Canadian Non Profit Incorporation FAQ
- What is a not-for-profit corporation?
- What is the difference between a not-for-profit corporation and a charity?
- What are Members, Directors and Officers?
- What are the benefits and drawbacks of incorporation?
- How long will it take to incorporate and how much will it cost?
- Should I incorporate my not-for-profit corporation federally or provincially?
- What are the residency requirements to incorporate a not-for-profit corporation in Canada?
- Do I need a lawyer to incorporate?
- Can one person incorporate a not-for-profit organization?
- What is a ”Corporate Minute Book" and do I need one?
- What is a ”Corporate Seal" and do I need one?
- What are the ongoing obligations of a not-for-profit corporation?
- How do I make major changes to my not-for-profit corporation (such as a change of name)?
- How do I close my not-for-profit corporation?
1. What is a not-for-profit corporation?
A not-for-profit corporation is a legal entity that can be created pursuant to federal or provincial law for the purpose of carrying on, without pecuniary gain, objects of a patriotic, charitable, philanthropic, social, religious, professional, sporting or athletic nature. Not-For-Profit corporations may engage in revenue generating activities which produce a profit to fund their activities, however the profit-making activities must be incidental to the principal purposes for which the organization is created, and the profits must be retained by the corporation for use in furthering its objects.
Under the law, a not-for-profit corporation is considered to be a distinct legal entity (legal person), separate from its members, directors and officers. A not-for-profit corporation may own property in its own name, it may acquire rights, obligations and liabilities, it may enter into contracts and agreements, and it has the standing to sue and be sued as a distinct legal entity.
2. What is the difference between a not-for-profit corporation and a charity?
Charities are one type of not-for-profit corporation which are created to carry out objects which are of benefit to society and which the law regards as charitable. The legal definition of charitable activity includes activities in one or more of the following areas: Relief of Poverty, Advancement of Education, Advancement of Religion; and other purposes beneficial to the community which the law regards as charitable (as determined by the courts). Charities are subject to more stringent oversight and reporting requirements than other not-for-profit corporations.
In Canada, charities that solicit funds from the public and who wish to issue tax receipts for such donations must be registered with the Charities Directorate of the Canada Revenue Agency as Charitable Organizations, Public Foundations or Private Foundations ("Registered Charities"). In order to be eligible for registration as a Registered Charity, the not-for-profit corporation must be set up with certain attributes, including a requirement that any remaining assets of the corporation be distributed to other charities or "qualified donees" upon dissolution.
3. What are Members, Directors and Officers?
Members - The members of a not-for-profit corporation are similar to the shareholders in a for-profit business corporation, in that, they elect the board of directors, review and approve the financial statements and, in certain circumstances, can be entitled to receive the remaining assets of the corporation upon dissolution. A major difference between members and shareholders is that the members do not own the corporation, and they cannot receive any distributions of profit (dividends) from the corporation.
Directors - Directors are individuals elected by a not-for-profit corporation's members to supervise the management of the corporation. Directors make all major decisions for the corporation and they assume certain liabilities of the corporation pursuant to statute. Not-for-profit corporations must generally have a minimum of 3 directors (5 directors are required in certain Provinces), and only individuals (physical persons) can be directors. Directors may also be officers and members of the corporation.
Officers - Officers are individuals appointed by the corporation's director(s) to manage the daily affairs of the corporation. Officers commonly assume senior management titles such as President, Vice-President, Treasurer, Secretary, Chief Executive Officer, Chief Financial Officer, etc., and a single officer can hold more than one position. All corporations must have a President and Secretary, however both positions can be held by the same person. Although officer positions are distinct from that of director, officers can also be directors and members.
4. What are the benefits and drawbacks of incorporation?
Incorporation provides the following important benefits:
Limited Liability - The corporation’s greatest advantage is that it allows for limited liability protection for its members. Individual members of a not-for-profit corporation generally cannot be held personally liable (responsible) for the corporation's debts and other obligations.
