Across Ontario, individuals and groups often come together around a shared goal: supporting a community, advancing a cause, delivering programs, or creating a positive social impact. For many groups, that work begins informally. Over time, however, the group may need a more structured legal framework to apply for funding, enter into contracts, manage governance, or continue operating as people come and go.

One common option is to incorporate as a not-for-profit corporation. A not-for-profit corporation can be an effective structure for organizations created for purposes other than generating profit for owners or members. However, it is important to understand what that structure does and does not allow, particularly when the organization expects to receive funding, charge fees, fundraise, or conduct activities that may generate revenue.

Not-for-Profit Corporations in Ontario: The Basics

A not-for-profit corporation is a corporation formed for a purpose other than profit. These purposes may include social welfare, civic improvement, recreation, cultural activities, professional development, education, community support, or other non-commercial objectives.

In Ontario, not-for-profit corporations are governed by the Not-for-Profit Corporations Act, 2010. Once incorporated, the organization becomes a separate legal entity. This means it can own property, enter into contracts, apply for grants, open bank accounts, and continue operating even if its directors, officers, or members change.

A key feature of a not-for-profit corporation is that it does not operate to distribute profits to its members, directors, or officers. Any surplus funds must generally be used to advance the corporation’s purposes. This does not mean a not-for-profit can never receive more revenue than it spends in a given period. However, revenue-generating activities must be approached carefully, particularly where those activities may resemble profit-making business activities.

Revenue, Surplus, and Profit: Why the Distinction Matters

Many not-for-profit organizations receive money from multiple sources, including grants, donations, membership fees, program fees, fundraising events, sponsorships, and service fees. In some cases, an activity may generate revenue that exceeds the cost of running it.

However, not-for-profit organizations must be careful about planning or carrying on activities for the purpose of earning profit. The Canada Revenue Agency generally takes the position that a not-for-profit organization may engage in income-generating activities and may earn a surplus in some circumstances, but profit-making should not be the organization’s purpose. Where profit is anticipated, intentional, or part of an ongoing commercial activity, the organization’s tax status and compliance position may require closer review.

A common trap for new organizations is assuming that any business activity is acceptable as long as all the money goes back into the organization. However, the CRA applies strict rules here. A not-for-profit generally cannot run a completely unrelated commercial “side-business” solely to generate funds for its community work; the revenue-generating activities themselves should be closely linked to the organization’s non-profit objectives.

This is one reason why early planning is important. A group that expects to run programs, charge fees, sell goods, host events, or generate recurring revenue should consider how those activities fit within the organization’s purposes and whether a not-for-profit corporation is the right structure.

Not-for-Profit Corporation, Charitable Corporation, or Registered Charity?

The terms “not-for-profit,” “charitable,” and “registered charity” are sometimes used interchangeably, but they do not mean the same thing.

Not-for-Profit Corporation

A not-for-profit corporation is a corporate structure. It is created for purposes other than profit and is governed by corporate legislation. Its purposes may be community-based, cultural, recreational, professional, social, educational, or otherwise non-commercial.

Charitable Corporation

A charitable corporation is a corporation established for purposes that fall within legally recognized charitable categories. Common charitable purposes include relieving poverty, advancing education, advancing religion, and other purposes beneficial to the community that the law recognizes as charitable.

Registered Charity

A registered charity is an organization that has been approved by the Canada Revenue Agency for charitable registration under the Income Tax Act. Registration provides important tax advantages, including the ability to issue official donation receipts to donors. However, registered charities must meet ongoing compliance, reporting, and operational requirements.

Not every not-for-profit corporation is charitable. Not every charitable corporation is automatically a registered charity. If an organization wants charitable registration, it must apply to the Canada Revenue Agency and meet the applicable requirements.

Another Option: The Public Benefit Corporation

It may surprise some organizations to learn that the Not-for-Profit Corporations Act, 2010, includes an additional category: the public benefit corporation. A corporation qualifies as a public benefit corporation if it is a charitable corporation. A non-charitable corporation may also qualify if it receives more than $10,000 in a financial year from public sources, including government grants or similar financial assistance, or gifts or donations from people or organizations who are not members, directors, officers, or employees of the corporation.

Public benefit corporations are subject to stricter financial reporting requirements and different rules on the distribution of assets upon dissolution. Organizations that expect to rely on public donations, government grants, or similar public funding, even if they do not intend to pursue charitable registration, should consider whether they are likely to meet this threshold and what obligations would follow.

Charitable Activities and Related Business Activities

Charitable corporations and registered charities are subject to specific rules about their purposes and activities. A registered charity must devote its resources to charitable activities that further its charitable purposes.

That does not necessarily mean a registered charity can never generate income. Registered charities may, in some circumstances, conduct revenue-generating activities, including certain related business activities. However, those activities must comply with the rules that apply to registered charities and must be connected to, subordinate to, or supportive of the charity’s recognized charitable purposes.

This distinction is crucial because the rules for registered charities are actually much stricter than those for standard not-for-profits. While a not-for-profit organization has some flexibility to charge fees for its programs, a registered charity is legally prohibited from running an unrelated business. Under CRA guidelines, a charity can generally only operate a “related business”, which is narrowly defined as a business run almost entirely by volunteers (like a hospital gift shop) or an activity directly linked to a charitable purpose (like a sheltered workshop selling goods made by its clients).

For organizations at the planning stage, the question is not simply whether the organization expects to earn revenue. The more useful questions are what the organization’s purposes are, how revenue will be generated, how surplus funds will be used, and whether charitable registration is necessary or appropriate.

