What happens if the whole board resigns?
November 10, 2011 10:12 AM Subscribe
Asking for a friend: What happens to a charity (in Canada) if the entire board resigns on mass? Who is legally responsible for the organization until replacements are found? Does the CRA revoke their charitable license?
A friend is part of a charitable organization in which most of the board has already resigned due to issues with the Executive Director, who makes questionable decisions and refuses to take responsibility for the outcomes. She has also been forced to admit that the ED (the only staff and the founder) essentially IS the organization. Given that the status quo is just not an option, she and her remaining colleagues have decided that they basically have three choices in moving forward:
1.) Fire the ED knowing the organization will collapse - they don't have adequate resources at this point to save it should they make that decision.
2) Voluntarily give up the organization's charitable status and walk away, leaving the ED to sort out the future as a non-charity. They know that this will be a time consuming process if done properly, but are considering it.
3) Resign en mass, leaving the charity as a charity, and let the ED figure out their own mess.
They are currently leaning towards the third option, but need to know whether they will remain legally liable until replacements are found, and how they would properly go about this knowing that they will need to notify the CRA themselves. If it will result in an automatic revocation of their charitable status, they might be more likely to consider option 2.
I know this is a pretty specific question, that yes, it never should have gotten this bad in the first place, and that YANML. American examples are also welcome, but it's the Canadian legal implications that she is most interested in.
A friend is part of a charitable organization in which most of the board has already resigned due to issues with the Executive Director, who makes questionable decisions and refuses to take responsibility for the outcomes. She has also been forced to admit that the ED (the only staff and the founder) essentially IS the organization. Given that the status quo is just not an option, she and her remaining colleagues have decided that they basically have three choices in moving forward:
1.) Fire the ED knowing the organization will collapse - they don't have adequate resources at this point to save it should they make that decision.
2) Voluntarily give up the organization's charitable status and walk away, leaving the ED to sort out the future as a non-charity. They know that this will be a time consuming process if done properly, but are considering it.
3) Resign en mass, leaving the charity as a charity, and let the ED figure out their own mess.
They are currently leaning towards the third option, but need to know whether they will remain legally liable until replacements are found, and how they would properly go about this knowing that they will need to notify the CRA themselves. If it will result in an automatic revocation of their charitable status, they might be more likely to consider option 2.
I know this is a pretty specific question, that yes, it never should have gotten this bad in the first place, and that YANML. American examples are also welcome, but it's the Canadian legal implications that she is most interested in.
Best answer: The first thing your friend should do is get their hands on the society's incorporation documents and bylaws. And next, get their hands on a copy of the societies act for their province (probably at your local library!). Most of these questions can be answered with these documents. The articles of incorporation for the society, in combination with the provincial societies act, will spell out the specific legal liabilities the directors hold.
I can break down some of the issues with each of the three options:
1) If you want to fire someone in this sort of situation, you need a lawyer right away. And get your hands on as much documentation of ED's wrongdoing/negligence as possible. You can bet that the ED will have a lawyer and be suing for wrongful termination. The benefit of option is that the board is empowered to hire/fire without consulting the membership-at-large.
2) In Canada, surrendering charitable status requires a vote of the membership at large, in accordance w/ whatever the society's bylaws require about quorum, attendance, etc etc. Does the membership fall more on your side, or the ED's side? Societies are required to provide for a process of dissolution in their articles of incorporation. Unlike in the US, the board acting on its own is NOT empowered to dissolve a society. If you want to go this route, call an emergency general meeting of members would be the very first step, before even proceeding with filing any paperwork.
3) The best way to do #3 is to convene an emergency general meeting of members and resign at that meeting, requesting that an interim board be immediately voted in. I have actually seen this happen and it worked out fine. I haven't read any information on what happens if a board resigns with no provision for replacement, and there is no general meeting called... that might be covered explicitly under the societies act, but possibly not. In which case, obviously ask a lawyer with nonprofit experience. They might be able to tell you with just a quick free phone call.
Overall your best option is to just convene the members ASAP and leave it up to them. Give them the option of #2 and #3. I would say #1 would be the messiest of these 3 options, given that you are also bringing in employment law, and then the membership might end up convening an emergency meeting and voting out the whole board anyway.
