined in the CFC Handbook

Seems reasonable to me.

Bob A

[Pierre Dénommée]

Don't know if I have time to devote to this but two things I'd like to see are:
- spending authority up to a specified amount for the President; perhaps up to $1,000 between governors' meetings
- maintenance of some version of the executive and governors where the executive has authority to act on normal business matters and the governors are kept informed at the governors' meetings; governors would also need to agree by a majority vote to change policy outlined in the CFC Handbook

A Governor is something that does not exist outside of the CFC. Under the new Act, there are Directors and Members. Executive is not mentioned in the Act, but the Directors may create committees of Directors and delegate them powers. A CFC Governor is an hybrid between a Member and a Director that exercises the authority of a Director without the liabilities. This will no longer be possible.

[Pierre Dénommée]

It is legal to ask for Governor's permission before modifying the CFC Handbook.

[Paul Leblanc]

Besides the directors, you can have voting and non-voting members (like we have now)

[Pierre Dénommée]

Besides the directors, you can have voting and non-voting members (like we have now)

Yes, but the Act gives non-voting members the right to vote on some issues. Those mandatory voting rights have been considered so embarrassing by some organizations that all Athletes/Players/Participants have been stripped of their member status. If the Act of Incorporation is not written very carefully, non-voting members will vote separately on many fundamentals issues. A separate vote requires the 2/3 majority to be achieved separately by each class of members. In this system, junior members could block a change if less the 2/3 of the junior members have voted in favour.

This separate vote is useful to prevent arbitrary degradation of the privileges of the members. When more then one class of members can vote, one class could attempt to remove the voting right to the other class. For example, if the Governors and the Past Presidents are voting members, if nothing special is written in the new CFC Constitution, only a vote of 2/3 of the Past Presidents could remove the voting right of the Past Presidents.

[Bob Armstrong]

A Governor is something that does not exist outside of the CFC. Under the new Act, there are Directors and Members.

Is a simple answer?:

Members = fully paid up CFC members;

Directors = CFC Governors - no. of Governors may change (the issue is whether you can restrict a CFC member's vote to only those Directors running in his province [and further, for Ontario, whether you can restrict the member's vote further, to only Directors running in his "League"?])

Bob A

[Pierre Dénommée]

Is a simple answer?:

Members = fully paid up CFC members;

Directors = CFC Governors - no. of Governors may change (the issue is whether you can restrict a CFC member's vote to only those Directors running in his province [and further, for Ontario, whether you can restrict the member's vote further, to only Directors running in his "League"?])

Bob A

All Governors could be made Directors, but they would be personally responsible for many errors and omissions and could be sued in case of trouble. Furthermore, the Governors would be responsible of everything done by the Executive, even if they were not aware of the Executive's actions. That is why most organizations have abolished their Executive. Nobody wants to be held responsible for an action he does not heave the Authority to stop.

Members could be allowed to vote separately by province, if needed the CFC could have 13 categories of members, one per province and territory. Nevertheless, those members could vote for their Governors and on all matters in which members can vote under the Act. .

Furthermore, a member can ask the Court to act in the name of the CFC

REMEDIES, OFFENCES AND PUNISHMENT
Marginal note: Definitions

250. The following definitions apply in this Part.

“action”

« poursuite »

“action” means an action under this Act.

“complainant”

« plaignant »

“complainant” means

(a) a former or present member or debt obligation holder of a corporation or any of its affiliates;

(b) a present or former registered holder or beneficial owner of a share of an affiliate of a corporation;

(c) a former or present director or officer of a corporation or any of its affiliates;

(d) the Director; or

(e) any other person who, in the discretion of a court, is a proper person to make an application under this Part.

Marginal note: Derivative action

251. (1) On the application of a complainant, a court may make an order granting the complainant leave to bring an action in the name of and on behalf of a corporation or any of its subsidiaries, or intervene in an action to which such a body corporate is a party, for the purpose of prosecuting, defending or discontinuing the action on its behalf.


The more I read the NFP Act, the more I believe that its purpose is to kill non-profits in the same way that the Conservative have revoked so many charitable status. Granting members a huge amount of rights will result in non-profits having a very small number of members, which is really detrimental to them.

