While it is undeniable that government services are important in keeping up with the country’s economic and social needs, the efforts of not-for-profit organizations also make a great impact. With this recognition of their importance, regulation of the sector is deemed necessary to ensure that both the corporation and the communities they serve are well-protected.
What is the Canada Not-for-profit Corporations Act?
Numerous Canadian laws have been enacted to regulate the organizations or corporations engaged in charities, non-profit, and not-for-profit. One of these laws – which is specific to not-for-profit – is the Canada Not-for-profit Corporations Act.
The Canada Not-for-profit Corporations Act covers the different rules on entities, organizations, and corporations, whose main purpose is other than generating profit. This Act is also called the NFP Act by some.
Among others, this Act guides not-for-profit corporations regarding the:
- process of federally incorporating a not-for-profit organization;
- capacity and powers of an incorporated not-for-profit organization;
- duties and liabilities of a not-for-profit’s directors and officers; and
- process with regards to financial disclosure, debt obligations, receivership, and liquidation.
Below are some of the basic features of the Canada Not-for-profit Corporations Act or the NFP Act. To know more about this Act, you may also contact a charity and not-for-profit lawyer near your area.
To whom the Act applies
The Canada Not-for-profit Corporations Act applies to entities that are incorporated under the same Act.
However, there are some laws that will not apply to a not-for-profit organization that is incorporated under this Act, since these laws will only apply to business corporations:
- Canada Business Corporations Act
- Winding-up and Restructuring Act
Limitation of not-for-profit Corporations
When an entity is incorporated under the Canada Not-for-profit Corporations Act, it is prohibited from engaging in these businesses or activities:
- a bank;
- cooperative credit association;
- insurance provider; or
- trust and loan company.
Incorporating federally or provincially
A not-for-profit corporation in Canada may be incorporated either federally or provincially.
If a not-for-profit is incorporated federally, it can carry on its operations or activities throughout Canada. Its registered name may be used throughout the country. It may also establish its registered headquarters or main office in one province but conduct its operations in the other Canadian provinces.
However, federally incorporated not-for-profits may still be required by a province to register under its provincial laws on incorporation.
If a not-for-profit is incorporated provincially – but not federally – its movements or operations are only restricted to that specific province. It also means that the name that it’s using is only allowed within that province.
If you’re from Ontario, watch this video to know more about registering a not-for-profit corporation:
To know more about registering a not-for-profit corporation at the federal or provincial level, contact a charities/not-for-profit lawyer in your area. If you’re from Ottawa, for example, reach out to any of the Lexpert-Ranked best charities/not-for-profit lawyers in Ontario.
Process of federal incorporation
To create a not-for-profit under the Canada Not-for-profit Corporations Act, the following steps may be taken:
- Apply for incorporation online
- Conduct the first directors’ meeting to elect directors, create the by-laws, appoint a public accountant, etc.
- Register with the Canada Revenue Agency (CRA) to be tax-exempt
Do not-for-profits have to disclose financials to the public in Canada?
Not-for-profit corporations must disclose its financials to the public in Canada, as provided by the Canada Not-for-profit Corporations Act. It must also file tax returns, being one of the regulated entities in the country.
For this purpose, the Act requires that not-for-profit corporations comply with the following:
- Annual income tax return: filed every year, within 60 days after the not-for-profit's anniversary. This will be made public through the Corporations Canada website. The tax return must also include the date of the corporation's last annual meeting of its members or a written resolution in lieu of such a meeting.
- Financial statements and public accountant’s report: specifically required for soliciting not-for-profit corporations. The report must be filed 21 days before each annual meeting of the corporation’s members or after a written resolution is signed in lieu of such a meeting.
Under the Act, a “soliciting not-for-profit corporation” is one which received the following, whose amount is more than C$10,000 in a single financial year:
- Donations, gifts, legacies of money, properties from persons who are not a member, director, officer, or an employee of the corporation, including their spouses and immediate family members.
- Grants or similar financial assistance from the government or any of its agencies – whether it’s federal, provincial, or municipal.
Filing these reports may be done online through the Online Filing Centre of Corporations Canada.
Other required reports
In addition to financial reports as required by the Act, not-for-profit corporations must also submit these reports whenever applicable:
- Change of registered office address: must be filed immediately with Corporations Canada, which must accept such change before it can be made effective.
- Changes regarding directors: must be filed with Corporations Canada within 15 days of the change, which includes:
- change of address of an existing director; or
- election, appointment, resignation, or removal of a director.
- Amendments to articles of incorporation: must be filed immediately with Corporations Canada after the amendments have been adopted by its members.
These reports can be filed through the Online Filing Centre of Corporations Canada.
Is not-for-profit the same as nonprofit in Canada?
A “not-for-profit” corporation (which is also called a “charity”) is not the same as a “nonprofit” organization in Canada. It is the CRA that decides if an entity is a “not-for-profit” or a “nonprofit” for the purposes of taxation.
Some of the differences between these two include:
- Purpose: Both entities may be organized for any purpose other than generating profits, but the Income Tax Act is specific that not-for-profit corporations must be operated exclusively for charitable purposes.
- Taxation: Not-for-profit can issue official donation receipts for income tax purposes, while non-profits cannot. While both are tax-exempt, a non-profit will still have to pay tax on property income or on capital gains.
- Spending: not-for-profit corporations or charities have a spending requirement or disbursement quota, while a non-profit does not.
To know more about Canada’s Not-for-profit Corporations Act, contact any of the best charities/not-for-profit lawyers as ranked by Lexpert.