Can nonprofits split up their board elections and financial statements?
Disclaimer: The following is general legal information not legal advice recommending any specific course of action or options for your organization.
Recently, I have been getting some version of the following question:
“Typically we hold board elections right around the end of our fiscal year, but cannot present our audited financial statements until months later. Are we allowed to have two AGMs so we can do both at separate times while still complying with Ontario’s/Canada Not-for-Profit Corporations Act (ONCA/CNCA)?”
The short answer is that there are ways to do it, but because both the ONCA and CNCA are designed so that nonprofits have their elections and present their financial statements at the same meeting, deviating from this leads to unintended consequences.
What’s the problem with holding elections and presenting financial statements at different meetings?
Both the ONCA and CNCA say that the board “shall” present financial statements and the members “shall” elect directors “at every annual meeting” (ONCA s.24(1) and 84(1), CNCA s.128(3) and 172(1)). At first glance, therefore, you cannot split these things up because:
- if you’re having an annual meeting, you typically have to do both (if a director is coming up for election that year), and
- if you’re doing either, you typically have to do it at an annual meeting.
Three imperfect work-arounds
Below are three examples of ways to hold an election and present financial statements at two meetings. None have been tested in court to my knowledge and all have shortcomings.
One: Adjourning and continuing one annual meeting
Nonprofits can adjourn a members’ meeting and continue that meeting at another time and place (or virtually or hybrid unless the bylaws disallow this) by announcing it to the members gathered at the AGM (ONCA s.55(5) CNCA s.162(7)). If this adjournment lasts longer than 30 days, notice would need to be sent to all members as was done for the first meeting.
Unless it’s prohibited by the meeting procedures adopted in bylaws, there’s no reason why a nonprofit could not go into a meeting planning to adjourn before the full agenda is completed. So, both the election and the financial statements could be on the agenda and owing to the unavailability of the financial statements, the meeting could be adjourned.
The catch: Boards are obligated to provide financial statements at least five days prior to a members’ meeting. With this approach, that obligation could not be satisfied (which is precisely what necessitates the adjournment).
Two: Defining the term of director as ending before an annual meeting
Nonprofits may define the term of their directors as expiring on any date up to the fourth annual meeting (ONCA s.24(1) CNCA s.128(3)). Consequently, terms may expire earlier and though incumbent directors remain in office until their successors are elected, the bylaws could provide for a special meeting around the time that terms expire. This is possible because both ONCA and CNCA only require an election of director to take place if one is “required”. If a full slate of directors is elected earlier, then no election is required. The AGM would then officially happen at the time the financial statements are presented.
The catch: If the members fail to present a full slate of directors at the special members’ meeting, an election could indeed be argued to be “required” at the following AGM. Five per cent of the voting members could take this opportunity to surprise the board by nominating candidates either from the floor or in advance at a time when the board may not have a slate of its own recommendations ready (ONCA s.56(5) CNCA s.163(5)).
Three: Removing and replacing directors
Members may, at a special members’ meeting, remove and replace directors. The board would, in each case, need to send out notice explaining that the members are voting on removing the directors and replacing them.
The catch: It is obviously a bit awkward and confusing to regularly ask the membership to remove the board. Furthermore, any directors not removed would be entitled to serve out the remainder of their term, however that is defined in the bylaws. For the cleanest re-election, therefore, all directors would have to be removed, even those intending to run for another term.
Nonprofits may need to seek legal advice
There may be other work-arounds. In all of the above cases, it may be useful to seek legal advice.
The above awkward work-arounds illustrate two points. Firstly, it is possible to do things differently, but whenever your governance departs from the expectations of the authors of the ONCA and CNCA, it leads to complications. Secondly, sometimes the simplest solution is for the law to change.
If you are facing other situations you feel are complex but apply to many organizations, please reach out to me at benjamin@theonn.ca.
