Municipalities possess a range of powers and responsibilities under the Municipal Act, 2001, S.O. 2001, c. 25 (the “Municipal Act”) including the delivery of various key public services . While some municipal services are able to be provided effectively by municipalities themselves, there are circumstances where the unique corporate and governance structures of municipal corporations can  serve to limit a municipality’s ability to effectively and efficiently meet these responsibilities.

In recognition of this, section 203 of the Municipal Act authorizes municipalities to establish distinct corporations which are commonly referred to as “municipal service corporations” (“MSCs”). This article aims to provide a brief and broad overview of MSCs and their creation.

Municipal Service Corporations

An MSC is a corporation whose shares are owned by a municipality, or a municipality and one or more public-sector entity. Section 203(1) of the Municipal Act enables a municipality to establish a corporation nominate or authorize a person to act as an incorporator, director, officer or member of a corporation, and to exercise any power as a member of a corporation. MSCs may only operate within the boundaries of a municipality with the consent of the municipality.

In general, an MSC can only provide a system, service, or thing that the municipality can provide. However, Regulation 599/06 of the Municipal Act (the “Regulation”) clarifies that an MSC is not permitted to do anything that a municipality or its local boards are required to do under various different acts noted in the regulation. An MSC may be subject to other limitations placed on it by the incorporating municipality. There are also strict rules on the ability of MSCs to hold shares of other MSCs.

MSCs provide many potential advantages when it comes to the delivery of a municipal service. MSCs have separate boards of directors which can include experts in the particular service at issue. This in turn can allow MSCs to make decisions quicker and adapt more quickly to changing needs and shifts in the community.

 Establishment

There are certain requirements that municipalities must follow before establishing an MSC. In order for a municipality to establish an MSC, council must pass a by-law confirming this. Additional requirements to be met are set out in the Regulation. One such key requirement includes the adoption by council of a business case study for the MSC. Municipalities are also required to adopt and maintain policies on asset transfers to corporations before any assets may be transferred to a MSC, and consult with the public about the plan to create the MSC.

 Incorporation

The process of incorporating an MSC in Ontario is guided by much of the same legislation which governs other types of corporations. For example, a for-profit MSC can be incorporated under the Ontario Business Corporations Act, 1990, or the Canada Business Incorporations Act, 1985. Similarly, a non-profit MSC can be incorporated under Ontario’s Not-for-Profit Corporations Act, 2010, or the Canada Not-for-Profit Corporations Act, 2009.

 Conclusion

MSCs  provide an alternative way for municipalities to deliver certain key public services cost-effectively and efficiently. While they can be a valuable tool in this regard, municipalities must be aware of the limitations and requirements attached to the establishment and operation of MSCs. Municipalities seeking to learn more about the benefits and establishment of an MSC are well advised to consult with municipal legal counsel to ensure the proper establishment and operation of the MSC.

Alison Firth and Alex Cockburn