Entrepreneurial activities binding policy directive for colleges of applied arts and technology

Overview

The Ontario Colleges of Applied Arts and Technology Act 2002 authorizes colleges to undertake a range of education and training-related activities in carrying out their mandate to offer career-oriented, postsecondary education and training.

This Minister’s Binding Policy Directive is issued pursuant to the authority in the Ontario Colleges of Applied Arts and Technology Act 2002, which gives the Minister of Colleges and Universities (formerly Training Colleges and Universities) the authority to issue binding policy directives in relation to the manner in which colleges carry out their objects or conduct their affairs.

Purpose and application

This binding policy directive, which applies to all colleges and their subsidiary corporations, including foundations, outlines the types of entrepreneurial and commercial activities that colleges may undertake. It establishes the conditions under which the activities may occur including the necessary reporting requirements and the need for ministerial approval in certain cases. The Corporations Act also provides authority for colleges and may provide direction on activities not directly referenced in this directive.

Principles

Colleges are expected to be flexible, entrepreneurial, responsive, and market driven to better meet the needs of students, employers, and communities. Partnership activities with business, industry, and professional associations will promote college programming more closely aligned to the needs of the workplace and more relevant for students. In engaging in commercial activities, colleges must not, either by virtue of their access to public funds or by virtue of their not-for-profit status, compete unfairly with the private sector.

Glossary

Foundation:

a non-profit corporation established under provincial or federal law to raise funds or property for scholarships or bursaries, or for the benefit of the college.

Subsidiary memorandum of agreement (MOA):

an agreement authorized by the college board of governors and the board of directors of the subsidiary, signed by their respective authorized signing authorities, that sets out the relationship between the college and the subsidiary. For a sample MOA, contact colleges.unit@ontario.ca.

Subsidiary:

a corporate body, either partially or wholly owned, incorporated at the direction of the college, or effectively controlled by the college, but not including a corporate student government or a corporate body incorporated at the direction of, or effectively controlled by, a student government. Subsidiaries may be incorporated federally or provincially, depending on the requirements of the college. The mandate of a subsidiary may not be greater than or in conflict with that of the college. Examples include for profit, non-profit (either of these being share issuing or non-share issuing) and foundations.

Binding policy directive

1. Colleges undertaking entrepreneurial activities are to do so in a manner consistent with their education and training mandate.
2. In pursuing entrepreneurial activities, the core businesses, as defined by the college, and assets of the college are to be protected and public funds utilized only to support grant-eligible activities.
3. Colleges will charge a minimum of fair market value when providing commercial services to the general public, including, but not limited to, services such as childcare, automotive repairs, and hospitality and restaurant operations.
4. When considering the operation of entrepreneurial activities that may bring the college in competition with the private sector, appropriate consideration must be given to the need for consultation with the community and issues management and communications strategies that will maintain the community’s cooperation.
5. Processes associated with entrepreneurial and commercial activities such as tendering and purchasing are to be open and transparent.
6. The college’s status, as a tax-exempt and not-for-profit corporation, must be maintained and protected.
7. Funds earned from entrepreneurial activities are to be returned to the college to support its core businesses within the education and training mandate.
8. A college board of governors may approve the creation of a wholly owned subsidiary corporation, including a college foundation, if it falls within the following parameters:
   1. The activities of the wholly owned subsidiary corporation are consistent with the education and training mandate of colleges and contribute to the significant achievement of the strategic directions that a college has established.
   2. The mandate of a subsidiary corporation does not exceed or conflict with that of the college.
   3. The core businesses of the college and public funding are protected through appropriate limitations on the college’s liability for the subsidiary’s business endeavours (that is, the college will not guarantee the subsidiary’s debts and will not be liable for the underwriting of the subsidiary’s business endeavours).
   4. The risks associated with the establishment and operations of the subsidiary have been identified and the appropriate risk management strategies have been identified or pursued. The college’s status as a tax-exempt and not-for-profit corporation is to be maintained.
   5. An MOA between the college and the subsidiary corporation will allow the board of governors to retain ultimate control over the subsidiary corporation with appropriate accountability mechanisms in place to allow the college the necessary oversight functions. For a sample MOA, contact colleges.unit@ontario.ca.
   6. The subsidiary operates consistent with the legislative, regulatory, and policy framework of colleges, including the Financial Administration Act.
   7. The college has confirmation from the designated official of the ministry that the proposed subsidiary falls within these parameters prior to being approved by the board of governors. Colleges may present the business case that would go forward to the board of governors to the designated official of the ministry for review as the means of obtaining the necessary confirmation. See Subsidiary Corporations for details on the information required and how to proceed.
9. Colleges may establish subsidiaries, including partially owned subsidiaries, outside the parameters identified in item 7 Section H only with the prior written approval of the Minister of Colleges and Universities. See Subsidiary Corporations for details on the information required and how to proceed.
10. The subsidiary, referenced in Section H, may have interests in various businesses and non-profit or profit projects and enter into cost-and revenue-sharing arrangements.
11. Entrepreneurial activities, such as partnerships, subsidiaries, activities outside the province of Ontario, and ownership of other businesses, are to be included in the college’s business plan and annual report.
12. The following types of entrepreneurial activities are considered to be consistent with the education and training mandate of the colleges and include, but are not limited to:
    • Ancillary Services: Colleges may offer ancillary services for the primary use of students and faculty that support education and training activities such as parking lots, bookstores, and cafeterias; colleges may also rent out unused space or performance venues. Services may be delivered through contracts with third parties.
    • Commercial Services: Colleges may offer commercial services related to their training and education mandate. Learning enterprises such as childcare, photography, dental clinics, and printing may be offered to the general public at a fair market price and may return a profit to the college.
13. Colleges do not require ministerial approval to engage in education and training activities through partnerships, strategic alliances, and contractual agreements with a wide variety of partners. These arrangements may be either a formal legal relationship between two or more partners contractually associated as joint principals or a less formal relationship involving close cooperation between parties having specified joint rights and responsibilities. It is the responsibility of a college to seek appropriate professional advice (for example, tax, accounting, and legal advice) in structuring these activities.
14. Colleges may operate outside the province of Ontario consistent with the education and training mandate of the Ontario college system.
    