The NFP Act contains provisions that Quebec Associations have successfully defeated, even though Quebec does not have a new NFP. The last two attempt at NFP Reform in Quebec have been massively rejected by the province not for profit corporations.

I also believe that the current treatment of members who do not belongs to an affiliated Provincial Association could be challenged in court under the new Act. The voting right of due paying members should not be limited for the sole reason that its Province has no Affiliated Provincial Association.

[Bob Armstrong]

Hi Pierre:

Thanks. Helpful information. So we can entirely keep our current governing structure (though there may be some downsides, and we have to determine whether our country-wide collectivist idea is worth any downsides - and some of the downsides to directors are one's the directors must accept, regardless of the governance model we accept).

The purpose generally of incorporation, is to protect Directors from direct lawsuits - the corporation often is the only entity that can be successfully sued. Is there something different about non-profits, that the Directors of a non-profit are more vulnerable than Directors of a private corporation?

Bob A

[Pierre Dénommée]

Hi Bob:

An incorporation protect the Directors from lawsuits related to the debts of the CFC. No member and no Director are responsible for the payment of the debts of the CFC, it there is a debt. Nevertheless, Directors can be sued for numerous reasons: conflicts of interest, failure to abide by the CFC Handbook, taking decisions influenced by bias, discrimination in the selection of the National Team, lying to the CRA, failure to produce GST/PST/HST reports, failure to pay Income Tax... Some of those risks can be covered by a Director's Errors and Omissions Insurance but some cannot. Anything wrong done with the CRA is considered a crime and cannot be insured. For example, forgetting to pay the GST is not considered an omission and cannot be insured. Failure to remit to the CRA money taken from the pay of any CFC employee is not an omission an cannot be insured. Gross or intentional errors cannot be insured too.

An Appeal Policy is a way to avoid many lawsuits.

Conflict of interest http://www.crdsc-sdrcc.ca/eng/documents/SDRCC_COI_Brochure_ENG_final_web.pdf

Appeal Policy http://www.crdsc-sdrcc.ca/eng/appeal-policies.jsp

Team selection http://www.crdsc-sdrcc.ca/eng/team-selection.jsp

Directors of Corporations faces similar lawsuits.


Hi Pierre:

Thanks. Helpful information. So we can entirely keep our current governing structure (though there may be some downsides, and we have to determine whether our country-wide collectivist idea is worth any downsides - and some of the downsides to directors are one's the directors must accept, regardless of the governance model we accept).

The purpose generally of incorporation, is to protect Directors from direct lawsuits - the corporation often is the only entity that can be successfully sued. Is there something different about non-profits, that the Directors of a non-profit are more vulnerable than Directors of a private corporation?

Bob A

[Bob Armstrong]

Hi again Pierre:

Thanks again for your detailed and knowledgeable response.

It seems to me you are confirming my statement about governance. Directors are liable for many things, even if shielded partly by the corporation, and partly by insurance.....no matter what governance structure CFC finally adopts to comply with the NPCA.

So having CFC members be "members" (as now), and having CFC governors be "Directors" (as now), is perfectly achievable by CFC to comply with the NPCA.....if the majority should decide on this model, which decision will likely be greatly influenced by the NPCA Committee # 2, should it recommend this option, after due study of possible CFC alternatives (such as the option proposed by NPCA Committee # 1).

Bob A

[Pierre Dénommée]

Thanks. Helpful information. So we can entirely keep our current governing structure (though there may be some downsides, and we have to determine whether our country-wide collectivist idea is worth any downsides - and some of the downsides to directors are one's the directors must accept, regardless of the governance model we accept).


We can't, there are details, such as the President dismissal procedure, that cannot require anything more then a 50%+1 vote of the voting members. There is no such thing as a Life Director, ex-officio Directors, such as past presidents, are no longer legal but after the AGM, the past president could be appointed Director by the newly elected board of Directors. We have to get used to the fact that all Directors must be either elected by the voting members or appointed by the board. There are no other way to be a Director. The Act also limits the number of Appointed Directors.

Some tweaking could be required to maintain the current members right to vote at the provincial level. Depending on how its done, the players of a province could get the right to dismiss their Directors.

