Most non-profits begin with a good idea and a few committed people. A cricket league needs a bank account and insurance. A group of parents wants to run after-school tutoring in a rented room near Bramalea City Centre. A faith community or cultural association wants to apply for a grant, and the funder asks for proof of legal existence. Someone suggests they should incorporate, and only then does the group discover the choices involved.
Getting this right early saves a lot of trouble. An unincorporated group has no separate legal personality, and those running it can face personal exposure for its debts or liability for events that go wrong. Incorporation can reduce those risks and make it easier to sign leases, open accounts, and hold property. It also brings duties that many volunteers do not anticipate: a real board, real members with real rights, annual filings, and financial statements.
This is general information and not legal advice. Your group’s activities, funding sources, and plans for charitable status can all change what is appropriate, so get advice specific to your situation before filing.
First, Is a Corporation What You Need?
Some groups do not need to incorporate. A small neighbourhood club with little money, no employees, no property, and modest activities may operate perfectly well as an unincorporated association with a written constitution. Consider incorporating if your group will:
- hold significant funds or property, or sign a multi-year lease
- hire staff or engage contractors
- apply for government or foundation grants that require it
- run events or programs that carry a real injury risk
- plan to issue tax receipts, which requires charitable registration in any case
If those sound familiar, a corporation offers continuity and a clear structure. The organization carries on when founders move on, and its contracts belong to it and not to whichever volunteer signed them.
Non-Profit and Charity Are Different Things
This distinction trips up many founding groups. In everyday speech, people use the two words interchangeably. For legal and tax purposes, they mean different things.
A not-for-profit corporation is a corporate form under a statute. It generally cannot be carried on for the primary purpose of gain for its members, and its profits go back into its purposes. A non-profit organization may be exempt from income tax under paragraph 149(1)(l) of the Income Tax Act if it meets the conditions there, including being organized and operated exclusively for any purpose other than profit. But it cannot issue official donation receipts simply because it is a corporation.
A registered charity has been registered by the Canada Revenue Agency (CRA). It must be established for exclusively charitable purposes, which are the relief of poverty, advancement of education, advancement of religion, or other purposes beneficial to the community recognized by law. Registered status allows it to issue official donation receipts. It also brings heavier oversight, including an annual information return that is publicly available and restrictions on how money can be spent.
If your group may later want charitable status, the wording of its purposes at incorporation becomes important. CRA reviews the governing documents, and broad language such as “to support our community” or “to promote community welfare” may not meet the test. It is usually cheaper to draft charitable objects correctly from the start than to change them after a CRA refusal. If you are a charity in Ontario, you also have obligations under the Charities Accounting Act, and the Public Guardian and Trustee has a supervisory role.
Ontario or Federal?
Two main statutes are likely to be relevant: the Ontario Not-for-Profit Corporations Act, 2010 (ONCA) and the Canada Not-for-profit Corporations Act (CNCA). Each is legitimate, and neither is automatically better.
An ONCA corporation is a natural fit for a group whose work is focused on Brampton, Peel, or Ontario. Its dealings are with one provincial registry, and its articles, filings, and rules are all under one law. A CNCA corporation can make sense where a group has real operations in several provinces or a national identity, but it should expect separate extra-provincial registration where needed, and it doesn’t eliminate provincial rules on charitable activity.
Most small local groups will reasonably look first at ONCA. The rest of this article focuses on that statute. ONCA has been in force since October 19, 2021, and older Ontario non-share corporations with letters patent had a three-year transition period. Provisions of older governing documents that were not brought into line by the end of that period are deemed amended to conform to the Act. If you are taking over an older organization, do not assume its by-laws are still accurate.
The Filing Itself
Under ONCA, incorporation is carried out by filing articles of incorporation through the Ontario Business Registry. The current government fee shown on Ontario’s fee page for incorporation of a not-for-profit corporation is $155, and it is worth checking the page again before filing. A name search, usually a NUANS report, is normally needed as well, and that has its own modest cost.
The articles deal with several matters that deserve a real conversation:
- Name. It must be distinctive and not confusingly similar to others. Think about whether the name overlaps with an existing local group.
- Purposes. These define what the corporation may do. Draft them with both the present and the foreseeable future in mind, and with attention to charitable law if that’s a goal.
- Number of directors. ONCA requires at least three. The articles can set a fixed number, or a minimum and maximum.
- First directors. They must meet the Act’s qualifications: individuals who are at least 18, not found incapable, and without the status of bankrupt. There is no requirement that they be Canadian residents.
