• First Reference
  • About us
  • Contact us
  • Blog Signup 📨

First Reference Talks

Discussions on Human Resources, Employment Law, Payroll and Internal Controls

  • Home
  • About
  • Archives
  • Resources
  • Buy Policies
You are here: Home / Business / Why every charity should consider incorporation

By Drache Aptowitzer LLP | 3 Minutes Read April 8, 2013

Why every charity should consider incorporation

Before a group can be registered as a charity, there has to actually be some legal thing to register. This means that every charity faces the choice of which legal structure to use. A charity can be constituted as a trust, an unincorporated association, or a corporation.
People generally think of for-profit businesses when they hear the word ‘corporation’, but corporations also come in a non-share capital flavour that is used for non-profit organizations and registered charities. Becoming a corporation under the federal Canada Not-for-profit Corporations Act or a similar provincial statute can be a benefit to charities of any size. It doesn’t matter whether the group is registered as a charity yet or not; it is often possible to become registered while constituted one way, and then subsequently change to another structure. For example, unincorporated charities can become incorporated without jeopardizing their charitable registration – if done properly, of course.
An unincorporated association is usually one that was formed by a group of people acting together to carry out charitable objectives – usually on a shoestring budget. But a group that is contemplating activities going on long enough to warrant charitable registration should probably also be considering incorporation. A corporation is a much more durable structure; it is its own ‘person’, independent of its members, and therefore will survive any amount of personnel turnover. It is certainly the more likely structure for dealing with a large or dispersed membership.
This corporate trait of independent selfhood also means that a corporation can own property, incur debts, and enter into contracts in its own name. It can also start and defend legal actions. Because a corporation is its own legal person that attracts its own liabilities, incorporation protects the individual members and directors from personal liability for the corporation’s debts. A charity’s directors may be saved a great deal of personal grief and money by pre-emptively taking their personal assets off the table.
For charities, a major source of potential debt is the so-called ‘revocation tax.’ When a charity has its registered status revoked, it becomes liable to pay a tax of effectively 100 percent of the fair market value of its assets. This is typically not a problem for charities that have voluntarily chosen to have their status revoked, because they can plan ahead to properly distribute the charity’s assets and be left with an effective tax of zero. However, when revocation is involuntary, someone will be left holding the bag. If the charity is not incorporated, its directors can become personally liable for the tax.
Another particular source of debt is the fines that Canada Revenue Agency may impose on registered charities for failing to comply with the law. These fines are almost all expressed as percentages, which means they have the potential to represent substantially large sums. For example, the penalty for issuing a receipt that contains false information is 125 percent of the eligible amount on the receipt, up to $25,000. If the charity is unincorporated, all of the directors may become personally liable for the fine due to the actions of one director. This is not only a high-risk, high-liability situation for the directors to put themselves in, but it is also hardly conducive to an atmosphere of trust within the board.
Whether an unincorporated association is already a charity or is looking to become one, it should definitely take the time to familiarize itself with the benefits of incorporation. Although incorporation may not be the appropriate structure for every charity, its potential advantages make it a ‘must’ to consider.
Drache Aptowitzer LLP is experienced in incorporating charities and non-profit organizations and would be pleased to advise you.
Alexandra Tzannidakis
Drache Aptowitzer LLP

  • About
  • Latest Posts
Drache Aptowitzer LLP
Drache Aptowitzer LLP has extensive experience in taxation matters as well as assisting Charity and Not for Profits. Adam Aptowitzer has argued cases all the way up to the supreme court in defence of taxpayers to get a fair deal. Their dedicated team of experts can give you the guidance you need for fair results.
Latest posts by Drache Aptowitzer LLP (see all)
  • The Lord works in mysterious ways - February 12, 2020
  • It’s a whole new ball game for charities at the FCA - January 15, 2020
  • Charities in the waiting room - December 11, 2019

Article by Drache Aptowitzer LLP / Business, Finance and Accounting, Not for Profit / Canada Not-for-profit Corporations Act, Canada Revenue Agency, charity, corporations, corporation’s debts, director liability, for-profit businesses, high-liability, high-risk, incorporation, non-profit organizations, non-share capital, not-for-profit incorporation, penalty for issuing a receipt that contains false information, personal assets, personal liability, registered as a charity, Registered charities, revocation tax, unincorporated association

Share with a friend or colleague

Get the Latest Posts in your Inbox for Free!

Electronic monitoring

About Drache Aptowitzer LLP

Drache Aptowitzer LLP has extensive experience in taxation matters as well as assisting Charity and Not for Profits. Adam Aptowitzer has argued cases all the way up to the supreme court in defence of taxpayers to get a fair deal. Their dedicated team of experts can give you the guidance you need for fair results.

Footer

About us

Established in 1995, First Reference is the leading publisher of up to date, practical and authoritative HR compliance and policy databases that are essential to ensure organizations meet their due diligence and duty of care requirements.

First Reference Talks

  • Home
  • About
  • Archives
  • Resources
  • Buy Policies

Main Menu

  • About First Reference
  • Resources
  • Contact us
  • 1 800 750 8175

Stay Connected

  • Facebook
  • LinkedIn
  • Twitter
  • YouTube

We welcome your comments on our blog articles. However, we do not respond to specific legal questions in this space.
We do not provide any form of legal advice or legal opinion. Please consult a lawyer in your jurisdiction or try one of our products.


Copyright © 2009 - 2023 · First Reference Inc. · All Rights Reserved
Legal and Copyright Notices · Publisher's Disclaimer · Privacy Policy · Accessibility Policy