Protect Yourself: Incorporate

Presentation to Multiple Births Canada Volunteer Development Retreat

Cathy Barr

September 2012

What Are Your Risks?

1. What are some risks faced by your organization?

2. Have you ever thought about the risks you face, personally, due to your involvement in your organization?

Risks of Unincorporated Associations

• An unincorporated association has no legal status.• Legally, it is a just a collection of individuals.• This means that:

– the association cannot legally carry out any action in its own name (e.g., enter into a contract, incur debt, sue or be sued)

– all members of the association are liable for actions of the association

How Can Incorporation Protect the Members of an Association?• A corporation is a legal entity separate from its

shareholders (in the case of for-profit corporation) or its members (in the case of a non-profit corporation).

• A corporation can do things in its own name (e.g., enter into contracts, buy and sell property, take legal action).

• The directors of a corporation are responsible for its actions. However, they can be indemnified by the corporation’s by-laws.

Indemnification & Insurance• Indemnification: The organization agrees to protect

its directors in the event they are sued or occasion losses in the course of fulfilling their duties as directors.

• Insurance: An indemnity is only useful if the organization has the resources to back it up. An indemnity from an organization with few or no assets provides little protection for directors. Therefore, most organizations will purchase Directors & Officers’ Liability Insurance.

Not-for-profit vs. For-profit Corporations• Not-for-profit corporations differ from for-profit

corporations in 3 major ways:– Nonprofit corporations have members rather than

shareholders.– The members of a nonprofit corporation cannot

receive any financial gain during the life of the corporation.

– In most jurisdictions, the powers of a nonprofit corporation are limited to what is specified in its objects.

Can a Not-for-profit Corp. Have a Profit?

• Yes. • A not-for-profit corporation can operate with a

surplus (i.e., with revenues exceeding expenses in a given year).

• However, the surplus must be reinvested in the organization.

• It cannot be distributed to members.

Not-for-Profit, Nonprofit or Charity?

Not-for-profit = Nonprofit

Not-for-profit/Nonprofit ≠ Charity

Charity ≠ Registered Charity

What is a Charity?An organization is considered a charity if its objects (purposes) fall under one of the following “heads”:

1. Relief of poverty

2. Advancement of religion

3. Advancement of education

4. Other purpose beneficial to the community (in ways the courts have defined as charitable)

To be considered a charity, an organization must also benefit the public or a significant segment of the public.

What is a Registered Charity?

• Organizations that meet the criteria of a charity can apply to the Canada Revenue Agency (CRA) to become a registered charities.

• Registered charities are able to issue tax receipts for donations and receive funding from public and private foundations.

• They also have to follow a variety of rules and regulations, file annually with CRA etc.

Other Advantages of IncorporationAside from limiting the personal liability of members, incorporation also:

1. Provides a framework for making decisions, solving problems etc.

2. Increases opportunities for funding

3. Insures the continuity of the organization over time, despite changes in membership

4. Protects the organization’s name from use by others

5. Reduces the risk of fraud

Incorporation Process

• You can incorporate federally or provincially.

• Each jurisdiction has its own act and its own procedures.

• There are, however, several common requirements.

Steps to Incorporate

Each jurisdiction has its own process but in most cases you must:

1. Complete an application form

2. Submit a NUANS name search report

3. Pay the required fee, which ranges from $40 to $200 (fee in Ontario is $155).

The process takes 6-8 weeks in most jurisdictions.

Key Application Requirements1. Office – You must provide an address where

official correspondence can be sent.

2. Directors – Names and addresses of the individuals who will be the first directors of the corporation (usually need at least 3).

3. Objects of the Corporation – e.g., “The establishment and operation of an association for the purpose of offering support and encouragement to families in our area that are raising multiple-birth children.”

New Canada Not-for-Profit Corporations Act

• Received Royal Assent on June 23, 2009.

• Came into force on October 17, 2011.

• Organizations currently incorporated federally must apply for a Certificate of Continuance within 3 years of the Act coming into force (i.e., by October 16, 2014).

• Failure to apply to continue will result in the dissolution of the corporation.

New Canada Not-for-Profit Corporations Act

1. Review your letters patent and by-laws.

2. Prepare Articles of Continuance (2 page form).

3. Create by-laws. Corporations Canada has an online “By-law Builder”: http://www.ic.gc.ca/eic/site/cd-dgc.nsf/frm-eng/NGRR-8AFNVX

4. Get members’ approval (2/3 required).

5. Submit your documents.

New Ontario Not-for-Profit Corporations Act

• Received Royal Assent on October 24, 2010.

• Was expected to go into effect on January 1, 2013.

• On September 27th, the government announced that the date of implementation has been moved to July 1, 2013.

• Organizations currently incorporated in Ontario will have 3 years from the date of proclamation to come into compliance with the new Act.

Questions

Discussion