What are the benefits to incorporating a Canadian not-for-profit organization?

What are the benefits to incorporating a Canadian not-for-profit organization?

A not-for-profit corporation is a company that can be either a charitable or non-charitable company created without the intention of collecting profit. There is no allocation of profits or shares in the corporation. If there is a point where profits are collected, they must be used to further their non-profitable focus.

Not every not-for-profit corporation is incorporated. Directors can choose to maintain an informal not-for-profit that is strictly unincorporated. If the not-for-profit chooses to formally incorporate their corporation, they would be governed by the Not-for-Profit Corporations Act, 2010 (ONCA). But what are benefits to making this business decision?

ONCA has made strides to ensuring a smooth incorporation process for not-for-profit corporations, and there are many reasons why a formal corporation can be beneficial over an informal corporation.

It is advantageous to incorporate a not-for-profit because it becomes a formal corporation. This allows the corporation to have its own legal identity meaning the company can create legal contracts and the company itself can be sued or sue others. When a not-for-profit company is informal, they are not legally permitted to construct legally binding contracts and a legal suit would involve an individual member of the not-for-profit.

Formally incorporating a not-for-profit can also provide security. When the not-for-profit becomes a company, it becomes permanent and can endure even with new ownership until the company has officially been ceased.

When a not-for-profit is informal, the individual members can be personally liable for any issues that ensue. However, with a formal corporation, the company becomes responsible. Further, if the liability of directors become questionable, there is also a due diligence and good faith defence for directors, protecting them from certain liability cases.

When becoming a corporation, property ownership becomes possible. There is the opportunity for the company to own property under the name of the corporation. This ensures that even if new owners buy the company, the property is still in the possession of the corporation.

If you want to incorporate you not-for-profit, it is important to seek legal advice. There are many areas that would need review, for example, creating the articles of incorporation or determining what the sufficient audit requirements are for your company. If you are interested in making the transition, please contact KCY at LAW by filling in an online consultation request or contact us by phone at 905-639-0999 to book your consultation today.