MEMORANDUM

Date : 15 March 2006

To : Arthur Close, Kevin Zakreski, Thomas Telfer

From: Michelle Cumyn

Re: Unincorporated associations – the situation in Québec (preliminary outline)

Context

In Québec, unincorporated associations (also named contractual associations) are governed by the Civil Code. The Civil Code of Québec was entirely redrafted over a period of about 40 years beginning in the 1950es. It was adopted by the Québec legislature in 1991 and came into effect on 1 January 1994. Articles 2267 to 2279 set out the law of the unincorporated association, which is envisaged by the Code as a nominate contract.

Unincorporated associations are not subject to compulsory registration: the Québec Act respecting the legal publicity of sole proprietorships, partnerships and legal persons provides for registration of unincorporated associations on a voluntary basis.

There is currently much dissatisfaction in Québec respecting the law of incorporated associations. A number of incorporated associations are created by private enactments. Others are constituted by virtue of semi-private enactments such as the Act respecting societies for the prevention of cruelty to animals or the Fish and Game Clubs Act. Finally, associations may be incorporated by letters patent under Part III of the Companies Act, providing they are “for objects of a national, patriotic, religious, philanthropic, charitable, scientific, artistic, social, professional, athletic or sporting character, or the like, but without pecuniary gain” (s. 218). By a recent account, there are 1597 laws in force in Québec governing incorporated associations. A project is under way to reform the law in this area. However, a consultation document circulated by the Enterprise Registrar of Québec in 2004 was widely criticised, and the reform process appears to be at a standstill.

It is estimated that there are approximately 50 000 unincorporated associations in Québec. The number of incorporated associations was 46 500 in 2004.

Definition

The Civil Code defines the unincorporated association as a contract “by which the parties agree to pursue a common goal other than the making of pecuniary profits to be shared between the members of the association” (art. 2186). The purpose of this definition is to establish a clear distinction between associations and partnerships, the latter being directing towards the pursuit and sharing of pecuniary profits.

However, associations are not excluded from conducting a profitable enterprise, the purpose of which is to fund activities of the association and not to distribute profits to its members (art. 2274).

Formation

The contract by which an association is established may be written or verbal; the intention to create an association may be inferred from the conduct of its members (art. 2267). The informality of such formation requirements is designed to ensure that the rules set out in the code act effectively as a suppletive legal framework (see Kevin’s memo).

Legal personality

As in the case of declared partnerships, associations are recognised as separate legal entities. However, many commentators are of the view that they are not full legal persons (see art. 298, 299, 2188).

The association may hold property and contract with third parties (art. 2274). It may sue and be sued in its own name (art. 2271). However, the association’s patrimony, comprised of all its assets and liabilities, is not altogether distinct from the patrimony of its members, as will be seen.

Governance

The code sets out a clear and simple structure for the governance of the association, which may be varied by the contract of association itself, insofar as certain basic rights of members are protected (art. 2268, 2269, 2270, 2272, 2273, 2276). The reader should refer to the code, which is fairly self-explanatory, so that its provisions need not be repeated here.

Liability of members for debts of the association

Only de jure and de facto directors may be liable to third parties for debts of the association, and only if they have approved the decision giving rise to such liability. A third party creditor must first satisfy his or her claim against property of the association before turning to property of directors. Furthermore, personal creditors of a director are preferred to creditors of the association (art. 2274).

The liability of directors is several (ie the debt is divided between them) where it is non commercial in origin and it is solidary (ie each director may be held liable for the full amount of the debt) it the debt is commercial in origin (see art. 1525). A member who does not take part in the administration of the association therefore cannot be found liable for the debts of the association (art. 2275).

Ownership of property of the association

Assuming that the association is not a true legal person, who owns its property? Are members co-owners of such property? Might their personal creditors satisfy their claims against their share of the property of the association? The code does not directly answer this question. An answer might be found by analogy with the rules governing partnerships (see art. 2252).

Termination, dissolution and merger

Articles 2277 to 2279 provide for termination and distribution of assets of the association. They do not concern themselves with merger or transformation of the association (for example by incorporation).