Updated May 2014
by Theresa L.M. Man, Carters Professional Corporation
This How-To Brief outlines the steps to take to set up a not-for-profit corporation under both federal and Ontario legislation.
1Discuss the general incorporation issues with the client
- Canvass options with the client as to the most appropriate vehicle in which to carry on the not-for-profit organization, e.g., unincorporated association, trust, provincial incorporation or federal incorporation.
- Note that they cannot be partnerships since their objective is not to make a profit. Note also that they cannot be unincorporated associations if they want to become registered as foundations under the Income Tax Act (Canada).
- Issues to be covered would normally include concepts such as limited liability, perpetual existence, taxation, costs of incorporation and maintenance, and prestige.
- Consideration should also be given as to whether the entity should be a registered charity.
- Discuss whether the entity should be registered as a federal or a provincial corporation.
- Consider whether there are any other third party requirements that may affect the jurisdiction of incorporation or form of vehicle, such as requirements of funders, government regulations.
On June 23, 2009, the Canada Not-for-Profit Corporations Act (the "CNCA") received Royal Assent, and on October 17, 2011, the majority of the provisions of the CNCA and its regulations came into force. The CNCA replaced Part II of the Canada Corporations Act (the "CCA")
The CNCA applies to federal non-share capital not-for-profit corporations. In addition to new corporations incorporated under the CNCA, it also applies to federal special act corporations.
All corporations incorporated under Part II of the CCA prior to the proclamation of the CNCA are required to continue under the CNCA by October 17, 2014. The continuance process will require the filing of Articles of Continuance and adopting new by-laws that comply with the rules in the CNCA. Corporations that fail to continue by that date may be subject to dissolution by Corporations Canada. See the Corporations Canada's "Guide to Transitioning to the New Federal Legislation "link in the Resources section of this How-To Brief.) Until they have made the transition, the provisions of Part II of the CCA will continue to apply to them.
The CNCA replaced Part II of the CCA and introduced the following changes in relation to the incorporation process:
- Incorporation is now "as of right" (there is no longer a need for Ministerial approval of letters patent); corporations will be incorporated by filing articles of incorporation.
- It is no longer necessary to submit a draft form of the by-laws with the articles of incorporation; rather, at the first organizational meeting, the directors may make by-laws, which must then be filed within 12 months after the members have confirmed them (see the Corporations Canada's Not-for-Profit Corporations ActModel By-Laws link in the Resources section of this How-To Brief, which was designed to apply to a typical not-for-profit corporation).
- The articles must set out the classes of members that the corporation is authorized to establish. If there is more than one class of members, the articles must give the right to vote to at least one class.
- The articles must set out the minimum and maximum number of directors that the corporation may have on its board. If the corporation wants to have a fixed number of directors, then the same number would be indicated in both the minimum and maximum boxes on the form.
- It is no longer necessary to list the powers of the corporation.
- It is possible to include restrictions on the activities that the corporation may carry on.
- It is possible to be incorporated as a numbered company.
- Documents may now be filed electronically.
See the Resources section of this How-To Brief for the Corporations Canada's Not-for-Profit Corporations link, which describes how to create and maintain a federal not-for-profit corporation and also includes a comparison between the old CCA and the new CNCA.
Non-share capital non-for-profit corporations may be incorporated under Part III of the Corporations Act (the “OCA”). A new
Not-for-Profit Corporations Act, 2010 (the “ONCA”) to replace Part III of the OCA received Royal Assent on October 25, 2010. At the time of writing, the ONCA has not been proclaimed. Once proclaimed into force, it will automatically apply to all corporations incorporated under Part III of the OCA. The ONCA was originally anticipated to be proclaimed on July 1, 2013. Key amendments to the ONCA embodied in Bill 85 was introduced in June 2013, and the government had indicated that the ONCA would not be proclaimed until at least 6 months after the enactment of Bill 85 in order to allow not-for-profit corporations to prepare for transition. Bill 85 died on the Order Paper when the Parliament was dissolved on May 2, 2014. This means that the ONCA will not be proclaimed until at least six months after the amendments have been re-introduced and enacted. The Ontario Ministry of Government and Consumer Services' website (http://www.sse.gov.on.ca/mcs/en/pages/not_for_profit.aspx) indicates that the ONCA is not expected to come into force before 2016. With the Ontario Liberal Party which originally introduced the ONCA winning the election, many in the sector are cautiously hopeful that there might be an earlier proclamation date, possibly late summer of 2015, if Bill 85 is reintroduced into the Legislature by fall 2014. Those interested in the progress of the ONCA are encouraged to monitor the Ministry's website for updates.