We have a great opportunity to improve, we should take advantage of it. I do not believe that the organizations that made the change before us are stupid. They did much more then the minimal change.

[Bob Armstrong]

Hi Pierre:

I think we have had a good and interesting exchange.

Could I ask that this whole thread be brought by you to NPCA Committee # 2? The other members of the committee may benefit by our explorations on "new CFC Governance". We should not assume all the committee members have been following this thread in the members' CFC Chess Chat Forum. It would be interesting to have some CFC member with non-profit experience weigh in on our issues.

Bob

[Pierre Dénommée]

I will bring it to the Committee.

[Vladimir Drkulec]

Hi Pierre:

Thanks. Helpful information. So we can entirely keep our current governing structure (though there may be some downsides, and we have to determine whether our country-wide collectivist idea is worth any downsides - and some of the downsides to directors are one's the directors must accept, regardless of the governance model we accept).

The purpose generally of incorporation, is to protect Directors from direct lawsuits - the corporation often is the only entity that can be successfully sued. Is there something different about non-profits, that the Directors of a non-profit are more vulnerable than Directors of a private corporation?

Bob A

I think you are drawing the wrong conclusions if you think that we can continue to operate as we have. We have to comply with the requirements of the act which don't seem to envision a 60 member board of directors. If whatever we come up with does not pass muster with the minister and staff we risk delays in registration which could put us beyond the deadline.

[Pierre Dénommée]

We should check beforehand if the Industry Canada will indeed accept this but the Law does not set any maximum number of Directors, only a minimum of 3 for soliciting Corporations.

Actually, we must also remember that changes made at the CFC Level will also require changes to be made at the Provincial Level ( http://www.sportlaw.ca/2012/02/why-the-new-federal-nfp-act-is-important-to-psos/ ). Furthermore, the OCA and the BCCF will be facing the same transition process at the provincial level. All the affiliated Provincial Associations will have to adapt to the new structure of the CFC, possibly amending their Constitution and By-Laws during special AGM.


I think you are drawing the wrong conclusions if you think that we can continue to operate as we have. We have to comply with the requirements of the act which don't seem to envision a 60 member board of directors. If whatever we come up with does not pass muster with the minister and staff we risk delays in registration which could put us beyond the deadline.

[Vladimir Drkulec]

It is apparent that we will have to make changes under the current act to avoid problems under the new act. We will have to implement the changes with respect to membership (what we now call members will become players and what we now call governors will become members). We will need a two thirds vote by the governors in order to implement these changes I suspect. If we try to do the same under the new act we will need an affirmative two thirds majority from all of the classes of members. We would need two thirds of the life members, two thirds of the junior members, two thirds of the senior members (which some of the governors seem intent on creating), two thirds of the regular members, two thirds of the family members. And chaos will ensue if we don't get the two thirds vote from each of these different membership classes.

http://www.sportlaw.ca/2012/10/transition-requires-that-you-dance-the-two-step/

[Pierre Dénommée]

Many of those separate voting can be eliminated simply by writing it in the CFC articles of Incorporation.

The members of a class or group of members are, unless the articles otherwise provide in the case of an amendment referred to in paragraphs (a) and (e), entitled to vote separately as a class or group on a proposal to make an amendment referred to in subsection 197(1) to



It is apparent that we will have to make changes under the current act to avoid problems under the new act. We will have to implement the changes with respect to membership (what we now call members will become players and what we now call governors will become members). We will need a two thirds vote by the governors in order to implement these changes I suspect. If we try to do the same under the new act we will need an affirmative two thirds majority from all of the classes of members. We would need two thirds of the life members, two thirds of the junior members, two thirds of the senior members (which some of the governors seem intent on creating), two thirds of the regular members, two thirds of the family members. And chaos will ensue if we don't get the two thirds vote from each of these different membership classes.

http://www.sportlaw.ca/2012/10/transition-requires-that-you-dance-the-two-step/

[Kerry Liles]

It is apparent that we will have to make changes under the current act to avoid problems under the new act. We will have to implement the changes with respect to membership (what we now call members will become players and what we now call governors will become members). We will need a two thirds vote by the governors in order to implement these changes I suspect. If we try to do the same under the new act we will need an affirmative two thirds majority from all of the classes of members. We would need two thirds of the life members, two thirds of the junior members, two thirds of the senior members (which some of the governors seem intent on creating), two thirds of the regular members, two thirds of the family members. And chaos will ensue if we don't get the two thirds vote from each of these different membership classes.

