NPO, what is it?
A non-profits organization (more commonly known as an “NPO” or “association”) is a legal form that companies can take. It is an entity created under federal or provincial law. It’s vital to understand that a not-for-profit organization is not intended to acquire gain or generate profit for distribution to its members. Unlike a corporation, a not-for-profit organization does not have share capital. Consequently, it cannot issue shares, which represent a fractional unit of capital, or pay dividends to its members.
There are 2 persistent misconceptions about non-profit organizations that need to be debunked:
1. Non-profits organizations cannot make a profit.
On the contrary, a not-for-profit organization can carry out the same business activities as a corporation. Thus, it can make a profit or record an operating surplus. However, the profit or surplus must be incidental to its main objectives and reinvested in the organization.
2. Incorporating a non-profit organization confers charitable status.
This idea is erroneous. An incorporated non-profit organization (also known as a “non-profit corporation”) is not automatically considered a charity within the meaning of the Income Tax Act. To benefit from this status and be considered a charitable corporation (also known as a “charitable body corporate”), it is necessary to comply with specific requirements prescribed by the Charities Directorate of the Canada Revenue Agency.
Organization of an NPO
Like a corporation, an NPO has a Board of Directors. The board directs the organization, but may delegate some of its powers to a general manager or an executive committee, which may include employees. However, it is important to bear in mind that NPOs do not have share capital. NPOs do, however, have a peer-to-peer participatory financing model called “community bonds”.
As mentioned above, the NPO has an unlimited lifespan, since its structure survives the departure of its founders.
Members’ liability is limited to the obligation to pay a contribution set by regulation. Members are not personally liable for the organization’s debts.
Directors are usually not liable for the organization’s contracts.
However, they have certain duties towards the members of the organization. They must ensure that the NPO and its officers act in accordance with the conditions set out in the letters patent and by-laws. If they fail in their fiduciary duty, they may be held personally liable.
With regard to officers, their authority is delegated by the Board of Directors via the by-laws.
Please note that certain roles cannot be delegated to managers. They cannot determine member contributions, draw up by-laws or financial statements, nor can they decide on changes in structure.
NPOs do not pay dividends or patronage allocations to members.
As a reminder, an NPO is a company that promotes social values. Although you can’t benefit from profits, which remain within the NPO, you can pay salaries to the directors.
What are the differences between federal and provincial NPOs?
Incorporation:
- Provincial: three founders required
- Federal: only one founder required
Corporate name:
- Provincial: a French version is mandatory, and a name search is required. It is not possible to obtain a numerical corporate name.
- Federal: a French version is also mandatory for Quebec registration. Unlike the provincial version, it is possible to obtain a numeric corporate name.
Head office:
- Provincial: Must be located in Quebec.
- Federal: Must be located in Canada, in any province.
Quebec registration :
- Provincial: Registration, included in the incorporation process, is mandatory.
- Federal: Mandatory only if head office or activities are located in Quebec.
Location of annual meetings :
- Provincial: Annual meetings can be held anywhere in Quebec.
- Federal: Annual meetings can be held anywhere in Canada or abroad if provided for in the by-laws.
Directors :
- Provincial: Three directors are required. Persons of full age under guardianship and minors may be directors if the purpose of the NPO concerns them.
- Federal: Three directors are required if the NPO uses solicitation. Adults under guardianship and minors are not authorized to be directors.
Resumption of existence :
- Provincial: It is impossible to reconstitute a dissolved organization.
- Federal: It is possible to reconstitute a dissolved organization.
Don't confuse NPO and charity
Some NPOs are called Charity because they have a charity number, which allows them, among other things, to fund themselves through donations from the general public with tax receipts.
A charity is an NPO, trust or unincorporated association, registered as a charity, public foundation or private foundation, established and resident in Canada.
The purpose of a registered charity is to devote its resources to charitable activities.
Conclusion
In conclusion, it’s important to remember that a non-profit organization is a legal form whose purpose is not to generate profit. It has no share capital and an unlimited lifespan, since its structure survives the departure of its founders.
Provincial and federal NPOs should not be confused, as there are many differences between them, notably in terms of constitution, corporate name, head office and location of annual meetings.