- Distribution on dissolution. What happens to remaining property if the group closes? For a charity, this must go to another qualified donee. For others, the articles can be specific.
Incorporation only starts the process. A properly formed non-profit also needs a first directors’ meeting, by-laws, officer appointments, bank authorizations, and a minute book that holds it all together.
By-Laws and Members: Where Groups Often Struggle
By-laws are the rules of the organization: how members join and leave, how many classes of members there are, how meetings are called, how directors are elected, and what quorum applies. ONCA gives members more rights than many founders expect.
Members have statutory rights to vote on fundamental changes, including certain amendments, to requisition meetings, and to receive financial statements. Members also approve by-laws, typically at the next meeting after the directors make them. If you have several classes of members, each may gain class votes on certain changes, even if your by-laws say that class is non-voting. A group that wanted a small advisory circle of voting members but opened membership to everyone who paid a $20 fee could later find that a large wave of new members can replace its board.
Decide up front what membership should mean. Some organizations keep the voting membership small and use another word, such as “supporters” or “participants”, for the wider community. Others want an open, democratic association and accept the consequences. Neither approach is wrong, but it should be a deliberate choice and your by-laws should clearly reflect it. Disputes over who is a member and who was entitled to vote at a contested annual meeting are among the bitterest disputes community groups ever face, and they can be expensive to resolve in court.
What Directors Take On
Volunteer directors are still directors. They must act honestly and in good faith with a view to the corporation’s best interests, and exercise the care, diligence, and skill of a reasonably prudent person. ONCA also includes a requirement to disclose conflicts of interest, and a director with a conflict generally should not take part in the vote. If the treasurer’s spouse is proposed as the new paid bookkeeper, that is exactly the kind of transaction that must be disclosed and handled carefully.
Some liabilities can reach directors personally, even in an organization that pays them nothing. Section 40 of ONCA makes directors jointly and severally liable, under stated conditions, to employees for up to six months’ wages and up to 12 months’ vacation pay under the ESA. Other statutes can also create liability for unremitted source deductions and HST. A non-profit that hires staff needs a treasurer who watches those remittances and a board that asks about them.
Directors’ and officers’ insurance is common and worth pricing out. Indemnity provisions in the by-laws can also help, but they are only as good as the organization’s ability to pay.
Audit or No Audit?
Under ONCA, the default is that members appoint an auditor. Section 76 allows members to pass an extraordinary resolution, which requires at least 80% of votes cast at a special meeting or the consent of all members entitled to vote, to reduce the requirement. The available relief depends on whether the corporation is a public benefit corporation.
A public benefit corporation means a charitable corporation or a non-charitable corporation that receives more than $10,000 in a financial year in donations or gifts from outsiders, or in grants or similar financial assistance from government. For those:
- With annual revenue of $100,000 or less, members may dispense with both an audit and a review engagement.
- With revenue above $100,000 but less than $500,000, they may have a review engagement instead of an audit.
For other corporations:
- With revenue of $500,000 or less, members may dispense with both.
- With revenue above $500,000, they may have a review engagement instead of an audit.
These amounts can be changed by regulation. Funders may have their own requirements, regardless of what the statute would allow, and the Act’s rules are a floor rather than a ceiling for good governance.
Ongoing Filings
Once running, your corporation will have recurring tasks:
- an annual return and notices of change through the Ontario Business Registry, including a change of directors or registered office
- the corporate tax side: non-profits generally file a T2 return as corporations and may also need Form T1044 if they exceed certain thresholds, such as more than $200,000 in assets or more than $10,000 in specified investment income
- for registered charities, the annual T3010 return and related CRA rules
- HST, payroll, and WSIB accounts if applicable
- minutes, registers of members, directors, and officers, and financial records
If your group rents space in Brampton or uses city facilities, its landlord or the facility provider may ask for insurance and proof of good standing. Many funders do as well. Falling behind on filings can lead to dissolution, and a lapsed corporation can lose access to grants at the worst possible time.
Getting the Foundation Right
The most useful thing a founding group can do is talk through its answers on paper: what the organization is for, who controls it, whether charitable registration is a goal, who handles the money, and what happens if the founders disagree. Those conversations are easier before any money has come in.
Our corporate law group can assist with forming and organizing a non-profit corporation, including its purposes and by-laws. Many groups also find it useful to have a lawyer review their first lease or major funding agreement. Whatever route you choose, a modest investment in careful set-up usually pays for itself the first time something goes wrong.