Maybe you’ve always dreamed of setting up a not-for-profit corporation, or you have your eye on new business goals for the New Year. Either way, setting up not-for-profit corporations in Ontario can be a challenging yet rewarding task – and it’s critical to take the right steps from the get-go to ensure your corporation runs smoothly.
In this blog post, we’ll provide a brief overview of the key considerations when setting up a not-for-profit corporation in Ontario.
What is a Not-for-profit Corporation?
Not-for-profit corporations are businesses that provide specific products or services to the community. A key feature of not-for-profit corporations is just that – they aren’t designed to profit from their business. Instead, any “profit” made by not-for-profit corporations in Ontario is reinvested into the company to cover operating fees or support the business’s goals.
Some examples of not-for-profit corporations include:
- Athletic organizations
- Service clubs (e.g., Rotary)
- Social clubs
When to Create a Not-for-profit Corporation
Anyone can start a not-for-profit corporation in Ontario. If you intend to start a business that focuses exclusively on a charitable or social cause – whether for society as a whole or a particular subset – then setting up a not-for-profit corporation may be right for you.
Note that, under Ontario’s Not-for-Profit Corporations Act, 2010, S.O. 2010, c. 15, a not-for-profit corporation must:
- Be dedicated to purposes other than pursuing a profit
- Not issue share capital (i.e., you cannot issue ownership shares)
- Not distribute profits to members, directors, or officers
- Use profit exclusively for not-for-profit purposes
Difference between a Not-for-profit Corporation and a Charitable Corporation
While we often associate the term “not-for-profit” with charities, different rules apply between not-for-profit corporations and charitable corporations. Therefore, it’s important to determine early on whether you’ll be operating a not-for-profit corporation or a charitable corporation.
Below are some of the key differences:
- Purpose: while not-for-profit corporations in Ontario can operate for a variety of purposes, like social welfare or recreation, a charity must operate exclusively for “charitable purposes” (e.g., relief of poverty, advancement of education, or other charitable purposes).
- Tax Status: charities are exempt from paying tax, whereas non-profits may be required to pay income tax on profit paid to or used for the personal benefit of members and owners. However, note that charities must apply for charitable status with Canada Revenue Agency to become tax-exempt.
- Tax Receipts: charities can issue donation receipts for tax purposes.
- Charging Tax: many services provided by charitable corporations are exempt from GST and HST.
Also, charitable corporations cannot later change to non-charitable not-for-profit organizations.
Steps for Setting up Not-for-profit Corporations in Ontario
Below, we’ve outlined some of the many considerations for individuals who intend to create not-for-profit corporations in Ontario. Be sure to consult with a business law lawyer to discuss whether a not-for-profit corporation is right for you and to ensure you are taking the right steps when setting up your corporation.
Incorporating Not-for-profit Corporations
Incorporating not-for-profit corporations is not required in Ontario. However, there are many benefits to incorporating not-for-profit corporations.
Perhaps the most common reason for incorporating any business is liability. Incorporation turns a business into a separate legal entity, meaning that the directors and officers will be personally protected in the event of a lawsuit and not personally responsible for the debts and obligations of the corporation.
Another common reason for incorporating a not-for-profit corporation is longevity – through incorporation, your business carries on even if membership changes or you pass away, meaning others can continue your important work if the business structure changes or the unexpected happens.
In Ontario, incorporations are processed by the Ontario Business Registry. To incorporate not-for-profit corporations in Ontario, you will need to take the following steps before filing your incorporation application:
- Determine whether your not-for-profit corporation will have a charitable purpose
- Select a name for the not-for-profit corporation
- Create and file the not-for-profit corporation’s Articles of Incorporation
Articles of Incorporation for Not-for-profit Corporations
Not-for-profit corporations in Ontario must develop their “Articles of Incorporation” before incorporating. This document will include the name, purpose, and contact details for your not-for-profit corporation, along with the names and contact information of your directors.
Note that, before October 19, 2021 (when Ontario’s Not-for-Profit Corporations Act, 2010, S.O. 2010, c. 15 came into force), a not-for-profit corporation’s articles of incorporation were referred to as “letters patent.” The letters patent of not-for-profit corporations in Ontario that incorporated before this date automatically became articles of incorporation in most cases.
Bylaws of Not-for-profit Corporations
While you will not need to file your bylaws in your incorporation application, these rules are critical for fledgling not-for-profit corporations. Bylaws set out the rights and responsibilities of members, directors, and officers and the procedures for decision-making.
Applying for Charitable Status with the CRA
If you are setting up a charitable corporation, you will need to apply for charitable status under the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.).
The required documentation for your charitable status application can vary depending on the activities you are performing. Generally, however, you will be required to provide your incorporation application, certificate of incorporation, and bylaws, among other documents. For more information, consult Canada Revenue Agency’s Create an application document checklist.
Obligations of Not-for-profit Corporations
Once you’ve set up your Ontario not-for-profit corporation, you will still need to ensure you are meeting the ongoing obligations outlined in Ontario’s Not-for-Profit Corporations Act, 2010, S.O. 2010, c. 15 and (where applicable) your bylaws.
For example, incorporated not-for-profit corporations must hold an annual meeting of members and are subject to record-keeping requirements under the Not-for-Profit Corporations Act 2010. You will also need to consider special tax filing requirements for not-for-profit corporations. For more information on your obligations, consult Ontario’s Guide to the Not-for-Profit Corporations Act, 2010.
Final Notes on Not-for-profit Corporations in Ontario
Incorporating and running a not-for-profit or charitable corporation in Ontario is no easy feat. The requirements and obligations for your corporation can vary depending on the purpose and structure of your business.
This post intends to introduce readers to some basic considerations you’ll encounter when setting up a not-for-profit corporation. However, at every stage, consulting with an experienced business law lawyer is key for ensuring that you have structured your corporation effectively and understand what is expected of you.
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