Long Term Care Law Newsletter
A Society’s By-Laws: Best practices for keeping by-laws workable
Many long-term care facilities are incorporated as societies or have a society as part of their operations. This newsletter provides an overview of the key documents that a society has to have in place and focuses on by-laws and the best practices for ensuring that the by-laws serve the society well.
Many long-term care facilities are incorporated under the Societies Act (the “Act”) or have a society as part of their operations. Once incorporated, a society has two governing documents. There is the Memorandum of Association which outlines the society’s objectives and sets out the activities in which the society can or cannot engage. Then there are the by-laws, which typically include more specific details about the management of the society, appointment of directors, duties of directors, method of conducting meetings, etc. These documents work hand-in-glove to govern how a society operates.
Things to Consider Including in the By-laws
Many societies draft their by-laws when they incorporate and do not look at them again until an issue arises. However, the by-laws could have become outdated and that can lead to problems. It is important to review the by-laws regularly to ensure that they work well for the organization.
The following are examples of the types of provisions a society should include in a review of its by-laws:
- Methods of Meeting
In today’s world, decisions are often made via email, telephone or some other electronic means, such as Skype. However, many by-laws are outdated and do not include provisions that allow for making decisions through these means. Technically, if the society’s by-laws do not allow for making decisions electronically, those decisions might not be proper; if the decision was ever challenged by a disgruntled director or member, the decision could be invalid. By-laws should be updated to allow for these means of doing business.
- Membership Provisions
By-laws always include provisions about who can be a member of the society and what their rights and responsibilities are. It is important to carefully draft these membership provisions because certain decisions can only be made by members. A society may face issues if its members are not the same people as its directors and officers. For example, a society can only mortgage its real property if the members pass a special resolution authorizing the mortgage. A special resolution means that such decisions require approval by ¾ of the members present at the meeting where the mortgage is discussed. The directors cannot make that decision on their own. This is just one type of decision that can only be made by the members. If the membership definition is not carefully drafted, the organization may have difficulty making such important decisions. To make decision-making more efficient, the by-laws often restrict membership to only the directors of the society.
- Borrowing Powers
The Act requires that a mortgage be approved by a special resolution of the members. The by-laws cannot change this requirement. However, it may be easier if the directors or officers, and not the members, have the power to make other types of financial decisions. For example, the board of directors may want the power to borrow money (other than a mortgage) or sign agreements of purchase and sale on behalf of the society. If the board wants to make these decisions on their own, without consulting the members, this power must be included in the by-laws.
- Terms of Appointment for Board Members
Outdated by-laws may not include provisions for how long a director or officer can serve on the board. Societies benefit from periodic infusions of “new blood” to prevent the board from being resistant to change and to encourage innovation. Provisions restricting how long a board member can act helps achieve this goal.
- Emergency Meetings
Typically, by-laws outline a specific notice period that must be given before any meeting of the directors or members is held. However, some decisions are more urgent and must be dealt with more quickly than the notice period allows. Therefore, the by-laws should also include a provision authorizing a director, officer, or member to call an emergency meeting. This reduces the normal notice period for meetings and means that the society can make urgent decisions efficiently.
- Directors’ and officers’ liability
In certain circumstances, a director or officer of a society may be held personally liable for the decisions they make on behalf of the society. In Nova Scotia, the Volunteer Protection Act, S.N.S. 2002, c.14 provides some protection against personal liability for unpaid directors and officers, although there are exceptions in that legislation. However, by-laws can include an indemnification provision which adds additional protection so that the society would agree to pay out certain personal claims brought against the director or officer for their decisions on the board. The indemnification provision can carve out general exceptions to this (i.e. the director or officer could still be personally liable for their own illegal or willfully negligent behavior). Including an indemnification provision may help attract and secure high-quality directors and officers who are otherwise concerned about personal liability.
Changing the By-laws
In order to change the society’s by-laws, the Act requires that the revised by-laws be approved by ¾ of the members present at the meeting that the changes are proposed. Once approved by the members, the changes are not effective until the Registrar of Joint Stock Companies approves the revised by-laws. Please note that the by-laws may contain other provisions regarding the notice period that must be given for the meeting and other processes that must be followed in order to change the society’s by-laws.
By-laws should help organizations run smoothly. However, by-laws are often outdated, inflexible and do not take into consideration the unique challenges a particular organization faces. Therefore, societies should review their by-laws every few years to ensure that they are kept up-to-date and are consistent with how the society operates. Wickwire Holm can certainly assist with this process and recommend changes to ensure that the by-laws meet a society’s specific needs.
This newsletter is produced by Wickwire Holm to keep our clients and friends informed of developments in the law and emerging issues. It is intended for general information purposes only. In preparing and circulating this newsletter, Wickwire Holm is not providing legal or other professional advice. Readers are encouraged to consult their professional advisers before taking any action on the basis of information contained in this newsletter. If you have any questions about any issues raised within this newsletter or a related issue, please contact us at firstname.lastname@example.org or 902.429.4111.