The ONCA is very similar to the CNCA in many respects, including incorporation as of right by filing articles of incorporation, and fast and efficient incorporation process. In the mean time, Ontario non-for-profit corporations will continue to have to incorporate under the OCA.
2General Drafting Considerations of Articles of Incorporation or Letters Patent
Careful discussion and consideration should be given to the provisions to be included in the articles/letters patent and by-laws, such as corporate purposes, dissolution clauses, non-profit clauses, director remuneration clauses, and other additional or special provisions. Having the appropriate provisions included upon incorporation will avoid the corporation having to amend these provisions at a later time, for example when the corporation applies for charitable status after incorporation.
The corporate purposes must accurately reflect the nature of the organization, and be consistent with the intended tax status of the corporation. For example, if the corporation intends to be registered as a charity, then the corporate purposes must be drafted with the requirements of the Income Tax Act (Canada) and Canada Revenue Agency in mind to ensure that the purposes would be acceptable to the Canada Revenue Agency when the corporation applies for charitable status; if the corporation is intended to operate as a non-profit organization under the Income Tax Act (Canada), then the corporate purposes must be for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit. See the Resources section of this How-To Brief for sample charitable and non-charitable purposes in Appendices C and A respectively in the Government of Ontario, Ministry of the Attorney General, Not-For-Profit Incorporator's Handbook. See also the Charities Directorate's guidance and model charitable purposes on their website at http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/gnrlrqrmnts-eng.html.
If an Ontario corporation intends to become a registered charity, there are a number of provisions that must be included in the letters patent. See the Resources section of this How-To Brief for these clauses in Appendix D in the Government of Ontario, Ministry of the Attorney General, Not-For-Profit Incorporator's Handbook.
Also discuss with the client whether other provisions should also be included. For example, some faith-based organizations would want to include their statement of faith as part of the incorporation papers.
3Establish that the desired name is permitted
In choosing a suitable corporate name, consideration must be given to the requirements under the CNCA and OCA, which are explained below. In addition, other considerations to discuss with the client include whether the name reflects the nature of the organization, is easily recognizable and whether to seek trademark protection.
- Obtain a federal-biased NUANS name search report; ensure that the proposed name otherwise complies with the ss. 11–13 of the CNCA, as well as ss. 42-59 (Part 4) of the Canada Not-for-Profit Corporations Regulations, made under the CNCA. As well, the name must also comply with requirements in Corporations Canada's Name Granting Compendium.
- The proposed name must be distinctive, must not cause confusion with any existing name or trade-mark and must not include unacceptable terms. Other searches that can be conducted to ensure the proposed corporate name is not deceptively similar to the name of a known organization, corporation, association, partnership, individual or business include lOCAl telephone directories, Canada Revenue Agency's online database for registered charities, internet searches, and internet domain name searches. Where applicable, trademark searches may also be conducted. See the Corporations Canada's "Choosing a Name" link in the Resources section of this How-To Brief.
- The CNCA also allows the client to choose a number name as the corporation's legal name. Using a bilingual name is also permitted.
- It is possible to apply for a name pre-approval decision from Corporations Canada in advance of incorporation to ensure that a desired name will be approved.
- Obtain an Ontario-biased NUANS name search result; ensure that the name otherwise complies with s. 13 of the OCA, as well as ss. 1-9 of the General regulation, made under the Corporations Act.
- Name search considerations and the types of name searches are similar to those under federal incorporation.
- However, application for a name pre-approval decision is not available. The use of a numbered name is not permitted.
4Prepare and file the application for incorporation
In order to apply for a certificate of incorporation, the following items must be filed with Corporations Canada using one of the following methods: Corporations Canada's Online Filing Centre, email, fax, or mail. (see the Industry Canada's "Instructions to File Articles of Incorporation" link in the Resources section of this How-To Brief for another useful checklist):
In order to incorporate a not-for-profit corporation in Ontario, the following items must be submitted to the Companies and Personal Property Security Branch of the Ministry of Government Services:
- Form 2, Application for Incorporation of a Corporation without Share Capital, completed in duplicate and bearing original signatures on both copies
- Ontario-biased NUANS name search report
- Fee of $155 (standard-service processing time is six to eight weeks) or a fee of $255 (expedited-service processing time is seven business days)
- Covering letter giving a contact name, return address and telephone number
However, if the corporation is intended to become registered as a charity under the Income Tax Act, the above documents must first be submitted to the Ontario Public Guardian and Trustee's office for pre-approval. However, if an application was to use their pre-approved charitable objects contained in Appendix C of the Not-For-Profit Incorporator's Handbook (see the Resources section of this How-To Brief) referred to above, the incorporators may apply directly to the Ministry of Government Services for incorporation, and no pre-approval from the Ontario Public Guardian and Trustee is required.