    It is the responsibility of the board of governors to obtain appropriate legal or other professional advice. Where a college chooses to use a subsidiary corporation for such activities, the directive for a subsidiary corporation applies.
     
15. As a corporation without share capital under the Corporations Act, colleges cannot issue shares. While colleges themselves are restricted by law from issuing shares, subsidiaries incorporated under the Corporations Act may be share issuing or non-share issuing, in accordance with the provisions of that Act.
16. Colleges or their subsidiaries may issue debt securities such as, but not limited to, notes, bonds, debentures, and other evidences of indebtedness consistent with Section 3 (1) of the Financial Administration Act. Such offerings should not jeopardize core activities of the college or divert public funds. All such transactions should be reported in the college's business plan and annual report.
17. Colleges may acquire an interest, or outright ownership, of an organization in an education- or training-related field. A board of governors is to give serious consideration to how such activity will contribute to achievement of the college’s long-term strategic goals. Such operations should not jeopardize core activities of the college or divert public funds. All such transactions should be reported in the college's annual report.
    
    Colleges may own a portion of a company that is listed or intends to apply for listing on a stock exchange.

Subsidiary corporations

Colleges are required to obtain confirmation from the Ministry Colleges and Universities (MCU) that a proposed subsidiary is within the parameters identified for approval only by the college board of governors.

The following information is to be e-mailed to the designated ministry official at Colleges.Unit@ontario.ca to obtain that confirmation. To avoid duplication of effort, a college may submit to the ministry the business case that would be forwarded to the board for approval. However, the minimum information to be submitted includes the following six parameters:

Parameter 1

The activities of the subsidiary corporation must be consistent with the education and training mandate of colleges and contribute to the significant achievement of the strategic directions that a college has established:

• Describe how the subsidiary addresses the college’s strategic plan and how its operation will contribute to and is critical to the achievement of the long- term goals and objectives established by the board of directors.
• Describe how the sphere of operation of the subsidiary will address the needs of the communities the college serves.

Parameter 2

The mandate of a subsidiary corporation must not exceed or conflict with that of the college:

• Identify the mandate of the subsidiary and how the mandate is consistent with the overall mandate of colleges and the specific mandate of the individual college.
• Identify the specific activities of the subsidiary and the related role for the college.

Parameter 3

The core businesses of the college and public funding must be protected through appropriate limitations on the college’s liability for the subsidiary’s business endeavours:

• Identify the alternatives, other than a subsidiary, that were considered and why a subsidiary corporation is necessary and is the best alternative for the college.
• Explain how the subsidiary, as a separate legal entity, would protect the college’s interest and limit its liability.
• Identify the resource commitments from the college and potential liabilities for the college in establishing and operating the subsidiary. Describe the plan for addressing these liabilities and recovering resources and how the core businesses and public funding will be protected.

