What is Canadian Not-for-Profit Corporation Law?

Canada’s Not-for-profit Corporations Act,

The NFP Act, for short, is the law governing the internal affairs of federal nonprofit corporations. Effective October 17, 2011, it replaces the Canada Corporations Act (CCA Part II) that previously governed federal not-for-profit corporations.

What are the benefits of forming a limited company?

• Separate legal entity: A corporation has the same rights and obligations as a natural person, meaning that a corporation can acquire assets; enter into debt; enter into contracts; sue or be sued; and even be found guilty of a crime.
• Limited liability: This means that, as a general rule, the members of the company are not liable for debts.
• Continuing existence: A company will continue to exist after the death of individuals in important positions such as chairman of the board of directors.
• Tax Advantages: You can contact the Canada Revenue Agency to inquire about the tax advantages relevant to your situation, or you can consult the Golden Key Business Service Center.

What are the benefits of being a non-profit organization registered federally in Canada?

• Canadian Not-for-Profit Corporations Act: Provides new rules that are modern, flexible and better suited to the needs of today’s not-for-profit institutions.
• Name Protection: An approved federal name allows a company to operate within Canada under that name.
• Location Flexibility: There is a degree of flexibility in the province or territory in which the company is registered, where the company's records are registered, and where annual meetings are held.
• Recognition: Federally registered companies are generally recognized as Canadian companies around the world.
• High-quality customer service: Corporations Canada handles the registration process and all other service applications as quickly as possible.
• Resources available for not-for-profit companies: Corporations Canada has a variety of ways to help companies get up and running.

The difference between a limited liability company and a non-profit organization

When a business generates revenue, it may choose how to spend the funds. Whether it's a sole proprietorship or a partnership, the leader of the business can reinvest money into the business or pay shareholders, give them bonuses or anything else.

In contrast, nonprofits must return any income earned to the organization. Nonprofits may pay salaries to employees and directors and may allow them to hold some assets or cash each year.

Charities and non-profit organizations

Because of their non-profit purpose, non-profit organizations are more like charitable organizations than commercial companies. However, while there is a lot of overlap between the two groups, the CRA treats them very differently when it comes to taxation and registration.

Neither charities nor nonprofits pay income taxes, and the CRA prohibits both organizations from using their income to provide benefits to their members. However, a charity operates solely for charitable purposes, whereas a non-profit organization may operate for social welfare, entertainment, sports or any non-profit purpose.

For example, if you create an organization that accepts donations to create scholarships for disabled youth to play basketball, you would be more focused on running a charity. However, if you run a non-profit recreation center where teenagers can play basketball, you may be running a non-profit organization.

In addition, charities face increased regulation. They must register as charities; when they receive donations from taxpayers, they must issue donation receipts. At the end of the fiscal year, charities and most nonprofits must file a tax return, and nonprofits must also file T2 forms.

If you have any questions about company registration or business consultation, you can directly contact the Golden Key Business Development Center at 416-551-9990