Incorporating a Non-Profit or Charity in Canada/Ontario

• This presentation was put together by a volunteer at CSCI to approach our issue of if we should incorporate, in what format, what major considerations, costs, laws, etc. would be.

• This is based on our experiences and is not to be considered business or legal advice. Please seek out other advice and don’t sue us!

Attribution • This work is mainly from Gov’t websites unless

otherwise stated. It is available via the Creative Commons Attribution Licence – it may be used for your proposes, provided we are cited in some way and you remember that we’re not experts so please don’t sue us (see previous slide.) It can be used for-profit endevours, though if you are making lots of cash from it we’d love a donation to help keep us running, donation page at: www.careerskillsincubator.com. Thanks!

Benefits to Incorporating• Separate Legal Entity• Limited Liability• Lower Corporate Tax Rates• Greater Access to Capital• Continuous Existence (goes beyond founders)

Registered Charity vs. Not-For-Profit Organization

Primary differences:• Extra registration is required for charities• The added benefit of issuing income tax receipts for

charitable donations (qualified donees)• “[charities] must spend a minimum amount on its own

charitable activities or gifts to qualified donees”• More grants are available • Increased status and recognition as a charity, as well as a

charitable registration number for identification• NPO’s may be taxable on property income or capital gains• Much higher financial due diligence and paperwork for

charities

Source: http://www.cra-arc.gc.ca/chrts-gvng/chrts/pplyng/rgstrtn/rght-eng.html

Requirements for Registering a Charity

Two fundamental requirements:

1) The organization's purposes must be exclusively and legally charitable.

2) It must be established for the benefit of the public or a sufficient segment of the public.

1) The organization's purposes must be exclusively and legally charitable.

• purposes for the relief of poverty;• purposes for the advancement of

education;*• purposes for the advancement of religion; and• other purposes beneficial to the community

in a way the law regards as charitable.*

Requirements for Registering a Charity (cont’d)

Soliciting vs. Non-Soliciting Corporations

Definition as per Industry Canada (2013):“A corporation is a soliciting corporation if it receives more than $10 000 in money or property from the public sources in a single year.”

• One a corporation becomes a “soliciting corporation”, it remains that way for 3 years

• Both soliciting and non-soliciting corporations must provide “in its articles, for the distribution of property to a ‘qualified donee’, as defined in the Income Tax Act, for any property remaining on

liquidation of the corporation.”

Soliciting CorporationsA soliciting corporation must meet 5 requirements

1) have a minimum of three (3) directors, at least two (2) of whom are not officers or employees of the corporation or its affiliates;

2) comply with specific requirements for public accountants and financial review;

3) send financial statements and the report of the public accountant, if any, to the Director at least 21 days before each annual meeting of the corporation;

4) provide, in its articles, for the distribution of property to a "qualified donee", as defined in the Income Tax Act, for any property remaining on liquidation of the corporation; and

5) not have a unanimous member agreement (UMA)

Source: http://www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs05019.html

NOTE: THIS MEANS IF YOU GOT GOV’T GRANTS OF MORE THAN $10K TOTAL IN A YEAR YOU MAY HAVE TO GET AN AUDIT OR REVIEW OF YOUR FINANCES (SEE NEXT SLIDE FOR DETAILS)

Comparison

Documents/Requirements to Create a Not-For-Profit CorporationFor Federal Incorporation:

• Form 4001 – Articles of Incorporation• Form 4002 – Initial Registered Office• NUANS Name Search Report• Filing Fee

– Ranges from ~$350 to ~$725 if done through Business Development Canada

– $200 done yourself online at the Online Filing Centre, $250 for mail/fax/email

Shares

Section 2.3.3

• “An Incorporated business must issue at least one class of shares”

• I.e. Common shares or preferred shares

Source: http://www.ic.gc.ca/eic/site/cd-dgc.nsf/vwapj/Guide_2011-En.pdf/$FILE/Guide_2011-En.pdf

Director

• Must elect one director, unless other conditions are added (i.e Soliciting corporation)

Address of Registered Office

Section 2.4.2 • Must register a physical location/address

By-Laws• set the date of a corporation’s financial year-end;• make banking arrangements;• address the appointments, qualifications and duties of• officers;• delegate the responsibility for setting the salaries of• directors and officers;• establish the salaries or other remuneration of directors• and officers;• set down the procedures for calling and conducting• directors’ and shareholders’ meetings;• establish the minimum number of people required at• directors’ and shareholders’ meetings to establish• quorum; and• make rules limiting the modifications that can be made• to the powers given to corporate directors under• the CBCA (e.g., the by-laws could make all share• issuances subject to shareholder approval).

There is a great free federal by-law builder online that meets these requirements. Link here

Appoint Officers

• Volunteers, employees, etc

Additional Certificates

Section 5.4• Certificate of Compliance

• has not been dissolved;• has sent to the Director the Annual Returns required• under the CBCA; and• has paid all required fees.

