Authored by Sabrina Sandhu*
A Not-For-Profit, or NFP, is an organization where the purpose is not for owners to generate a profit for themselves, nor is there any distribution of income to members, officers, or directors. The goals of an NFP can vary widely from artistic to scientific, and philanthropic to educational. When starting a NFP in Canada, one must make an important initial decision whether to incorporate federally or provincially. Each confers certain advantages and disadvantages. While the individual provinces have harmonized their process for incorporation, differences do exist in the margins. It is therefore important to understand the requirements of each province under consideration before making a decision on jurisdiction. This post will characterize the key distinctions between incorporating federally in Canada to that of the Province of Alberta.
The Canada Not-for-profit Corporations Act, or CNCA, is the governing legislation for incorporating federally in Canada. There are several advantages to the organization when incorporating under the CNCA. First, once federally incorporated, the organization may carry out its objectives in any province or territory they choose. Secondly, the name of the organization will remain unique nationally, in contrast to provincial registration where the name is only protected in that specific province. However, it may be more challenging to find a unique name nationally, than at the provincial level. Third, albeit paradoxical, the extent of financial review is lower when federally incorporated, where it may only be necessary to have an independent accountant review financial statements, rather than having to appoint an auditor which can be costly for an NFP. Fourth, under the CNCA only one individual is required to incorporate the NFP, compared to more than one at provincial levels. Fifth, perhaps the most important advantage is that under the CNCA, a federally incorporated NFP may engage in a business or trade to generate revenue specifically for use by the NFP. This enables the NFP the financial means to pursue broader Not-For-Profit objectives. Finally, the downside is that one is required to pay both the $250 online fee to incorporate federally, plus an additional extra-provincial registration fee to be paid in the provinces and territories that the organization conducts its operations in. In Alberta, the extra-provincial fee would be an additional $250.
Incorporation in the Province of Alberta.
If one were to incorporate in Alberta only, the organization would be incorporated under the Alberta Societies Act, or ASA. The key differences from federal incorporation are as follows. First, the fee to incorporate is only $50, which is less costly than federal incorporation. Second, selecting a name for the organization only requires an Alberta search, not a national database search, and therefore it is easier to obtain. However, if the organization subsequently wishes to pursue expansion into other provinces or territories, then the chosen name must undergo a search and clearance in that province as well. Third, instead of only one individual required to incorporate an NFP federally, the Alberta requires 5 or more individuals. Fourth, Alberta NFPs are required to have their annual financial statements audited, which can be costly to the NFP, whereas federally, as mentioned above, an exemption can be obtained that obviates the necessity for an external auditor. Finally, the most important distinction between federal incorporation is that an organization incorporated under the ASA is not permitted to engage in a business or trade to generate revenue for the organization. If the organization is financed primarily through donations, and it is not necessary for the organization to pursue additional revenue generation streams to fulfill its not-for-profit objectives, then this may not be a concern.
If you have questions or require additional information about incorporating an NFP in Canada, please reach out the BVC Clinic to chat with U of C Law Student.
*Sabrina Sandhu, MD FRCPC
JD Candidate 2023 (University of Calgary)
Anesthesiologist and Pain Medicine Physician
Clinical Assistant Professor
Department of Anesthesiology, Preoperative and Pain Medicine
University of Calgary
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Blog posts are by students at the Business Venture Clinic. Student bios appear under each post.