If you do happen to be in BC, here is a guide (PDF).
posted by 100kb at 11:47 AM on November 10, 2011
I can break down some of the issues with each of the three options:
1) If you want to fire someone in this sort of situation, you need a lawyer right away. And get your hands on as much documentation of ED's wrongdoing/negligence as possible. You can bet that the ED will have a lawyer and be suing for wrongful termination. The benefit of option is that the board is empowered to hire/fire without consulting the membership-at-large.
2) In Canada, surrendering charitable status requires a vote of the membership at large, in accordance w/ whatever the society's bylaws require about quorum, attendance, etc etc. Does the membership fall more on your side, or the ED's side? Societies are required to provide for a process of dissolution in their articles of incorporation. Unlike in the US, the board acting on its own is NOT empowered to dissolve a society. If you want to go this route, call an emergency general meeting of members would be the very first step, before even proceeding with filing any paperwork.
3) The best way to do #3 is to convene an emergency general meeting of members and resign at that meeting, requesting that an interim board be immediately voted in. I have actually seen this happen and it worked out fine. I haven't read any information on what happens if a board resigns with no provision for replacement, and there is no general meeting called... that might be covered explicitly under the societies act, but possibly not. In which case, obviously ask a lawyer with nonprofit experience. They might be able to tell you with just a quick free phone call.
Overall your best option is to just convene the members ASAP and leave it up to them. Give them the option of #2 and #3. I would say #1 would be the messiest of these 3 options, given that you are also bringing in employment law, and then the membership might end up convening an emergency meeting and voting out the whole board anyway.
If you do happen to be in BC, here is a guide (PDF).
posted by 100kb at 11:47 AM on November 10, 2011
Oh, also I realized I didn't answer this part:
What happens to a charity (in Canada) if the entire board resigns on mass... Does the CRA revoke their charitable license?
The CRA won't revoke a charitable license until the society doesn't file for 2 successive years, and even then they will give multiple warnings/chances to file.
If the board resigns en masse outside of an emergency general meeting, ED *might* be empowered to name interim directors until a general meeting can be convened. Check your bylaws.
posted by 100kb at 12:05 PM on November 10, 2011
What happens to a charity (in Canada) if the entire board resigns on mass... Does the CRA revoke their charitable license?
The CRA won't revoke a charitable license until the society doesn't file for 2 successive years, and even then they will give multiple warnings/chances to file.
If the board resigns en masse outside of an emergency general meeting, ED *might* be empowered to name interim directors until a general meeting can be convened. Check your bylaws.
posted by 100kb at 12:05 PM on November 10, 2011
Response by poster: Thanks for the help - to be clear, the organization provides programming for a very specific community, but the participants are in no way dependent on them (they don't involve food or shelter).
I'll check if there are members - I don't think so, but I'm not actually sure.
posted by scrute at 5:02 PM on November 10, 2011
I'll check if there are members - I don't think so, but I'm not actually sure.
posted by scrute at 5:02 PM on November 10, 2011
Just two quick things to add to 100kb's excellent responses.
First:
To save your friend the trip to the library, each province's relevant incorporations statutes should also be freely available online. Just scroll down this page to find the name of the particular province's act (e.g., in Ontario it's the "Corporations Act"), and then use the contact links here - or just Google "[province] [act name]" - to find a copy of the act itself.
And second:
If the organization happens to be in Alberta, I highly recommend the Alberta Board Development Program, a government-run service that offers no-cost consultations and several other resources which exist to help with exactly this sort of thing.
Best wishes to everyone involved!
posted by arm's-length at 9:25 PM on November 10, 2011
First:
To save your friend the trip to the library, each province's relevant incorporations statutes should also be freely available online. Just scroll down this page to find the name of the particular province's act (e.g., in Ontario it's the "Corporations Act"), and then use the contact links here - or just Google "[province] [act name]" - to find a copy of the act itself.
And second:
If the organization happens to be in Alberta, I highly recommend the Alberta Board Development Program, a government-run service that offers no-cost consultations and several other resources which exist to help with exactly this sort of thing.
Best wishes to everyone involved!
posted by arm's-length at 9:25 PM on November 10, 2011
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- The Executive Director reports to the board, and the board is in charge or hiring/firing the Executive Director.
- The Board of Directors can decide, with a vote, to disband the organization.
- If the entire Board of Directors resigns, it may take the IRS a bit to catch up, but it basically renders the 501(c)3 status here null and void, because it is legally required for the organization to have at least three board members.
- In that way, the Board IS the charity.
It may be the same in Canada, but I'm not sure.Here are some things to consider:
posted by juniperesque at 11:24 AM on November 10, 2011