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Ontario|Business LawOther Business Issues 237 Not-for-Profit Organizations Not-for-profit organizations can be unincorporated associations or incorporated entities. A not-for-profit corporation is similar to a for-profit corporation in the following five ways: (1) a corporation has perpetual existence, (2) it exists separate and apart from its shareholders or members, (3) it may hold real estate in its own name, (4) it can sue, be sued and contract in its own name as a separate entity, and (5) in most cases, individual shareholders or members of a corporation are exempt from personal liability for the debts and obligations of the corporation.
The three main differences between for-profit and not-for-profit corporations are (1) not-for-profit corporations are without share capital and have members rather than shareholders, (2) in a not-for-profit corporation, the members are prohibited from receiving any pecuniary gain, and (3) not-for-profit corporations are established for purposes other than gain for their members. The purpose for establishing the corporation is set out in the Letters Patent under the section called 'objects'. A not-for-profit corporation can have either charitable objects or non-charitable objects.
- Structure of Ontario not-for-profit corporations
In Ontario, not-for-profit corporations are incorporated by Letters Patent. The issuance of letters patent may be withheld when incorporation is considered not to be in the public interest.
As with any other type of corporation, a not-for-profit corporation must have by-laws which provide the framework for democratic decision-making and which set out the rules of how the business of the corporation will be conducted. The by-laws also set out the rights and obligations of the members of the corporation.
- Board of directors
The affairs of a not-for-profit corporation are managed by a board of at least three directors. Directors must be or become members of the corporation, must be at least 18 years of age, and cannot be an undischarged bankrupt. The persons named as the first directors in the letters patent of the corporation remain the directors of the corporation until they are replaced by the same number of other persons appointed or elected in their place. The directors of a not-for-profit corporation are elected by its members. In turn, the directors must elect a president from amongst themselves. The directors must also appoint a secretary and may appoint vice-presidents and other officers, all of whom do not need to be directors. The appointment, remuneration, functions, duties and removal of officers of the corporation are governed by its by-laws.
- Members
In addition to directors and officers, every not-for-profit corporation must have members. Each member who signs the application for incorporation becomes a member as of the date of incorporation. Although there is no limit on the number of members of a not-for-profit corporation, there must not be fewer than three. After incorporation, others may be admitted to membership by the directors.
Membership in a not-for-profit corporation is generally not transferable and therefore ceases to exist upon the death or resignation of a member. There may be more than one class of membership and members may be natural persons, corporations or unincorporated associations. However, a not-for-profit corporation is not allowed to pay dividends to its members and no member can receive any profit or gain from the corporation because it must be carried on without the purpose of gain for its members. Any profits must be used in the promotion of the objects of the corporation as set out in its Letters Patent.
- Auditor and Records
In order to properly and legally run a not-for-profit corporation, an auditor must be appointed by its members every year, and certain records must be kept. A not-for-profit corporation is required to maintain various records. These include proper books of account and accounting records with respect to all financial and other transactions of the corporation, books containing minutes of all meetings of members and directors, and registers of the members and directors. These records must be kept at the head office of the corporation and are to be available during normal business hours for inspection by the directors.
For more information about not-for-profit corporations, contact the Ministry of Consumer & Business Services listed on the Legal Line Guide or website, or in the Blue pages of your telephone book. If you require legal advice or assistance, you should contact a lawyer.
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