Why Incorporate as a Non-Profit Corporation?

This post was written prior to our January 2017 merger, under our previous firm name, MacPherson Leslie & Tyerman LLP.

Authors: Erin Bokshowan, Stephen Miazga

A non-profit organization is a club, society, or association that is organized and operated exclusively for charitable, civic, or pleasurable purposes. In short, non-profit organizations are operated for a purpose other than profit.

It is not necessary for a non-profit organization to be incorporated as non-profit corporation. However, depending on the activities and nature of the organization, incorporation may provide a number of benefits to a non-profit organization.

Non-profit organizations can incorporate as a non-profit corporation either provincially or federally. If a non-profit organization envisions having a national scope (or one which spans multiple provinces), then it should consider incorporating federally. Federal incorporation provides a number of benefits over provincial incorporation, including:

  1. increased name protection that allows the corporation to operate under its incorporated name across Canada;
  2. increased flexibility concerning the location of the registered office, corporate records, and annual meetings; and
  3. the ability to use a name without “Inc.” or other corporate suffix at the end.

Incorporating transforms an organization into a legal entity. This results in the organization being treated as a separate legal person—non-profit corporations can enter into contracts, own property, and commence legal action in their own name. Further, the corporation will continue to exist regardless of changes in its membership.

One of the primary benefits of incorporation is limited liability protection for the organization’s members. This means that the members of the corporation cannot be held responsible for repaying any debts that the corporation may incur (beyond what they paid for their membership at first instance).

However, it should be noted that incorporation creates administrative responsibilities that do not exist for an unincorporated non-profit organization. Such responsibilities include keeping a company registry, preparation of corporate financial statements, and filing of corporate tax returns. Furthermore, once incorporated, applicable legislation will require the directors of the non-profit corporation to call annual member meetings.  At these meetings, the directorship generally present a statement of the corporation’s affairs and report on its financial position.

In order to ensure an efficient process and result, non-profit organizations that are considering incorporation are encouraged to seek legal advice.