Many charities and not-for-profit organizations (NPO) face the choice of which legal structure to use, whether they are constituted as a trust, an unincorporated association, or a corporation. When hearing the word “corporation”, many people think of for-profit businesses, but did you know that corporations can also be in the form of non-share capital corporations (NSCC), which are used for not-for-profit organizations and registered charities?

 

Why should I incorporate my NPO?

Incorporating gives an organization legal status. Many organizations choose to incorporate because it provides limited liability to its members. When incorporated, an organization becomes a separate legal entity (a corporation) and the corporation (not the members) is generally liable for the organization’s debts and obligations. Here are some advantages and disadvantages of incorporating your NPO:

 

Things to Consider as an Unincorporated Entity

  • May be suitable for startup phase
  • Limitations on ownership of real property
  • No limitation on liability for members or directors
  • Fewer reporting requirements (CPA Canada, 2016)

 

Things to Consider when Incorporated

  • May own real property
  • Offers some limitation on liability for members and directors
  • More reporting requirements
    • Annual reports to corporations branch as well as tax filings
    • Jurisdiction may require approval of bylaws and/or bylaw changes (CPA Canada, 2016)

 

Please note that you will first need to incorporate as an NPO to be able to apply for charitable status in order to issue donation receipts.

 

How do I decide whether or not to incorporate?

It is not necessary for an NPO to incorporate. Whether you choose to incorporate or not depends on your NPO’s activities, nature, or type of organization. An organization can incorporate federally or provincially and there are fees associated with doing so depending on where your NPO is located. Read this article by the Corporation Centre for more information.

 

If you are considering incorporating your NPO, but are unsure of where to begin, I am more than happy to help! Please contact me at the following:

 

Michelle Steele, CPA CA

Senior Manager

519-822-9933 x350

michelle.steele@rlb.ca

 

 

References

Corporations Centre.ca – why incorporate a non-profit corporation:

http://www.corporationcentre.ca/docen/home/faq.asp?id=incnp

 

Canada Revenue Agency – Incorporation:

http://www.cra-arc.gc.ca/chrts-gvng/chrts/pplyng/gdc/ncd-eng.html

 

Drache Aptowitzer LLP – why every charity should consider incorporation:

http://drache.ca/articles/charities-article-archive/why-charities-should-incorporate/