(See the link to the above form in the Resources section of this How-To Brief.)
For additional information, see the following links in the Resources section of this How-To Brief:
- Ministry of Government Services, Incorporation (Not-For-Profit Corporations), for general filing instructions
- Ministry of The Attorney General, Not For Profit Incorporator's Handbook, for comprehensive information and guidelines on incorporation in Ontario
- The Ontario NUANS Search Houses listed by Industry Canada
5Post Incorporation Considerations
For federal corporations, see Corporations Canada's "Reporting Obligations after Incorporation" link in the Resources section of this How-To Brief, for a list of maintenance requirements once your client's federal not-for-profit corporation has been incorporated. For Ontario corporations, see Ministry of The Attorney General, Not For Profit Incorporator's Handbook in the Resources section of this How-To Brief for a summary.
However, one of the key steps after incorporation is to organize the corporation in order to operate. This step would include the incorporators (or the first directors) calling the first board meeting and members' meeting to adopt initial organizational resolutions, such as to adopt by-laws, admit members, elect directors, appoint officers, etc. Under both the CNCA and the OCA, written resolutions may be adopted in lieu of holding meetings.
See the Industry Canada's Next Step Following Incorporation link in the Resources section of this How-To Brief. See also Section 4.1 in the Ministry of The Attorney General, Not For Profit Incorporator's Handbook link in the Resources section of this How-To Brief.
The lack of any by-laws after incorporation can often create problems for the governance of the corporation should disputes arise in later years. This can often lead to unsatisfactory and surprising results, including the court ruling that the incorporators continued to be the only directors and members of the corporation years after the corporation having operated for many years, or the court ordering the winding up of the corporation all together. (See Rexdale Singh Sabha Religious Centre v. Chattha, 2006 CarswellOnt 7413,  O.J. No. 4698 (Ont. C.A.), reversing 2006 CarswellOnt 497,  O.J. No. 328 (Ont. S.C.J.); Warriors of the Cross Asian Church v. Masih (2007), 87 O.R. (3d) 169, 2007 CarswellOnt 6345, 41 B.L.R. (4th) 153 (Ont. S.C.J.))
This underscores why it is very important for the lawyer who assists with the incorporation process to also stress to the client the importance of having a by-law prepared at the same time as part of the incorporation process, and completing the organization of the corporation after incorporation.
- Corporations Canada, Choosing a Name
- Industry Canada, Instructions to File Articles of Incorporation
- Industry Canada, Articles of Incorporation Form 4001
- Industry Canada, Form 4002, Initial Registered Office Address and First Board of Directors
- Industry Canada, Instructions for Form 4002 — Initial Registered Office Address and First Board of Directors
- Industry Canada, How do I file my application under the Canada Not-for-Profit Corporations Act (NFP Act)?
- Corporations Canada, Not-for-Profit Corporations Act Model By-Laws
- Corporations Canada, Guide to Transitioning to the New Federal Legislation
- Corporations Canada, Federal Not-for-Profit Corporations
- Industry Canada, Schedule of Fees
- Industry Canada, Next Step Following Incorporation
- Corporations Canada, Reporting Obligations after Incorporation
- Government of Ontario Ministry of Government Services, Form 2, Application of Incorporation of a Corporation without Share Capital, Corporations Act
- Government of Ontario, Ministry of Government Services, Incorporation (Not-For-Profit Corporations)
- Government of Ontario, Ministry of the Attorney General, Not-For-Profit Incorporator's Handbook
- Ontario NUANS Search Houses listed by Industry Canada
6Statutes and Rules
- Canada Not-for-Profit Corporations Act, S.C. 2009, c. 23
- Canada Not-for-profit Corporations Regulations, SOR/2011-223, made under the Canada Not-for-Profit Corporations Act
- Canada Corporations Act, R.S.C. 1970, c. C-32
- Corporations Act, R.S.O. 1990, c. C.38
- General, R.R.O. 1990, Reg. 181, made under the Corporations Act
- Not-for-Profit Corporations Act, 2010, S.O. 2010, c. 15