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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>.
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Legal Considerations for Employees and Start-up Companies
Written by: Ali Sarhill It is contended that a new company’s success is primarily attributable to future managerial decisions, unlike established companies where most income is derived from existing business.[1] As such, the value of employing superior employees to start-ups is, arguably, substantially higher than for established companies. Thus, an overview of some potential employment issues may encourage start-ups to pay closer attention to employment matters with their counsel. Areas of Potential Employment Issues for Start-ups Employment agreements As changes to responsibilities of employees can frequently occur in a start-up company, employment agreements used should broadly describe job duties. They should also express that job responsibilities may change from time to time due to the corporation’s expected growth.[2] This is crucial as Canadian courts have found that constructive dismissal occurred due to changes in an employee’s work duties.[3] As benefit plans and office policies are likely to change in start-ups over time, they should not be specified in the employment agreement.[4] To assist companies in establishing consideration for various agreements, the employment agreement should explicitly reference these separate agreements that comprise the entire contract of employment: stock option agreement, share subscription agreement, non-disclosure and non-competition agreements, and any assignment of technology.[5] Crucially, the employment agreement should include an integration clause - that the documents in question form the entire employment agreement and that terms and conditions can only be changed by both parties in writing. Such a clause prevents an argument that some oral interactions are terms of the employment agreement.[6] The employment agreement and other contracts should be given to the employee at the time employment is offered to the employee. The employee should, in writing, also be encouraged to seek independent legal advice. Doing so would support a court enforcing the employment agreement. Otherwise, if the employment agreement was signed on the employee’s first day of work, courts will not enforce such an agreement, without additional consideration being provided.[7] Termination of employees and independent contractors When an employee is terminated, the corporation is required to pay the employee a certain amount of money, also known as “notice”, if they were terminated “without cause”. This is often the amount of money they would have made, had they continued to work the “notice” period.[8] The amount of notice that an employee is entitled to is determined by reference to the relevant province’s Employment Standards Code and the common law. Judges often rely on common law cases and determine that an employee is entitled to much more notice than under legislation, based on an estimate of what the employment agreement implicitly provides for. To avoid courts finding that an employee is entitled to more notice than what was given, an explicit provision that sets out the notice period and severance amounts should form part of the employment agreement.[9] A written contract stating that an independent contractor is not entitled to any severance payments should be prepared, as courts are likely to impose a notice period if such a written contract does not exist. This is especially true if the company is asserting control over the contractor, where the contractor worked mostly exclusively for the company, and where the contractor’s and company’s businesses are tightly integrated.[10] Ali Sarhill is a member of the BLG Business Venture Clinic and is a 3rd year student at the University of Calgary Faculty of Law. REFERENCES: [1] Bryce Tingle, Start-up and Growth Companies in Canada: A Guide to Legal and Business Practice, Third Edition, LexisNexis Canada Inc. (2018) at 126 [Tingle]. [2] Ibid at 127. [3] see Ferdinandusz v. Global Driver Services Inc. [1998] O.J. No. 4225, 5 C.C.E.L. (3d) 248 (Ont. Gen. Div.). [4] Tingle at 127. [5] ibid at 127. [6] ibid at 127. [7] ibid at 127-128. [8] ibid at 128. [9] ibid at 128-129. [10] ibid at 130-131. The Next Era of Social Discovery Platforms and Dating Apps: The Metaverse
Written by: Dani Dufresne Last month, Bumble’s Founder and CEO, Whitney Wolfe Herd, broke the news to shareholders on a quarterly earnings call that the friend-finding function, Bumble BFF, is expanding into the Metaverse. What is “the Metaverse”? The anticipated future of the internet: extended reality (XR), a 3D virtual world that is persistent, synchronous, and interoperable. The Metaverse is a never-ending extension and digital parallel of our physical world. It can be comprised of a combination of technologies such as augmented reality (AR), virtual reality (VR), avatars, and a digital economy that uses non-fungible tokens (NFTs). Herd stated, “Bumble BFF gives us a platform for Bumble to become a leader in the Web 3.0 world. […] Longer-term, it becomes a way for members to own their experience on Bumble. This could happen through the communities they build, the virtual goods and experiences they acquire, or through new ways of owning their identity as they navigate the metaverse.” The company’s President, Tariq Shaukat elaborated on Bumble’s ambitions to venture into the Metaverse and predicts that cryptocurrency will be incorporated into future iterations of dating apps. Rival dating app, Tinder, shared similar plans to build a Metaverse. The company is currently testing crypto tokens (tinder coins) in multiple regions. Tinder has initiated beta-testing on a concept called Singletown on select college campuses in Seoul. Through this platform, one’s digital self, in the form of a real-time, audio-powered avatar, can engage in one-on-one or group conversations in virtual spaces. Dating-focused Metaverse: a promising new medium to connect people in a global pandemic and revolutionize the dating landscape OR a platform that will create further isolation and less human interaction? Dani is a member of the BLG Business Venture Clinic and is a 3rd year student at the University of Calgary Faculty of Law. Should you Extra-Provincially Register your Company?