http://www.sportlaw.ca/2012/10/transition-requires-that-you-dance-the-two-step/

It is beginning to look like it might be simpler to just incorporate the CFC and forget about the not-for-profit aspect.
Whether the CFC could actually make a profit in any case is a completely different matter, but as far as I know,
it is not inconceivable for a Canadian corporation to simply lose money... Incorporation may be more straight forward
than navigating the murky waters of not-for-profit. ;)

[Bob Armstrong]

It is beginning to look like it might be simpler to just incorporate the CFC and forget about the not-for-profit aspect.
Whether the CFC could actually make a profit in any case is a completely different matter, but as far as I know,
it is not inconceivable for a Canadian corporation to simply lose money... Incorporation may be more straight forward
than navigating the murky waters of not-for-profit. ;)

Hi Kerry:

Very interesting idea. CFC does have some revenue it generates - membership fees and rating fees. If it ran tournaments, it could generate organizer fees. What are the CFC expenses? Would CFC be in much of a deficit position?

I believe a for-profit corporation can have losses for about 5 years. Then I think at that point, the gov't starts feeling it is being ripped off by the corporation using the advantages of the system, and not paying for the system (no income = no tax paid). It's unhappy seeing any revenue being negated by expenses that are able to be deducted from revenue. But might it be that CFC could be breakeven, if given 5 years to try to sort it all out?

A very critical element of this though, is what advantages are being given up by not going under the new NPCA? The Act , surely, is intended to support non-profits in various ways. These may not be available to regular corporations, should CFC become one.

You may want to think this out a bit more, and make some submission to the CFC Not-for-Profit Committee # 2, who would likely be the body to examine the idea of a whole alternative direction for CFC.

Bob A

[Pierre Dénommée]

For profit corporations do not ask for Olympic donations. For profit corporations cannot be recognized by Sports Canada, they do not have members, instead, they have shareholders, they probably cannot be part of the Canadian Olympic Committee or member of FIDE.

Furthermore, the transformation from a Non-Profit to a for profit might not be legal, I did not check this. If it is not legal, the transformation would required wrapping-up the CFC and the transfer of the assets to the new CFC. This is not a tax neutral operation. Under the previous Quebec Law, the transformation required a 75% majority of all members, including non-voting ones.

For profit are much harder to incorporate then non-profit because the share categories, their right and privileges, must be explicitly spelled out.

Finally, it is much easier to incorporate a new not for profit because only three persons have to agree on the new Articles of Incorporation and By Laws. But the CFC is a member of FIDE and a member of the Canadian Olympic Committee unless we silently drop out. Furthermore, the CFC has Life Members that the new CFC could not serve unless the Chess Foundation of Canada pass the money to the new CFC.

We are facing a very tight deadline for the dissolution of the CFC. It is likely that members, especially life members, will go to court to force the issue if the Governors are incapable of approving the move to the new NFP. Failure is not an option because the current Governors could also be sued. The Quebec Law states that Where the board is prevented from acting according to majority rule or in the specified proportion owing to the incapacity or systematic opposition of some directors, the others may act alone for conservatory acts; they may also, with the authorization of the court, act alone for acts requiring immediate action. Where the situation persists and the administration is seriously impaired as a result, the court, on the application of an interested person, may exempt the directors from acting in the specified proportion, divide their duties, grant a casting vote to one of them or make any order it sees fit in the circumstances. There should be something similar in the other provinces and territories. Going to court is a very costly solution, it is the only solution, at least in Quebec.


It is beginning to look like it might be simpler to just incorporate the CFC and forget about the not-for-profit aspect.
Whether the CFC could actually make a profit in any case is a completely different matter, but as far as I know,
it is not inconceivable for a Canadian corporation to simply lose money... Incorporation may be more straight forward
than navigating the murky waters of not-for-profit. ;)

[Kerry Liles]

...some stuff snipped

You may want to think this out a bit more, and make some submission to the CFC Not-for-Profit Committee # 2, who would likely be the body to examine the idea of a whole alternative direction for CFC.