Corporate Name Protection – Corporate names are unique within the jurisdiction of incorporation. Only one corporation can have a particular name, and no one else is permitted to use the name (or a confusingly similar version of the name) to identify their business or organization. Corporate name protection can help to protect the corporation's brand and image by providing exclusive rights to the name.
Continued Existence - Because a corporation is a separate legal entity, it does not rely on the lives and continued participation of its members, directors or officers for its existence. A corporation will continue to exist even if its members, directors and officers change over time. This provides the organization with more stability and certainty than an unincorporated association, which constantly relies on the continued participation of its members.
Drawbacks to incorporation include additional regulation/record-keeping requirements, and higher costs. Corporations are more highly regulated than unincorporated associations. It is necessary to maintain up to date corporate documentation (including a corporate minute book, by-laws & resolutions) and to file tax/information/annual returns each year. Given the extensive record-keeping and accounting requirements, corporations are also more expensive to establish and maintain than other forms of not-for-profit organizations
5. How long will it take to incorporate and how much will it cost?
Information on timelines and costs for our various not-for-profit incorporation packages can be obtained by completing a Quick Quote.
6. Should I incorporate my not-for-profit corporation federally or provincially?
Please refer to our detailed article entitled Selecting a Jurisdiction of Incorporation.
7. What are the residency requirements to incorporate a not-for-profit corporation in Canada?
Not-For-Profit corporations have no director residency requirements.
8. Do I need a lawyer to incorporate?
It is always advisable to seek legal counsel when considering incorporation; however, it is possible to incorporate without the assistance of a lawyer.
9. Can one person incorporate a not-for-profit organization?
Not-for-profit corporations usually require a minimum of three directors and members. In certain cases a minimum of five directors and members are required. As a result, one person is unable to incorporate a not-for-profit organization.
10. What is a “corporate minute book” and do I need one?
A corporate minute book is a book or binder which holds corporate records, such as the Letters Patent, By-laws, meeting minutes, ledgers and registers. A corporate minute book facilitates the mandatory document retention process and may be purchased from New Business Now.com.
11. What is a “corporate seal” and do I need one?
A corporate seal is a mechanical embossing device that allows you to affix your corporate name to documents. The corporate seal is used to authenticate the validity of documents signed by directors and officers of corporations, and it is used as a fraud prevention tool. A corporate seal may be purchased from New Business Now.com.
12. What are the ongoing obligations of a not-for-profit corporation?
A not-for-profit corporation is required to comply with all federal, provincial and municipal laws in any area where it operates and to exercise due diligence. Annual meetings must be held and officially recorded as required. In certain cases, an Annual Report/Annual Summary must be filed with the government each year in order to keep the corporation active. Finally, any changes that affect the corporation or its operation, such as name changes, address changes, or changes of shareholders, directors or officers, must be appropriately documented and reported to the appropriate government agency.
13. How do I make major changes to my not-for-profit corporation (such as a change of name)?
In order to make major changes to your corporation after you have received the Letters Patent, you must generally file an application for Supplementary Letters Patent.
14. How do I close my not-for-profit corporation?
The proposal to voluntarily close or dissolve a not-for-profit corporation must be voted on at a meeting of the organization's members. If the members approve dissolution as required, the organization's debts must be paid, any remaining assets must be distributed and an application to Surrender the Letters Patent must be filed with the government.
For more detailed information on these, and related topics, please click on the links below:
- 10 Steps to Creating a Corporation
- How to Create a Great Business Name
- What is a Name Search and When Do I Need One?
- How to Select the Best Structure for Your Business
- Selecting a Jurisdiction of Incorporation
- Options for Foreign Corporations Wishing to Do Business in Canada
The information presented in the document above is provided for reference purposes only and is
not intended to be a substitute for the appropriate legal advice of a competent, professional lawyer.
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