Written by: Bilal Qureshi If your Company, which is provincially incorporated in Alberta and wishes to “carry on business” in a province other than Alberta, it may need to be registered in that other province it wishes to “carry on business” in. This is called an extra-provincial registration. What does “carry on business” mean? Each province has its own statute defining what “carry on business” means, which will determine whether your Company is required to extra-provincially register in that other province. For example, in British Columbia, the governing statute to determine what “carrying on business” means is defined in the Business Corporation Act (“BCA”). The BCA requires that foreign entities be registered as an extra-provincial company in accordance with the BCA within two months after beginning to carry on business in British Columbia.[1] A foreign entity is defined as “a foreign corporation or a limited liability company”.[2] Pursuant to the BCA, a foreign entity is deemed to carry on business in British Columbia if:
However, section 375(4) in the BCA provides an exemption for a foreign entity from being registered under the BCA while allowing it to carry on business in British Columbia.[4] The foreign entity may do so if it does not maintain in British Columbia a warehouse, office or place of business under its own control or under the control of a person on its behalf.[5] Each province will have different requirements for what “carrying on business” means. For example, unlike in British Columbia, Quebec and the Quebec’s Act Respecting the Legal Publicity of Enterprises considers companies to be “carrying on business” in Quebec if it has representatives in Quebec for the purpose of making profit.[6] Contact Us! To avoid unnecessary fees and penalties, it is better to be proactive in determining if your company requires to be registered extra-provincially. Please feel free to contact the BLG Business Venture Clinic for further information! Bilal Qureshi is a member of the BLG Business Venture Clinic and is a 2rd year student at the University of Calgary Faculty of Law [1] Business Corporations Act, SBC 2002, c 57. at s 375(1). [2] Ibid at s 1. [3] Ibid at s 375(2). [4] Ibid at s 375(4). [5] Ibid. [6] Act respecting the legal publicity of sole proprietorships, partnerships and legal persons, CQLR c P-45, s 21(4). TSX Venture Exchange – Security Based Compensation Policy Change
Written by: Ryan Amaral On November 24th 2021, the Toronto Stock Exchange Venture Exchange (TSXV) announced amendments to their policies regarding security based compensation. These changes will allow greater flexibility to issuers in terms of their ability to offer a variety of security-based compensation options. As the TSXV is focused on early-stage and growth companies, these amendments are particularly relevant to start-ups who frequently utilize security-based compensation as a mechanism to attract and retain employees. While a number of changes were made, some of the key changes are outlined below. Additional Forms of Security Based Compensation The former policy (Policy 4.4 – Incentive Stock Options) only addressed traditional stock options, whereas the new policy (Policy 4.4 – Security Based Compensation) now covers other forms of security-based compensation such as:[1]
By expanding upon the previous policy, these additions will effectively allow TSXV issuers greater ability to tailor their compensation plans to the specific needs and peculiarities of their organizations. Vesting Changes Additionally, a key change in relation to these incentives is that they may not vest for a period of at least 12 months from the date of grant or issuance, subject to limited circumstances which may provide for acceleration.[2] Security Based Compensation Plan Changes Further, the new policy expands upon the previous one by providing for two additional types of security-based compensation plans, while also amending the previous stock option plans to include the new forms of security-based compensation. These four new categories include:[3]
Categories (i) and (ii) are unchanged from the previous policy, except as to including the new additional types of Security Based Compensation. Category (iii) is termed by the TSXV to be a “hybrid” category, designed to provide additional flexibility to Issuers. Category (iv) is a subset of (ii) in that it permits a fixed number up to 10% only, and it is further limited only to Stock Options.[4] Cashless Exercise and Net Exercise Formerly, the exercise price of a stock option was required to be paid in cash where the option holder would pay the issuer the strike price at the time of exercise. The new policy now allows for these options to be exercised under either a “cashless” or “net” method. A "cashless exercise" is one where a brokerage firm facilitates the exercise of an option, and the issuer still receives the exercise price in cash.[5] A "net exercise" is one where the participant receives the shares based on a five-day volume weighted average trading price calculation, provided that the participant is not an investor relations service provider.[6] These amendments took effect as of November 24th, 2021. For further information regarding these changes, check out the TSXV’s bulletin notice here. Ryan is a member of the BLG Business Venture Clinic and is a 2nd year student at the University of Calgary Faculty of Law. [1] TMX Security Based Compensation Bulletin Notice (2021), online: <https://www.tsx.com/resource/en/2758> [2] John E Piasta et al, “TSX Venture Exchange Updates Security-Based Compensation Policies”, (December 10, 2021), online: <https://www.bennettjones.com/Blogs-Section/TSX-Venture-Exchange-Updates-Security-Based-Compensation-Policies> [3] Supra note 1 [4] Ibid [5] Rick Moscone and Sabrina Alaimo, “Canada: TSX Venture Exchange Announces Amendments to Security-Based Compensation Policies”, (December 16, 2021), online: <https://www.mondaq.com/canada/shareholders/1142220/tsx-venture-exchange-announces-amendments-to-security-based-compensation-policies> [6] Ibid |
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