• Certificate of Existence• has not been dissolved or discontinued; and• has not changed its structure in such a way as to• cause a change to its corporate number (e.g., through an

amalgamation).

Provincial Registration

• In our case, Ontario (for now)

Business NumberSection 3.2• The Business Number (BN) is part of a unique

federal government numbering system that identifies your business and the accounts you maintain with the Canada Revenue Agency (CRA).

• Used for:– Goods and Services Tax/Harmonized Sales Tax

(GST/HST);– payroll deductions;– corporate income tax; and– import/export duties and taxes.

Annual Meetings• make by-laws (these by-laws will have to be approved• by shareholders at the first annual meeting);• adopt the forms of security certificates (shares) and• corporate records the corporation will use;• authorize the issuance of shares and other types of• securities;• appoint officers;• appoint an interim auditor to hold office until the first• meeting of shareholders;• make banking arrangements; and• transact any other business.

Laws Governing/Regulating Corporations

• Income Tax Act• Companies Act• Not-for-profit Corporations Act S.C. 2009 • Canadian Corporations Act• Corporate Informations Act

Ontario Provincial Incorporation Applicable Legislation

• Business Corporations Act, R.S.O. 1990, c. B.16 • Business Names Act, R.S.O. 1990, c. B.17 • Corporations Act, R.S.O. 1990, c. C.38 • Corporations Information Act, R.S.O. 1990, c. C.

39

• Extra-Provincial Corporations Act, R.S.O. 1990, c. E.27

• Limited Partnerships Act, R.S.O. 1990, c. L.16

Ontario Business Name Search, Registration, and Renewal

• https://www.appmybizaccount.gov.on.ca/wps/portal/mba_pub/!ut/p/c4/PY5BD4IwDIV_CweuG2dvQjyYqBCCEbyYjjSzcXTLNvTvOzCYpofX9-W9yrtMw_AmDZEsg5G9HBxoNMSvnQ1KOOsjGOFmZWgUbFn8cGVQROtolLclwwBrOSCvm3RzLU_H6lHVl-7Qd3LIi0kBsjYUnnlhGYOd_Yh5sWaEvAgRUpGaAyUv6RY1hYieWEP5v3YLvVm1b5HxM6Skjag5PY7STVNz3mfZFy8JQnA!/

CRA Income Tax Guide to the Non-Profit Organization (NPO)

• http://www.cra-arc.gc.ca/E/pub/tg/t4117/t4117-10e.pdf

Charity, Non-Profit, Business

As per Imagine Canada:

Source: http://charitytax.imaginecanada.ca/topics/-be-charity-or-not/alternatives-becoming-charity/alternatives-establishing-charit

Incorporate Provincially or Federally?

Federal Incorporation:• must register the Corporation for provinces

it wishes to operate under • requires extra paperwork each year (both

provincial and federal levels)• Is done through Industry Canada

Incorporate Provincially or Federally?

Provincial Incorporation• Lower incorporation costs ($155)• Contrasted with (approx $280 federally)

https://www.appmybizaccount.gov.on.ca/wps/wcm/connect/6ab012804db398d5a39aebacb9510e0e/stel02_168010E.pdf?MOD=AJPERES

Record Keeping

• a copy of the Letters Patent, any Supplementary Letters Patent and all by-laws of the corporation;

• the names of all persons who are or have been members;• the address and occupation of each such person while he/she is a

member, as far as can be ascertained;• the names, addresses and occupations of all persons who are or

have been directors, and the dates upon which each became or ceased to be a director; and

• minutes of all members' and directors' meetings.

Source: http://www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs02167.html

The corporation is to keep the following records in the custody of the secretary or another officer specially charged with that duty (sections 109 and 112 of the CCA):

Suggested Actions:• Incorporate provincially as the current operations will not

extend out of Ontario, (and a change to incorporate federally can be done later)

• Incorporating as a Not-For-Profit should alleviate income taxation for the future, good brand recognition, reserve rights to CSCI as name

• As well, being registered under the government should facilitate processes with Corporations Canada, and align with banking procedures (some lenders require articles of incorporation/evidence prior to loans, such as applying for a company vehicle)

Additional Considerations

• Added necessity for paperwork and filing means added workload and costs (i.e Annual returns, Annual meetings, revision of all relevant legislation, Filing of patents, drafting of corporate by-laws, assigning directors and members, added accounting needs)

Additional Considerations:

• You will require• A Lawyer (or someone who can drafting legal

documents, as well as aggregate all relevant Acts)• An accountant (to prepare financial statements, file

annual returns)

• At least $300 in filing costs• A location for head office• Determine Incorporator (signing authority),

officers, board of directors (if applicable)

Questions to Ask:

• For-Profit Corporation, Not-For-Profit Corporation, Charity?

• Soliciting or Not-Soliciting? Will the donations/grants received require these provisions?

• What is the corporate structure? Officers? Directors?

• What are the grounds for registering