Not-For-Profits and Charitable Corporations: FAQ
Passion for a cause is admirable, those with it may be drawn to various ways of supporting that cause, some may even choose to found their own Not-For-Profit or Charitable organization. When beginning an endeavor such as this, it’s important to have all the information you need to make the biggest impact and Bizwize is here for you. This bulletin will help you decide if incorporating is necessary for your project and whether you should incorporate as a Not-For-Profit or Charitable organization.
The CRA has a helpful chart outlining the differences between how each is legally defined according to the Income Tax Act.
In Canada, the term “non-profit” is generally applied to organizations representing one of three groups:
Distinct from not-for-profit corporations, charities run programs that meet the charitable activities as outlined by the Canada Revenue Agency’s Charities Directorate. They are registered and regulated by the CRA and have the ability to issue tax receipts to donors.
A type of registered charity that primarily exists to distribute funds to qualified donees. Canadian foundations may give grants (donations) to other charities, they may exist to be a funding arm for another charity or they may carry on their own charitable activities.
Incorporated as a legal entity separate from its members and directors, formed under the corporations legislation of the federal government or of one of the provincial or territorial governments. Not all register as a charity, although most charities are corporations. They can earn a profit, but profits are used to further corporate goals as opposed to being distributed to members or directors because members/directors of a non-for-profit corporation cannot receive any financial (or pecuniary) gain from the corporation.
What areas can my Charitable Organization commonly fall under?
- Religious Organizations / Schools
- Services for Senior Citizens
- International Development
- Assistance for Sexually/Physically abused individuals
- Poverty Relief and Low Cost Housing
- Programs for Physically and Mentally Disabled
- Promotion of Health
- Substance Abuse
- Preservation of the Environment
- The Arts
- Community Centres, Immigration Services, Literacy and Employment Training
What areas can my Not-for-Profit commonly fall under?
- Athletic and Sports:
- Aquatics, athletic clubs, curling, fishing and hunting club, flying, golf etc.
- Dance, Literacy Music, Photography, Theatre, etc.
- Business/Professional Groups:
- Businessmen/women, employee, merchant’s association, professional association, trade association, etc.
- Community Centre, Ethnic, Fraternity/Sorority, Historical, School Association, Lobbying, Research/Scientific, Residents association, social club, women’s affairs etc.
What should I name my organization?
While your organizations name doesn’t have to specify that is not-for-profit, be careful to not confuse it with a for-profit corporation. Your name must include both a distinctive and descriptive element, a legal ending is optional.
|Poodle Fanciers Association||Of Toronto||No legal ending|
|Ajax Minor Girls||Hockey Club||Corporation|
|Kenora Tax Payers||Association||No Legal Ending|
|Youth In Need||Around Ontario||Corporation|
Providing the area in which the not-for-profit organization will exist will provide your community and the government with an established boundary of your business. For example, “Poodle Fanciers of Toronto” may be focus and bound to the poodle enthusiasts of the Toronto area. We recommend contacting the provincial government as approval may be required prior to incorporating any type: preschool facility, home for elderly, cultural or citizenship program, educational or training program or healthcare or rehabilitation facility.
A few commonly used words for not-for-profit corporations are:
There are some restrictions to be aware of when creating your organizations name.
- Your organization’s name cannot have wording that makes it appear as though it could be/is a government body
- There are words that are not accepted for not-for-profit corporations:
Do I need Directors?
Yes. You will need three directors for a not-for-profit corporation. Ensure the addresses you provide for your directors are not postal boxes.
What Financial Statements will I need?
Financial statements required depend on the total revenue and category of your not-for-profit. See our table below for more
Financial Statements Required:
Type of Corporation Amount of Revenue per Financial Year Type of Financial Review
Public benefit corporation $100,000 or less Waive
Public benefit corporation Between $100,000-$500,000 Review Engagement
Public benefit corporation $500,000 or more Audit
Non-public benefit corporation $500,000 or less Waive
Non-public benefit corporation More than $500,000 Review Engagement
A Non-Charitable public benefit corporation is one that receives more than $10K a year either in the form of donations or gifts from persons who are not members, directors, officers or employees of the corporation, or in the form of grants or similar financial assistance from the government or agency of the government.
Approval to waive an audit or to waive both an audit and review engagement requires an Extraordinary Resolution, which is approval from at least 80 per cent of the votes cast at a special members’ meeting where there are enough members to take a vote or if all voting members consent in writing.
A Review Engagement differs significantly from an Audit in that it provides less assurance to the reader of the financial statements because the CPA (Certified Professional Accountant) does not perform many of the audit procedures. The CPA will however, perform broad review procedures to ascertain whether or not the financial statements are believable or plausible.
An Audit is conducted to provide reasonable assurance that the financial statements are free of material misstatement and are in accordance with Canadian accounting standards for non-profit organizations. Auditors use a variety of methods to determine if financial statements are free of material misstatement including studying internal controls, inspection of documents, counting assets such as inventory, making enquiries inside and outside of the company etc.
Benefits and Responsibilities
There are many benefits and responsibilities to consider when incorporating your not-for-profit.
Much the same as incorporating a business, incorporating a not-for-profit provides limited liability to the shareholders involved. When creating a corporation you are creating a legal entity that is held responsible for its’ own debts. Meaning if a not-for-profit is unable to pay its creditors, the shareholders will not be held responsible outside of specific circumstances. Directors may still be held legally responsible for these debts when they have not completed their due diligence or found participating in fraudulent activities.
Generally speaking, Not-for-profits do not pay corporate income tax or file an Ontario corporate tax return. However, they must fulfill their own requirements under the Canada’s Income Tax Act.
Grants & Assistance
There may also be some government funding and financial assistance for non-for-profit companies.
Review the following resources for more:
If you would like to register a Non-Profit Organization or Charity, do not be discouraged by legal complexities and incorporation challenges. From legal and accounting advice to corporate setup, registration and incorporation, BizWize can help! Contact us today!
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