Should a Charity incorporate as a Not-for-Profit?

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Q: When considering the organizational structure of my new charity, what factors should I take into consideration regarding the decision to incorporate the charity or not?

A: Charities can operate within different structures:

  • As an incorporated entity under federal legislation
  • Operate under a specific provincial incorporating act
  • Chartered by a special act of Parliament or of a provincial legislature.
  • Operating without incorporating.

The appropriate organizational structure for each charity will depend on its specific needs, circumstances, and activities.

Deciding on the organizational structure is an important decision that each group needs to weigh carefully. Before proceeding with a final decision on organizational structure, it is advisable to consult with a lawyer who has experience in corporate matters relating to charities, and who can advise whether formal incorporation or another form of organizational structure would be more appropriate.

Here are some issues to consider:

  • The corporation is a separate legal entity. It is an artificial person having an independent existence distinct from that of its members. The corporation owns property in its own name; acquires rights, obligations, and liabilities; enters into contracts and agreements; and has the capacity to sue and be sued as would a natural person.
  • As a separate legal entity, a corporation is not affected by changes in its membership and its existence continues in perpetuity unless its members or the government take steps to dissolve it.
  • Incorporation also offers certainty as to ownership of assets because, being a separate legal entity, it has the right to own property in its own name. In unincorporated charities, ownership vests in the name of individual trustees or in some cases, the “membership.” This may give rise to confusion or conflicts when it comes to selling or transferring property if those individuals are not clearly defined or agreed upon.
  • Since an incorporated charity is a separate legal entity, its obligations and liabilities generally do not become those of its members.
  • In addition, incorporation does not immunize a director from exposure to personal liability if he or she fails to meet their legal duties and standard of care as fiduciaries.
  • A charity that is incorporated must meet certain requirements under the incorporating law. These may include the requirement to file returns with the appropriate incorporating authority.
  • In addition, an incorporated charity may be required to appoint an external auditor to prepare audited financial statements on an annual basis.
  • The fees to incorporate are generally higher than if the charity is organized as an Association.
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