Charities & Non-Profits
We assist clients to set up, maintain and sometimes dissolve charities and not-for-profit organizations and assist them to avoid personal liability of their organizers and advise on other Ontario, Canadian, and International laws where applicable. Please feel free to review the introductory and detailed information set out below and on the following pages andfor an assessment of the needs of your organization or proposed organization.
Charities and not-for-profit organizations, sometimes referred to as non-governmental organizations (NGOs) are organizations with substantially humanitarian or social non-business purposes. Typically charities and not-for-profit organizations do not have owners or shareholders but have members. These organizations will typically have signing officers (as is the case with businesses) and usually have directors or trustees (similar to a business).
A charity, according to judge-made common-law, is an organization set up for one (1) of four (4) purposes:
1. The advancement of religion;
2. The advancement of education;
3. The relief of poverty; and/or
4. Other objects beneficial to the community.
A not-for-profit or non-profit organization (NFPs) is basically an organization set up for non-business purposes other than the above categories which define a charity. A not-for-profit organization may be set up for a broad range of purposes, some examples of which are as follows:
1. Sports groups (i.e. hockey, golf, curling);
2. Athletic and health clubs (non-business);
3. Flying clubs, yacht clubs, snowmobiling clubs, etc;
4. Dance, literary, music, photography, or theater groups;
5. Trade associations, professional associations, merchants associations and business persons groups;
6. Community centers and/or community associations;
7. Conservation and environmental protection groups (private non-governmental);
8. Ethnic or cultural clubs;
9. Social clubs;
10. Fraternities and sororities;
11. Historical groups;
12. Parent-teacher associations (PTA’s);
13. Service clubs and social service organizations;
14. Homeowners and/or residents associations; and/or
15. Research and scientific groups.
Why create a charity or NFP rather than a business (which is by comparison much less regulated)?
1. Charities and NFPs are usually tax-exempt (at least Federal and Provincial income tax);
2. Various funding bodies or the community providing funding may require the organization to be a charity or an NFP;
3. In the case of a registered charity the organization may issue tax deductible donation receipts which are deductible from a donor’s tax return (individual or corporate);
4. In the case of an NFP the purposes did not permit the organization to be classified as a charity or registered charity.
A charity and a registered charity are not the same thing. While an organization may be classified as a charity if it undertakes one (1) or more of the four (4) purposes outlined above, and may take on the responsibilities of a trustee to properly expend a charity’s money only for charitable purposes, an unregistered charity may not issue tax receipts for deductions from income.
To become a registered charity there is a two-step process:
1. Create the charity as a non-share capital corporation incorporated somewhere in Canada or form the charity as a charitable trust with proper trust documents (where registered charitable status is sought in Canada); and
2. Apply for registered charitable status through the Charities Directorate, a division of the Canada Revenue Agency, which is a department of the Federal Government of Canada.
While a charity may be formed as an association without incorporation such association without also constituting a trust will not be capable of applying for registered charitable status in Canada. Whether registration is sought or not, charitable associations and charitable trusts do not provide limited liability to its members, any or all of whom may be responsible for All of the debts and other obligations of the charity or registered charity.
An NFP may be formed as either an association or a corporation, but in the case of an association, once again, its members are not covered by any form of limited liability and may be personally responsible for all of the debts and other obligations of the NFP.
Accordingly, lawyers usually recommend NOT forming a charity or NFP as an association or trust if at all possible.
Additionally, we also recommend that given the highly technical and highly regulated nature of Canadian registered charities that you not apply for status as a registered charity unless you need to issue charitable tax receipts and/or registered charitable status is required for credibility for your donor base. If you must seek status as a registered charity we recommend obtaining directors and officers errors and omissions insurance before money is collected and/or operations begin. We can help you decide on the form of your organization and whether or not your organization should be structured as a charity or an NFP, whether or not registered charitable status is necessary or advisable, and recommend an insurance company for errors and omissions insurance as well as for general liability insurance, for non-share capital corporations.
Where to incorporate?
There is a brand new Canadian Statute dealing with charities and not-for-profit organizations taking into account the multiple complexities and potential abuses applicable to non-share capital corporations. Ontario has introduced similar, but not identical, legislation which is still undergoing changes but is expected to be enacted relatively shortly (in the next several months or year). While Canadian and Ontario legislation are the most obvious legislation choices for incorporate for an Ontario based entity, it is potentially possible to incorporate in another Canadian jurisdiction to avoid some of the additional regulation found in the newer statutes. We can review these rules with you and advise you as to which jurisdiction in which it would be preferable to incorporate.
Please note that while the Canadian, Ontario and other Provincial and Territorial Government offices may offer basic information as to how corporations under their statute are regulated, they are prohibited from providing legal advice and in particular will not assess or advise you in which jurisdiction you should be incorporated nor necessarily point out any restrictions which would be problematic to the manner in which you plan on carrying on business. This is particularly so with registered charities.
Please feel free tofor a free review of your proposed course of action (prior to filing any government documents) and see what we can do for you.
Please find set out below a number of useful links with respect to various Government departments and/or applicable non-share capital corporation statutes which may be useful for general information and/or composing questions for your lawyer prior to the creation of a charity or NFP:
New Federal Statute
Old Federal Statute
New Proposed Ontario Statute