Maclaren Corlett (Lawyers Est. 1873)

A question so many non-profit organization directors often ask is – what are my rights as a director.  This two-part piece will answer that question for those who are directors of non-profit organizations incorporated (or continued) under the Canada Not-for-profit Corporations Act (“the Act” or “Canada NFP Act”).

As mentioned in “Part 1”, a director of a federal not-for-profit corporation has the right to vote at meetings of the board of directors. This is a fundamental right of a director. This fundamental right does however have a significant limitation:  a director is prohibited from voting on a resolution to approve a contract or transaction that comes before the board if the contract or transaction is a material one and the director:

• is a party to the contract or transaction; or
• is a director or officer, or holds a similar capacity, with a party to the contract or transaction; or
• has a material interest in a party to the contract or transaction.

There are also disclosure obligations in relation to circumstances of this nature that arise that a director must follow as well as refraining from voting. A director who finds himself or herself in this situation is said to be in a conflict of interest. Directors are cautioned that what I have just described are conflict of interest situations prescribed by the Act restricting a director’s right to vote. There may however be broader and more expansive restrictions on a director’s right to vote on account of broader definitions of what are to be treated as conflicts of interest in the corporation’s by-laws and policies such as any Conflict of Interest Policy or Code of Ethics and/or Code of Conduct that may exist.

An important right of a director is to have his or her dissent (i.e., his or her having voted against a given resolution or action step) recorded in the minutes of a director’s meeting. This right of a director is particularly important because the Act states that a director who is present at a directors’ meeting or a committee of directors, is deemed to have consented to any resolution passed or action taken at the meeting unless the director

• requests his or her dissent to be entered in the meeting minutes; or
• sends a written dissent to the secretary of the meeting before the meeting is adjourned; or
• sends by registered mail, or delivers, a dissent to the registered office of the corporation immediately after the meeting is adjourned.

Obviously, the most practical action to take is to require that the dissent be recorded in the minutes. However, the other options are available in a dysfunctional situation where the director’s request to have his or her dissent recorded in the minutes is refused.  This right to have the director’s dissent recorded can, for example, be used where there is disagreement whether the minutes of the previous meeting that have been placed before the board for approval properly reflect what was said or resolved.  If the majority of the board are of the view that the minutes are an accurate reflection of the previous meeting, a director who is in the minority can request that his or her dissent to their approval be recorded in order to avoid being deemed by the Act to have consented to the approval of the minutes.  This action on the part of a director should of course be used with discretion, particularly should any dispute with the minutes, or any other matter before the board for resolution or action, be trivial and of no practical consequence.

It is important also to note on this point that for directors who happen to be absent from a meeting at which a resolution was passed or action was taken, if any such absent director disagrees with the resolution or action taken that the director within seven days of becoming aware of the resolution or action have his or her dissent inserted in the minutes of the meeting or failing that sends his or her dissent by registered mail or delivers it to the corporation’s registered office.  If the absent director does not do this, the director is deemed to have consented to the resolution or action irrespective the fact that the director was not present at the meeting at which the resolution was passed or the action was taken. Again, this is the course that should be followed if it is a matter of some importance or substance and not just something trivial in nature,

There are one or two other rights that should be mentioned. It is the right, so to speak, of a director to be subject to removal from office only by the members of the corporation at a special meeting of members called for that purpose. And, unless the corporation’s by-laws provide otherwise, a director who is the subject of such a removal process has the right to provide a written statement giving the reasons for opposing his or her removal which statement is to be circulated by the corporation to the members.

In conclusion, and reflective of what is said above regarding conflicts of interest, it is extremely important that directors read and familiarize themselves with the corporation’s by-laws, policies, and procedures which may have some impact on the manner of the exercise of any of the above-described rights. In the end, be a good director – know your rights.