Area of Law: Business & Corporate Law
Answer # 237
Not-for-profit organizationsRegion: Ontario Answer # 237
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:
- A corporation has perpetual existence,
- It exists separate and apart from its shareholders or members,
- It may hold real estate in its own name,
- It can sue, be sued and contract in its own name as a separate entity, and
- 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 Articles of Incorporation 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
Provincially incorporated not-for-profit corporations are governed under the new Ontario Not-for-Profit Corporations Act, 2010 (see below). Incorporation is done by filing Articles of Incorporation. The Articles of Incorporation 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.
Structure of federal not-for-profit corporations
If a not-for-profit corporation is incorporated federally, under the Canada Not-for-Profit Corporations Act, it will also be incorporated using Articles of Incorporation. Not-for-profit corporations incorporated under previous federal laws will have to file a “certificate of continuance” to avoid dissolution. The new federal Act adds a new set of modernized and flexible rules for creating, organizing and maintaining a not-for-profit company in Canada.
For more information, visit Corporations Canada, part of Innovation, Science and Economic Development Canada.
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 people named as the first directors in the Articles of Incorporation of the corporation remain the directors of the corporation until they are replaced by the same number of other people 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 among 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.
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 Articles of Incorporation.
Auditor and records
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. 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.
Ontario Not-for-Profit Corporations Act, 2010 (ONCA)
The Ontario Not-for-Profit Corporations Act, 2010 (ONCA) came into force on October 19, 2021. ONCA is the new legislation governing how not-for-profits and charities incorporated in Ontario are created, governed and dissolved, including the rights and responsibilities of members and directors, and the requirements for meetings and financial statements (previously governed under the Ontario Corporations Act).
Existing not-for-profit corporations previously governed under the Corporations Act now have a three-year implementation period to become compliant with the new requirements and make any necessary changes to bring them into conformity with ONCA.
The Ontario Guide to the Not-for-Profit Corporations Act, 2010 can be helpful for those wanting to incorporate new not-for-profit organizations, as well identify what has changed from the Corporations Act (CA) for those corporations already in existence and previously governed under the CA.
NEW Ontario Business Registry
The Ontario Government has created the new Ontario Business Registry for organizations, including not-for-profits, that are registered, incorporated, or licensed to carry on business in Ontario.
Not-for-profits and charities can now complete over 90 transactions instantly, 24 hours a day, 365 days a year, through the online registry, including:
- start, dissolve and change a not-for-profit
- search for a business or not-for-profit corporation
- access existing business or not-for-profit corporation
- file notices and other documents under other business law statutes
More information about forming a not-for-profit in Ontario can be found here. For information on the differences between a registered charity and a non-profit organization (NPO) and the tax implications, view Canada Revenue Agency’s tax guide for non-profit organizations.
Get legal help
Because the legal issues which arise with not-for-profit companies, and all businesses, can be very complicated and have some unique requirements, it is advisable to consult a lawyer.
For legal advice and assistance with starting and operating a business, contact our preferred experts at Kalfa Law.
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