Charity Inc. - Incorporation and Registered Charities

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You run ABC, a charity that helps people who have difficulty reading and writing. You have decided to try to register your charity.
 
Now you’re wondering about something else: does a registered charity have to incorporate and become a company? And what exactly does it mean to incorporate?
 
You also wonder whether you need to incorporate before applying to be a registered charity.
 
In this article, Éducaloi explains the ins and outs of incorporation for registered charities.

What is incorporation?

Incorporation means you create a legal entity that exists separately from the people who run or are members of an organization. The separate legal entity - Do-Good Charity Inc., for example – can do things in its own name, such as having a bank account, signing contracts or owning things.

Applying to be a registered charity and incorporating are separate processes. Registered charities do not have to incorporate, but it is sometimes a good idea.

What are the advantages of incorporation?

  • The separation between the legal entity and the people involved in the organization provides some protection for these people: if something goes wrong, generally the organization will be held legally responsible and not the people personally.
  • Incorporation means the legal structure continues despite turnover among the people in the organization.

What are the disadvantages?

  • There are government fees to pay for the incorporation and it might be necessary to pay a professional advisor to help with the process.
  • There are also ongoing obligations that take time and money: incorporated organizations must file a form annually with the government, pay an annual registration fee, hold an annual meeting, follow formal rules on how they operate, etc.

If a registered charity wants to incorporate, how does it work?

Charities can incorporate either at the federal, provincial or territorial level.

For incorporations in Quebec, the government agency responsible is the Registraire des enterprises. On its website, the Registraire has a guide (PDF) about the incorporation process. Note that if your group is a religious organization, the form to fill out is different than for other groups. Organizations that incorporate in Quebec must have their head office in the province, with a real physical address recorded with the Registraire.

At the federal level, Corporations Canada is the responsible agency. It has information about federal incorporation on its website.

IMPORTANT! You should know that some parts of federal and provincial incorporating laws are designed for businesses that want to earn a profit. Charities that want to become registered charities must operate on a non-profit basis. They should therefore incorporate under the incorporating law or section of this law that is appropriate for organizations that do not earn a profit.

For charities incorporating provincially in Quebec, the proper section is Part III of a law called the Companies Act. For federal incorporations, it is the Canada Not-for-Profit Corporations Act.

Note: Before October 17, 2011, federal incorporations were done under Part II of the Canada Corporations Act. Organizations incorporated under this old law have until October 17, 2014 to continue their activities under the new Canada Not-for-Profit Corporations Act. For more information, see the Transition Guide of Corporations Canada.

Once the transition to the new law has been done, charities must send certain documents to the Charities Directorate of the Canada Revenue Agency.
 

Is there anything else to check before incorporating?

It is important to know that, in Quebec, the kinds of purposes (mission of an organization) considered acceptable for incorporating on a non-profit basis are wider than those that meet the test for being a registered charity.

Charities that want to register with the Canada Revenue Agency should therefore make sure that their purposes meet the narrower test that applies to registered charities. To learn more about this test, consult our article Introduction to Registered Charities.

Also, charities that want to both incorporate and apply to be a registered charity should make sure the documents they file when they incorporate reflect the other requirements for registered charities and the activities charities tend to carry out.

For example, the incorporating documents should mention that the charity can receive donations and hold fundraising activities, and that if it ceases to exist, it will give any assets (money, property, etc.) it has left over to a “qualified donee”. Qualified donees include other registered charities. Often the government department responsible for incorporation can provide suggested wording for these standard parts of incorporating documents.

Important !
This article explains in a general way the law that applies in Quebec. This article is not a legal opinion or legal advice. To find out the specific rules for your situation, consult a lawyer or notary.