Bob A

My suggestion was mostly tongue-in-cheek based on the frustration of noticing how this whole concept is not moving with much speed... Clearly there are some hurdles, but I get the sense that most Governors and likely almost every single member do not realize the imperative. I hope the committee makes their recommendation quickly and it just flies through to adoption - otherwise it will more than likely be too late! Good luck all.

PS: I have no particular expertise in these matters, but I do think I understood the need to do something very soon!

[Bob Armstrong]

Hi Kerry:

You may have meant the PROPOSAL for CFC to transform itself into a private corporation as tongue-in-cheek, but I really don't see immediately why it is not an option that should be considered along with the others. We have had "for-profit" chess clubs (though eventually unsustainable). And CFC doesn't have a charitable status anyway, and the route of a Registered Amateur Athletic Association, looks to be climbing Mount Everest.

And the CFC has moved at somewhat faster than turtle speed. At the April/13 Governors' Spring Meeting, there was a report submitted by the NFPCA Committee # 1, that was discussed, and rejected (at that time there were no alternate proposals made). Now there is a Committee # 2, that is supposed to recommend a model that does the minimum governance change to comply with the Act, and a second proposal as to what might CFC do that would be more beneficial than the minimum.

And yes speed is critical - in 2014, CFC if it has done nothing, will be disbanded, and the gov't will take the Chess Foundation of Canada assets. There is indeed some urgency to comply by the deadline.

Bob A, CFC Public Relations Coordinator

[Pierre Dénommée]

You may have meant the PROPOSAL for CFC to transform itself into a private corporation as tongue-in-cheek, but I really don't see immediately why it is not an option that should be considered along with the others. We have had "for-profit" chess clubs (though eventually unsustainable). And CFC doesn't have a charitable status anyway, and the route of a Registered Amateur Athletic Association, looks to be climbing Mount Everest.


Hi Bob,

For profit is one share one vote. A single person could control the CFC if it was a for profit corporation. Furthermore, no election for Governor could be held. In a for profit, you buy a share to get the right to vote for the board of Directors. You own the share, nobody can force you to surrender it if you are nor elected. A share is like a pair of jeans or a jacket, you own it, nobody can force you to part with it. Shares can be inherited, so the right to manage the CFC could remains eternally within the same families.

Furthermore, if we change all Governors to shareholders, there would be too many shareholders and the CFC would be treated like a publicly traded corporation. This means mandatory audits, asking for permission before emitting new shares... It is a ton of trouble and a loss of time that detracts from the core purpose of the CFC. It would be very hard to recruit registered participants if they know that their money will go into the pocket of a few.

If the CFC is ran for profit who is meritorious enough to pocket the profits? Who will give to the Olympic funds knowing that if to much money is raised, the extra could be used for dividend?

Also, when the Life Member's money will be transferred from the Foundation, the CRA will assume that the new for profit CFC has made a 100 000$ (replace with the true Foundation assets) taxable revenue.

For profit Chess should take the form of a Professional league affiliated to the CFC. Money would flow from the Professional League to the CFC.

[Bob Gillanders]

And yes speed is critical - in 2014, CFC if it has done nothing, will be disbanded, and the gov't will take the Chess Foundation of Canada assets. There is indeed some urgency to comply by the deadline.

Bob A, CFC Public Relations Coordinator

Hi Bob,
Thank you for raising the alarm bells. I have just emailed the CFC executive with my thoughts and urging prompt action.
I am afraid we are again sleepwalking into another crisis. The CFC office meltdown of 2006/2007 came after years of warnings from CFC Presidents and Treasurers, but nothing was done until the office ran out of money.

Can we do better with this new crisis? :)

[Vladimir Drkulec]

For one thing transferring everything into a for profit corporation would most likely require dissolving the CFC and handing over all of the money in the foundation to charity. At least that is what I read as the requirements of the old act and the bylaws establishing the CFC. This is really not an option aside from the tongue in cheek.

[Vladimir Drkulec]

There is really nothing stopping someone from registering a for profit corporation for chess but not for profit fits better especially if you want to be able to raise money for things like the Olympiads. The long term goal has to be to find a format that fits with the various successful sports organizations whose success we would like to emulate.