Across Ontario, countless individuals and groups are driven by a shared passion for making a positive impact on society. In many cases, this shared passion and business goal leads to the creation of non-profit organizations. Non-profits play a pivotal role in Ontario’s social fabric, addressing a wide range of issues, including healthcare, education, environmental conservation, and social justice. This blog will provide a general roadmap for those dreaming of starting their own not-for-profit corporation to effect positive change.
This guide will explain the essential steps and critical considerations for those seeking to set up a non-profit organization in Ontario. Whether you’re an aspiring social entrepreneur, a passionate advocate, or simply someone eager to make a lasting change, this blog will equip you with the knowledge and tools you need to turn your noble aspirations into a thriving non-profit organization.
The federal government defines a non-profit (or not-for-profit) organization as a corporation or association whose purpose is “exclusively for social welfare, civic improvement, pleasure, recreation, or any other purpose except profit.” In other words, these organizations help address a specific social cause without retaining a net profit. When non-profit organizations receive funds, for example, from grants or donors, they must be used for the organization’s purpose and cannot benefit its members. The Not-for-Profit Corporations Act governs non-profits in Ontario.
Non-profit organizations and charitable corporations are not the same, so understanding the subtle yet significant differences between them is essential. These distinctions can have far-reaching implications for an organization’s legal status, financial operations, and the scope of its activities. Some of the key differences are set out below in more detail.
Non-profit organizations can be involved in various causes and activities, from cultural enrichment to sports and recreation. Due to their drive to serve the public generally or a specific community, non-profit organizations can engage in activities that generate income, for example, by hosting community events, which can generate profit.
Charitable corporations, on the other hand, operate under a specific charitable purpose recognized under the law. Common examples of a recognized charitable purpose include education advancement, poverty relief, or religious promotion. As such, charitable organizations focus exclusively on engaging in activities that fulfill their charitable purpose and meet the applicable legal criteria.
Ontario’s non-profit organizations are not automatically tax-exempt. Instead, they are subject to taxation on any generated income unless the Canada Revenue Agency specifically grants tax-exempt status. Non-profit organizations also do not issue tax receipts to donors, which can limit their ability to attract donations.
Charitable organizations, conversely, are eligible for tax-exempt status on their income and can issue tax receipts to donors who contribute monetary donations.
Non-profit organizations generally rely on a mix of income sources, including program fees, membership fees, revenue-generating activities, and donations.
Conversely, charitable corporations rely heavily on fundraising and charitable donations made by private donors to help support their activities.
Non-profits must adhere to and comply with various regulations, including maintaining proper financial records and reporting to certain government authorities.
Charitable organizations must register with the Canada Revenue Agency for charitable status and demonstrate they meet the criteria required for charitable purposes and activities. They must also adhere to strict regulations and reporting requirements to maintain their charitable status.
Individuals or groups seeking to create a non-profit organization in Ontario should consult with a business lawyer to determine whether a non-profit corporation will adequately suit their intention and ensure they take the proper steps when preparing and setting up the organization.
Some key steps in setting up a non-profit organization are outlined below.
While Ontario does not require non-profit organizations to be incorporated, incorporation has several benefits, including liability protection and longevity. Incorporation turns a business into a separate legal entity, providing officers and directors protection from personal liability in case of a lawsuit. Incorporation also allows a business to continue operating even if membership changes or key individuals pass away.
To incorporate a non-profit, applicants must apply through the Ontario Business Registry and determine, among other things, whether the non-profit will have a charitable purpose and what the name of the non-profit will be. Applicants must also create and file the Articles of Incorporation.
Non-profit organizations in Ontario must develop their Articles of Incorporation under section 7 of the Not-for-Profit Corporations Act. The Articles are legal documents that must be filed with the government as part of the incorporation process and contain pertinent information relating to the corporation’s structure and governance. Generally, a non-profit corporation’s Articles of Incorporation will include:
- Basic information about the corporation, including the name, the type of corporation, and the address;
- Details for the corporation’s registered office;
- The corporation’s primary purpose, including specific objectives and activities related to the organization’s not-for-profit purposes;
- A list of the names and addresses of directors and officers;
- Special restrictions or provisions related to the corporation’s governance (for example, limitations about the corporation’s ability to distribute profits); and
- A signed declaration confirming the information contained within the Articles of Incorporation is true and accurate and confirming that those incorporating the non-profit have the authority to do so.
While not required as part of the incorporation process, a corporation’s bylaws, particularly concerning a non-profit corporation, are critical as they outline the rights and responsibilities of the directors, officers, and members. A corporation’s bylaws also set out the procedures to be followed when making decisions for the corporation.
Once a non-profit organization has been incorporated, the corporation will have ongoing legal and financial obligations to comply with. For instance, non-profit corporations will be subject to particular tax filing requirements and must hold an annual members meeting.
The knowledgeable business and non-profit 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 of skilled non-profit lawyers 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 with a member of our team, contact us online or call us at 519-945-5470.