Tax Status and Donation Receipts

Incorporating as a not-for-profit corporation does not automatically make an organization a registered charity. It also does not automatically allow the organization to issue official donation receipts for income tax purposes.

A not-for-profit organization may qualify for certain income tax exemptions if it meets the applicable requirements. However, it cannot issue charitable donation receipts unless it has been registered as a charity by the Canada Revenue Agency.

Registered charities, on the other hand, can issue official donation receipts for eligible gifts. This can be a significant factor for organizations that expect to rely heavily on donations from individuals, corporations, or foundations. Charitable registration also brings additional obligations, including annual filings and restrictions on how resources may be used.

Before choosing a structure, organizations should consider their expected funding sources, whether donors will expect tax receipts, and whether the organization is prepared to meet the obligations that come with charitable registration.

Incorporating a Not-for-Profit Corporation

Ontario does not require every not-for-profit group to incorporate. Some groups operate as unincorporated associations. However, incorporation can offer several practical benefits.

A corporation is a separate legal entity. This can help protect directors, officers, and members from certain personal liabilities, although it does not eliminate all risk. Incorporation can also make it easier to enter into contracts, lease space, receive grants, hire staff, open bank accounts, and continue operating over the long term.

To incorporate in Ontario, applicants generally file Articles of Incorporation with the Ontario Business Registry. The applicants must consider the corporation’s name, purposes, registered office, directors, membership structure, and any special provisions that should apply.

If the organization intends to pursue charitable registration, its purposes and articles should be drafted with that goal in mind from the outset. Problems can arise when an organization incorporates with broad or unclear purposes and later discovers that its documents do not align with CRA requirements for charitable registration.

Articles of Incorporation

The Articles of Incorporation are the corporation’s foundational legal documents. They set out essential information about the corporation and are filed as part of the incorporation process.

For a not-for-profit corporation in Ontario, the articles typically include the corporation’s name, registered office address, number of directors, purposes, and any special provisions. Depending on the organization, special provisions may address restrictions on activities, how property will be dealt with on dissolution, limitations on distributions, or requirements connected to charitable purposes.

The purposes clause is particularly important. It should accurately reflect what the organization is being created to do. If the purposes are too vague, too broad, or inconsistent with the organization’s intended activities, this can create governance, funding, tax, or registration issues later.

For charitable corporations or organizations that plan to apply for charitable registration, the purposes must be drafted carefully to align with recognized charitable purposes and CRA expectations.

Bylaws and Internal Governance

Although bylaws are not filed in the same way as the articles, they are a critical part of a not-for-profit corporation’s governance structure. Bylaws set out how the corporation will operate internally.

They may address membership classes, members’ rights, directors’ terms, officer roles, meeting procedures, voting rules, notice requirements, conflicts of interest, financial procedures, and other governance matters. Clear bylaws can help reduce confusion and provide a practical roadmap for decision-making.

For not-for-profit corporations, governance structure is especially important because the organization may involve volunteers, members, donors, funders, staff, and community stakeholders. Bylaws should be tailored to the organization’s actual needs rather than treated as a standard form document.

Important By-Law Deadlines

Under Ontario’s Not-for-Profit Corporations Act, 2010, there are two important timelines to keep in mind after incorporation. First, the directors should pass an initial organizational by-law within 60 days of incorporation. If they do not, the corporation is deemed to have passed the standard organizational by-laws approved by the Ministry, which may not reflect the organization’s specific needs, membership structure, or governance preferences.

Second, the first annual meeting of members must be held within 18 months after the corporation comes into existence, and each subsequent annual meeting must be held within 15 months after the previous annual meeting. In practice, corporations should also be mindful of the timing of their financial statements, as annual meeting requirements are closely connected to financial reporting obligations. Together, these timelines mean that governance cannot be left on the back burner after incorporation.

Ongoing Obligations After Incorporation

Incorporation is only the starting point. Once a not-for-profit corporation is created, it has ongoing legal, governance, and financial obligations. 

These may include:

• Maintaining corporate records;
• Keeping proper financial records;
• Holding annual members’ meetings;
• Electing directors;
• Passing resolutions;
• Filing required corporate returns; and
• Meeting applicable tax filing requirements. 

Directors should also understand their duties and ensure that the corporation’s activities remain consistent with its purposes.

If the corporation is a registered charity, additional obligations apply. These include filing annual charity information returns, maintaining books and records, issuing donation receipts properly, and ensuring that resources are used in accordance with the organization’s charitable purposes.

Building a Strong Foundation for Community Work

Not-for-profit corporations play an important role in Ontario communities. They support arts and culture, recreation, education, social services, advocacy, professional development, and many other initiatives. However, creating a not-for-profit corporation involves more than choosing a name and filing documents.

Founders should consider the organization’s purposes, revenue model, governance structure, tax position, and long-term compliance obligations. They should also understand the differences between not-for-profit status, charitable purposes, and registered charity status before deciding which path to take.

With the right structure and careful planning, a not-for-profit organization can be better positioned to pursue its mission, manage its responsibilities, and build a stable foundation for future growth.

Contact Willis Business Law for Trusted Advice on Not-for-Profit Corporations in Windsor-Essex County

The knowledgeable not-for-profit and charity lawyers at Willis Business Law understand that embarking on a new journey, particularly one with a societal mission, can be both exhilarating and daunting. Setting up a non-profit organization can be complex, with numerous legal and administrative steps. However, it’s also a journey filled with boundless opportunities to make a real difference in your community and beyond.

Our team can help you develop innovative legal solutions and provide practical advice to meet your needs, from incorporation to governance solutions and financing. To schedule a consultation, contact us online or call us at 519-945-5470.