Many people think of registered charities (a “Charity”) and Not-for-Profit Corporations (“NFPs”) as interchangeable terminologies, defining the same thing. In this article, we will try to explain this misconception and clearly break down the difference. If you plan on starting a new Not-for-Profit venture, it’s important to understand the difference before getting started.
*This article focuses on Federal NFPs. A lot of this information will also carry over to provincial laws, but not always. Hence, it’s important to look into your local jurisdiction’s laws or seek assistance from a professional.
What is a Federal Not-for-Profit Corporation?
A Federal Not-for-Profit Corporation (“NFP”) is a corporation governed under the laws of the Canada Not-for-Profit Corporations Act. An NFP is a corporation with no share capital whose purpose is not profit-driven, as defined in the name. Unlike for-profit corporations, which have shareholders, NFPs have members. Both types of corporations have directors, who typically oversee the corporation’s activities and make many of the corporation’s major decisions.
NFPs vary greatly in what their purpose is. They are typically formed to help improve the well-being of society in one way or another. This can be through arts, sports, environmental causes, social services, culture, healthcare, etc. Whether it’s a large NFP working on creating awareness of an environmental cause or a small NFP bringing a community together through art—they all try to have a meaningful impact in some way.
What Defines a Charity?
A Charity is an organization, a public foundation, or a private foundation that is run on a non-profit basis and that has a purpose which must fall into one or more of the following categories:
- the relief of poverty
- the advancement of education
- the advancement of religion
- other purposes that benefit the community in a way that the courts have said is charitable.
Charities are sometimes (but not always) also Not-for-Profit corporations. If they are a federal Not-for-Profit corporation, then they are governed under the laws of the Canada Not-for-Profit Corporations Act. In other words—a Not-for-Profit corporation can also be a registered charity, but not all Not-for-Profit corporations are registered charities. To become a registered charity, an NFP must register with the Canada Revenue Agency (“CRA”) and meet certain requirements in order to be approved by the CRA and receive a CRA Charitable Registration Number.
What should you consider before incorporating your Not-for-Profit Corporation?
Suppose you plan to incorporate a Not-for-Profit corporation to register it as a charity. In that case, you’ll want to look into the requirements to become a registered charity before incorporating, affecting how you fill out your incorporation application.
Suppose you’ve already incorporated your Not-for-Profit company without looking into the CRA’s requirements to become a charity and now want to register your company as a charity. In that case, you might need to change your company’s purpose statement. This will require an amendment and cost extra fees and time. You can read more on how to draft a purpose for a charity here.
We hope this article gives you a better understanding of registered charities and NFPs. If you have any questions, please don’t hesitate to contact us here.
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