How to open or Start a not-for-profit Company in Canada.

A Startup guide for Residents and Foreigners.

To start a not-for-profit Company in Canada is a very attractive option. There are more than 170,000 successful non-profit organizations operating in Canada with 2 million people working for them as employees.  We have put together a guide on what are the things to be considered to start a not-for-profit company. A Not-for-profit (or non-profit) is formed as a corporation for non-commercial purposes. A non-profit corporation can be a church or religious association, community organization, school, medical service provider, clubs, Scientific research institute, museum, sports association or such entity that is operated exclusively for social welfare, civic improvement, pleasure, recreation, or any other purpose except profit. No part of the organization's income can be payable to or available for the personal benefit of any proprietor, member, or shareholder of the organization, unless the recipient is a club, society, or association whose primary purpose and function is to promote amateur athletics in Canada.

Unlike opening a business for profit, to start a n0t-for-profit-company needs a vision and a plan of action to give back to the community rather than making profit.

Structure of a not-for-profit Corporation.
A not-for-profit corporation is a legal entity having an independent existence. It is separate and distinct from its founders and members. A not-for-profit company can own 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 an individual.

A not-for-profit organization have directors, members and may also have shareholders.

A not-for-profit corporation is governed by a board of directors, which is elected by the members. The board of directors, in turn, appoints officers such as president, secretary, treasurer etc. who are responsible for the actual operation of the corporation. A director shall be appointed chair of the board of directors and shall carry out the duties of the chair in accordance with the by-laws.
The directors, officers and members do not “own” the corporation, nor do they have any right of ownership to any particular asset of the not-for-profit corporation and the not-for-profit corporation may not be operated for pecuniary gain of its members, directors or officers.

Naming a not-for-profit corporation.
A new corporation’s name must be distinctive such that it will not be confused with existing names of corporations, trademarks or unincorporated organizations and will not mislead the public as to the nature of the corporation or its relationship to other corporations.
To satisfy these conditions, adding a distinctive word or words to the name is often necessary. Ideally the corporation’s name must also include a word which describes the nature of its activities.
Some examples are:
1. Coined word (example: 5-PT Hockey Association)
2. Combination of generic words to a distinctive name (example All-That-Jazz Dance Club)
3. Geographical location, initials (example Hamilton Pentecostal Church, GTFRR Food bank)

Where to start a not-for-profit in Canada.
You can structure your not-for-profit organization as a federal or provincial corporation. Starting a Federal not-for-profit is the best way to go as it gives nation-wide business name protection and more credibility if you will be operating internationally. Moreover, there are many grants available from the Canada Government for not-for-profit organizations which is easier to avail if it is set up as a Federal corporation.

Who can form a not-for-profit corporation ?
There is no residency requirement for the directors of a non-profit corporation, meaning, all directors of a not-for-profit can be foreign citizens.

Non-profit companies can be formed as corporations or unincorporated entities like sole proprietorship or partnerships.

Why do people form Non-profit companies ?
In a broad sense, Non-profit companies are formed for:
To do activities of social cause and provide a public benefit.
Tax exemption.

 

Non-profit vs not-for-profit vs charity. What is the difference ?

The difference between non-profit and not-for-profit is mostly in the definition of activities with overlapping areas between them. In general, both forms operate with the goal of generating profits which is not distributed to the owners. However, a not-for-profit is usually formed by a smaller group which is generally focused on human interest areas like a hobby or any particular sport while a non-profit tends to have a wider look serving the community, or helping the community to make it a better place.
A charity organization or a registered charity is a non-profit which is defines differently in the income tax act. It must be operate exclusively for charitable purposed like relief of poverty, advance of education or religion and purposes beneficial to the community as defined by Canada Revenue Agency as being charitable in nature. A registered charity enjoys maximum tax benefits than the other forms of organizations.

A charity organization can issue official donation receipts for income tax purposes. A non-profit or not-for-profit organization cannot issue official donation receipts for income tax purposes.

Charity organization
Charity is a not-for-profit corporation that has applied for and been registered as having charitable status by the
Canada Revenue Agency. A charitable organization’s purpose must fall within four general categories:
1. Relief of poverty
2. Advancement of education
3. Advancement of religion
4. Other purposes beneficial to the community in a way the law regards as charitable.

All of the purposes of a charitable corporation must be wholly and exclusively charitable. A corporation which has some charitable purposes and some non-charitable purposes is not a charity.

The Benefits of Being a Charity
Charity organizations enjoy certain tax privileges. They are exempt from paying federal income tax and may have reduced liability for some municipal and provincial taxes. Registered charities also can issue income tax donation receipts so that donors can obtain tax credits. Many good and services of registered charities are also exempt from the harmonized sales tax (HST)

How to incorporate a charity.
A Charity registration is a two step process.
1. A charity is incorporated as a not-for-profit corporation with it articles containing charitable purposes of the corporation which will define and limit the activities the corporation can carry out.
2. Incorporation is followed by registering for a charity which requires a separate application to Canada Revenue Agency. A not-for-profit corporation becomes a registered charity after successful registration for charity with Canada Revenue Agency which then issues a charitable registration number.
Further reading on charities can be found in The Canada Revenue Agency web site:
https://www.canada.ca/en/revenue-agency.html
https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/applying-registration/charitable-purposes-activities.html