Not-for-Profit Organizations (Registered Charities and NPOs)

Not-for-Profit Organizations (Registered Charities and NPOs)
Written by: Viviana Heather

​The not-for-profit sector is a significant growing part of the Canadian economy and has a huge impact on the lives of Canadians. Not-for-profit is an umbrella term used to describe non-profit organizations (“NPO”) and registered charities. Both are creatures of statute (specifically, the Income Tax Act) and are mutually exclusive categories of organizations. This blog post provides a brief overview of the various ways a non-profit organization can be incorporated in Alberta and Canada and registering a charity through the Canada Revenue Agency (“CRA”). For differences between NPOs and charities, please visit the Canada Revenue Agency website.

Provincial Incorporation
There are two main ways for a NPO to incorporate in Alberta: (1) under the Companies Act, RSA 2000, c C-21, or (2) under the Societies Act, RSA 2000, c S-14.[1] Depending on the purpose of the organization, an applicant may choose one or the other to incorporate a NPO in Alberta.
(1) Companies Act
A NPO under the Companies Act must have the purpose of promoting art, science, religion, charity, or any other useful objective.[2] Further, a NPO can be involved in business activities by, for instance, charging other organizations to provide services.[3] Therefore, a NPO can operate in various ways as long as it is on a cost-recovery and they cannot distribute profits to its shareholders or members.[4]
There are two types of organizations under this Act: private and public.[5] For a private NPO, at least two people are needed to form the organization. There are also the following restrictions: It cannot have more than 50 shareholders or members, it cannot sell shares or memberships to the public, and it restricts share or membership transfers.[6] For a public NPO, at least three people are required to form a public organization. However, there are significant reporting requirements.
(2) Societies Act
A NPO under the Societies Act can be formed if there are more than five people for purposes such as social activities, recreation, culture, and charity.[7] However, a NPO under the Societies Act cannot be involved in business activities.[8] Societies cannot issue shares, declare dividends for members, or distribute property among the members during the lifetime of the society.[9]
(3) Advantages and Disadvantages
The Companies Act is more complex in comparison to the Societies Act. An organization under the Companies Act must either be a public or private company and there are specific requirements under each. On the other hand, the Societies Act is simpler and cheaper to incorporate. However, it prevents the organization from engaging in any type of ongoing business operations.

Federal Incorporation
An organization may incorporate as a federal NPO under the Canada Not-for-Profit Corporations Act, SC 2009, c 23. This is advised if the organization wishes to operate nationally and require name protection across Canada. However, the organization will be required to incorporate as a NPO in Alberta and then register in other provinces if it intends to conduct business in those provinces.  

Incorporating Federally vs. Provincially
The main advantage of incorporating federally, as described above, is it grants name protection across the country. This can be important if a NPO envisions providing services across the country. However, if the services will only be provided locally, it may not be necessary to incorporate federally. Consequently, the main advantage of incorporating a provincial not-for-profit is it is often simpler, quicker, and cheaper.  

​Registering a Charity
There are various requirements for a charity to be registered. First, the charity must use its resources for charitable activities and have charitable purposes that fall into one or more of the following categories: relief of poverty, advancement of education, advancement of religion, and other purposes that benefit the community.[10]  Second, the organization’s purposes and activities must meet a public benefit test. The organization must be able to show that: (a) its purposes and activities provide a measurable benefit to the public, and (b) the people who are eligible for benefits are either the public as a whole or a significant section of it (the beneficiaries cannot be a restricted group or one where members share a private connection - this includes social clubs and professional associations).[11] Lastly, there are specific governing documents that have to be in place.[12] Once the charitable purpose has been outlined, the organization can meet the public benefit test, and the governing documents are in place, the CRA will designate the charity as either: a charitable organization, public foundation, or private foundation.[13] To learn the criteria that the CRA applies to determine the designation of the registered charity, visit the CRA’s website.

Choosing a NPO vs. Charity
An organization may choose to be a registered charity if the focus is on gaining donations from individuals and companies to support the community by providing donation receipts for income tax deduction purposes. On the other hand, an organization may choose to be a NPO if its focus is on community and creating an association for individuals. It is important to note that an organization can only be one or the other, but not both!
If you want more information regarding the similarities and differences between NPOs and registered charities or need help with registering your charity or incorporating your NPO, contact the BLG Business Venture Clinic.

Viviana is a member of the BLG Business Venture Clinic and is a 3rd year student at the University of Calgary Faculty of Law.

[1] There are other ways to incorporate a NPO provincially such as through the Agricultural Societies Act, Religious Societies Lands Act, and other private Acts. The Companies Act and Societies Act are the two main ways to incorporate a NPO.
[2] Companies Act, s 200(1).
[3] Ibid.
[4] Ibid.
[5] Alberta Government, “Incorporate a non-profit company”, online: <https://www.alberta.ca/Incorporate-non-profit-company.aspx>.
[6] Ibid.
[7] Alberta Government, “Incorporate a society”, online: <https://www.alberta.ca/incorporate-a-society.aspx>.
[8] Ibid.
[9] Ibid.
[10] Canada Revenue Agency, “What is charitable?” (last updated 25 April 2019), online: <https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/registering-charitable-qualified-donee-status/apply-become-registered-charity/establishing/what-charitable.html>.
[11] Ibid.
[12] Canada Revenue Agency, “What is a governing document” (last updated 18 December 2019), online: <https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/registering-charitable-qualified-donee-status/apply-become-registered-charity/establishing/what-a-governing-document.html>.
[13] Canada Revenue Agency, “Types of registered charities (designations)” (last updated 3 June 2016), online: <https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/registering-charitable-qualified-donee-status/apply-become-registered-charity/establishing/types-registered-charities-designations.html>.