Many of us belong to organizations which operate without profit. They are established for many purposes, including sports, social, community service, trade/business and charitable.
There are 4 basic types of organizations, namely; trusts, unincorporated associations, corporations without shares or co-operatives without shares. However, the most common alternatives are unincorporated associations and corporations without shares. The advantages of incorporating include:
1. Generally, the members of a corporation are not personally liable for the acts of the corporation. This is not so for unincorporated associations.
2. The organization survives regardless if directors and/or members resign or die (the corporation is a legal entity).
3. There is more formal structure with corporations and they are regulated by the government (ie the law sets out basic requirements like governance, requirement for financial statements etc.). There is very little government regulation of unincorporated associations.
The disadvantages of incorporating include:
1. The cost is higher to set up and maintain (ie legal, accounting etc.).
2. There are more reporting obligations (ie changes in directors/officers, filing of tax returns etc.).
3. More formal structure (ie “fixed rules” dealing with how meetings are conducted, how decisions are made etc.).
If it is decided that an existing or a new organization wants to incorporate, an application for a letters patent has to be made under either the Provincial legislation (ie currently the Ontario Corporations Act but soon the new Not-for-Profit Corporations Act) or Federal legislation (ie Canada Not-for-profit Corporations Act). In most cases, unless the organization will be active throughout the country or in several provinces, incorporating provincially makes more sense.
Once the incorporation takes place, by-laws need to be passed. The by-laws give guidance to the members, directors and staff. Basically, they set out who may do what, how decisions are made and the structure of the organization. Ideally, your legal advisor should have input into the wording. However, there are excellent model by-laws available online from the Ontario and Federal Governments.
Just a quick primer on governance. Members of a non profit corporation elect directors at an annual general meeting (“AGM”). The directors manage the corporation between these meetings. The directors normally appoint officers from among themselves (usually President, Secretary and Treasurer as a minimum). Unless additional matters are to be dealt with at the AGM, the only other important thing to be done is the presentation of financial statements for the previous fiscal year (ie commonly a calendar year in most small non profits).
Michael Cobb is a lawyer at the law firm of Cobb & Jones LLP. Should you have any questions for Ask A Lawyer, please direct them to the Simcoe Reformer or ask a lawyer of your choice. For more articles, visit the Library page at www.cobbjones.ca.