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| Path: Main Street > Resources/Library > Research Articles > Feature Article |
To be (corporate) or not to be (corporate)?
By Victor Au, Drache LLP - Tax, Estates & Charity Law, Ottawa
December 4, 2006Many are unaware that their church, synagogue, or other favourite registered charity is a non-share corporation. For most donors, there is almost no distinction between a charity that is a non-share corporation, a trust or an unincorporated association because in most circumstances the two key factors for deciding on which charity to donate to is its: (1) charitable activities and ability to fulfill them and (2) ability to issue tax-deductible receipts. Both these factors are independent of whether an organization is a non-share corporation, a trust or an association. An organization’s charitable activities and ability to fulfill them is a function of the organization and those who run it, while the ability to issue tax-deductible receipts is the result of being granted the status of a “Registered Charity” by the Canada Revenue Agency to organizations determined to be fulfilling solely charitable purposes.
The choice of structure for a registered charity is often more important to those involved at an intimate level with the organization (i.e. a director, officer, voting member) because the advantages and disadvantages of incorporating affect this group.
The main benefits of a corporation are associated with the fact that it is a separate legal entity.
The key benefit of being a separate legal entity is that members, directors, and officers enjoy limited liability for transactions of the corporation. The executives of an association and the trustees of a trust do not enjoy such protection. Personal liability for executives and trustees may be indemnified by the trust or association but there is no guarantee that there will be enough money in the association or trust to cover the liability. It should be noted, however, that some organizations bear considerably less risk of liability than others. For example, an organization that simply distributes money to other charitable organizations has less liability than an organization that provides services to children.
A corporation has the ability to hold property, enter into contracts and incur debts in the corporation’s name. Trust property must generally be held in the names of the trustees and not the trust. As a result, trustees and executives of associations are exposed to liability that directors or members of a non-share corporations do not have.
A corporation also has an indefinite life, which provides the benefit of permanent succession. A loose association of individuals may disband over time as individuals in the association change. In addition, by-laws of a corporation can only be amended with approval of the members whereas rules governing an association or a trust can be amended by the executives or trustees, as the case may be.
There is also an air of credibility created by the involvement of a corporation. It is my belief that this perception is created by the sense of stability created by a corporation, that is, a corporation has set rules which are not subject to the whim of one person and that it will continue to exist beyond the tenure of the current individuals involved.
A corporation is not without costs. The stability of a corporation requires maintenance. The directors of the corporation have the obligation to keep its minute book up-to-date, hold annual meetings and file annual returns. Annual returns require a filing fee of $30.00 each year. The maintenance of a corporation is neither burdensome nor difficult but does require commitment.
These are only some of the general factors to consider when deciding whether to incorporate your charity. Each charity is different and should consult a professional with experience in this specialized area of the law to determine whether a non-share corporation is the best fit for your charity. While this article deals with non-share corporations in the context of registered charities, many of the same issues are applicable to nonprofits that cannot be registered charities.
This article first appeared in Charity Law Insights, a law newsletter for charities and not-for-profits. It is reprinted with permission.
The above information is distributed on the understanding that it does not constitute legal advice or establish the solicitor/client relationship by way of any information contained herein. The contents are intended for general information purposes only and under no circumstances can it be relied upon for legal decision-making. This article is current only as of the date above and does not reflect any subsequent changes in the law. Readers are advised to consult with a qualified lawyer and obtain a written opinion concerning the specifics of their particular situation
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