Parameter 4

The risks associated with the establishment and operations of the subsidiary have been identified and the appropriate risk management strategies have been identified or pursued. The college’s status as a tax-exempt corporation must be maintained:

• Articles of incorporation or letters patent and an MOA must contain proper safeguards and establish that neither MCU nor the college will guarantee the subsidiary’s debts unrestrictedly and are not liable for the underwriting of the subsidiary’s business endeavours. The college will provide the draft documents in this submission and follow up by providing the ministry with the final documents as they become available.

A complete risk analysis and risk management strategy should be provided. As part of this analysis, the following financial tables should be included:

• Outline investment requirements, risks, probable profits, timing, etc. (demonstrate subsidiary will be self-sufficient and making a profit within a reasonable time frame); display data in the table format shown and described in Table 1
• Itemize actual commitments from any partners (both dollar amounts and other commitments); indicate amounts and all sources of start-up and ongoing funding, including in-kind contribution (for example, equipment, personnel, accommodation/space, software, etc.)
• Provide a table outlining past years' (if the enterprise is already in operation) and future multi-year annual projections of expenditures itemized by type, revenues by source, and net profits or losses (include any start-up funds advanced by the college and other sources, itemized on an annual basis.)
• Where a subsidiary is proposed to offer shares, provide details related to the share offer and how it will be operated.

Table 1. Sample showing format for the college subsidiary financial projections

Each table cell shows a zero as a placeholder for the actual values a college will enter.
Add rows for each applicable year and the corresponding values.

Year	Source of income: College current or future activities	Source of income: Loan from college	Source of income: Total investment	Return	Profit for college
Year 1	0	0	0	0	0
Year 2	0	0	0	0	0
Year 3	0	0	0	0	0

Note: “College current or future activities” include international activities such as: short-term contract training in Canada and overseas, English language instruction, sale of courses/education materials, etc.

Parameter 5

An MOA between the college and the subsidiary corporation will allow the board of governors to retain ultimate control over the subsidiary corporation with appropriate accountability mechanisms in place to allow the college the necessary oversight functions.

Enclose a copy of the draft MOA that will be signed between the college and the subsidiary. Where an MOA is utilized, the following content must be included:

• The subsidiary’s board of directors is subject to the approval by the college board of governors.
• The subsidiary is to submit an annual budget for the approval of the college board of governors.
• The subsidiary is to submit, at mutually agreed dates, status reports and an annual report to the college, including annual financial statements audited by the college’s external auditor.

Parameter 6

The subsidiary must operate consistent with the legislative, regulatory, and policy framework of colleges, including the Financial Administration Act.

Submission of request for confirmation

This material is submitted to the designated official in the Ministry of Colleges and Universities. Colleges should anticipate that a response would take at least a month.

Seeking approval of the minister

A college may seek the minister’s approval for a subsidiary corporation that is outside the above parameters. The same information should be provided outlining why the above parameters cannot be met or are not applicable in the situation the college is proposing.

A letter addressed to the Minister of Colleges and Universities from the chair of the board of governors of the college should accompany the information, along with a copy of the motion passed by the board of governors to approve the proposed subsidiary corporation. As this is a more complex situation and the approval of the minister is required, colleges should anticipate a minimum of three months for a response.

Summary of responsibilities

Colleges of Applied Arts and Technology

The college is responsible for:

• Ensuring that the college mandate of education and training is achieved and that all activities in which the college engages are consistent with the mandate and strategic goals of the college.
• Entering into agreements or contracts consistent with its authority under the Ontario Colleges of Applied Arts and Technology Act, 2002 and the Corporations Act and with all other applicable legislation and government policy.
• Obtaining professional advice before deciding on the most reasonable, efficient, and cost-effective form of conducting its entrepreneurial and commercial activities.
• Ensuring that risks associated with entrepreneurial and commercial activities have been identified and that appropriate strategies are in place to manage risks so that core businesses of the college and public funds are protected.
• Ensuring that appropriate consultation and communication strategies are in place to maintain the co-operation of the community.
• Communicating with the ministry regarding the establishment of entrepreneurial and commercial activities.

Ministry of Colleges and Universities

The ministry is responsible for:

• Establishing clear expectations for colleges regarding parameters for entrepreneurial and commercial activities that do not unduly hinder the colleges in finding alternative resources to support their education and training mandate.
• Responding in a timely manner to a college in the establishment of subsidiary corporations or other inquiries with respect to entrepreneurial or commercial activities.