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CHARITIES AND NOT-FOR-PROFIT ORGANIZATIONS
If you are thinking about starting an organization within Ontario with the goal of helping others or advancing a not-for-profit cause, then it is important to understand what legal entities are available to you and their respective differences. In Canada, the two main legal entities that are used for carrying out business without a view for profit are charities and not-for-profit organizations. The Government of Canada categorizes these two business entities separately and has useful information about both entities on its website.
NOT-FOR-PROFIT ORGANIZATIONS
The Government of Canada website defines not-for-profit organizations as “associations, clubs, or societies that operate for either social welfare, civic improvement, pleasure, recreation, or any purpose except profit”.1 Not-for-profit organizations can operate either as corporations or remain unincorporated. Examples of not-for-profit organizations include churches, schools, sporting leagues, and seasonal celebrations like parades. It is important to note that if you plan to operate as a not-for-profit you cannot represent yourself as a charity. If a not-for-profit organization plans to issue tax receipts and become exempt from income tax, it must register for charitable status.
CHARITIES
The Government of Canada defines charities as organizations or foundations, created with the purpose of progressing one or more of the following goals: relief of poverty, the advancement of religion or education, or any other objective that benefits the community.2 Like not-for-profits, charities can operate either as a corporation or remain unincorporated. Examples of well-known charities in Canada include the Salvation Army, Sick Kids Foundation, Heart and Stroke Foundation, and UNICEF Canada. While it is not mandatory to register your charity to pursue the furtherment of any of the above goals, registration with the Canada Revenue Agency and issuance of a charitable registration number is required to issue donation receipts and for the charity to become exempt from income tax. There are strict requirements under the Income Tax Act that must be met prior to the issuance of charity status to a not-for-profit organization. It is important to note that organizations can only fall into the category of not-for-profit or charity. They cannot operate as both.
If you are looking to start a not-for-profit or charity organization, it is always recommended to consult with an experienced business lawyer who can guide you through the process. If you are an existing not-for-profit or charitable organization, we can assist you with ensuring continued legal compliance of your entity.
Contact us today to set up an initial consultation with our business law team where we can answer any questions you may have about charities and not-for-profit organizations.
References:
1. Government of Canada: What is the Difference Between a Registered Charity and a Non-profit Organization?
2. Ibid
Disclaimer: The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please contact us.
About the Author:
Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.
