The Price of Incorporating is Eternal Vigilance
Adam Aptowitzer, February 21, 2008

A recent case decided by the Ontario Superior Court of Justice should strike fear in the hearts of those who ignore their obligations to update their corporate records. In the case of the Warriors of the Cross Asian Church v. Misih et al the Court found that the only appropriate remedy for a corporation with woefully outdated records in contravention of the legislation was to dissolve the corporation. It is apparent from our experience practicing law in this area that many small (and not so small) charities often spend the time and resources to incorporate but shortly thereafter begin a cycle of routinely ignoring their operational documents until a problem arises. The Superior Court of Justice makes it clear that those ignoring corporate records until there is a crisis are playing with fire.    In the Warriors case, Letters Patent were issued to the Corporation under the Ontario Corporations Act on April 3, 1981. From that time until August 2006 elections took place within the Corporation but it is unclear that they took place in accordance with the corporate bylaws. It is clear though that the requisite annual forms were not filed with the appropriate government ministry.     Thus, when a problem arose between the (ostensible) members in 2006 two different factions arose. The first faction said that the members of the corporation were those who had, from time to time, been considered members of the Church regardless of whether their admission as members of the Corporation took place according to the bylaws. The second group insisted that the only true members of the corporation were those who were the original members of the corporation because no steps had been taken since incorporation to properly admit new members.     The Court's decision makes it clear that a non-share capital corporation is not held to the same exacting standards of share capital corporations in terms of the technical requirements of corporate procedure. So long as the basis processes followed are fair. The case law also suggests that courts should refrain from interfering in the workings of non-share capital corporations where they can. But of course, this is not always the case.     In Warriors, the Court decided that individuals who were not properly admitted as members are not legally members no matter how involved in the Corporation. However to return control of the corporation to the original (legal) members, most of whom had not been involved since the time of incorporation was an unfair result (especially considering two of them could not be found). Thus, the court had little choice but to dissolve the corporation for lack of a membership and validly elected directors.     As a lawyer practicing in this area it is clear to me that there are many organizations which call individuals who support their organization 'members'. However, members of a corporation are only those who are admitted as members according to the governing law and by-laws of the corporation. For those organizations which are moving along happily this will rarely become an issue, but it is not difficult to imagine scenarios which require that a court be involved and it is truly a shame to see organizations dissolved for simple lack of vigilance in maintaining their corporate records.     If your organization requires help in updating their corporate records please feel free to contact the author.