How to incorporate a non-profit in Ontario

There is a whole industry built on the fact that incorporating is a form. Search “incorporate a non-profit in Ontario” and you get filing services, registry agents and content farms, almost none of them run by anyone who has had to unpick a badly drafted set of articles four years later. The form is genuinely easy. What follows is the part that is not.

The mechanics, quickly

One thing on the 60-day by-law rule that catches people: if you do nothing, you do not end up with no by-law. You end up with the Ministry’s standard by-law, which is a perfectly sensible document that has nothing to do with how your organization actually intends to govern itself. Section 18(1) is not a penalty; it is a default. But it is a default you inherit silently.

Directors: three, and nothing else you probably assume

ONCA section 22(1) is one sentence: “A corporation must have at least three directors.” From there the assumptions people bring tend to be wrong.

There is no Canadian residency requirement. None. Not for a majority, not for any of them. The disqualification list in section 23(1) is closed — non-individuals, under 18, found incapable of managing property, undischarged bankrupts — and residency is not on it.

Directors do not have to be members unless your by-laws say so (s. 23(2)). Plenty of organizations want the opposite rule and simply never write it down.

A term cannot run past the fourth annual meeting after the election (s. 24(1)). Old letters-patent corporations routinely had five-year or indefinite terms. Under ONCA they do not.

Nobody can send a substitute. Section 23(5): “No person shall act for an absent director at a meeting of directors.” Alternate directors are not available, however convenient they would be for a board of busy volunteers.

Directors by virtue of office are permitted (s. 23(4)) — the chair of a partner organization, a municipal appointee — but note the trade: the members cannot remove an ex officio director, because section 26(1) excepts them.

The decision that matters most: one class of members or more

If you have one class, every member votes on everything (s. 48(4)). That is the default and it is the right answer for most organizations.

The moment you want two classes — voting and non-voting, full and associate, individual and organizational — two rules bite. The classes must be set out in the articles, not the by-laws (s. 48(3)), and at least one class must have the right to vote (s. 48(5)). Putting them in the by-laws, which is what the old Corporations Act allowed, means an amendment and a filing to fix.

That matters when you are designing the structure. If you create a non-voting class thinking its members have a backstop against having their rights changed, they do not.

Public benefit corporation: a status you can acquire by accident

A public benefit corporation is either a charitable corporation, or a non-charitable one that receives more than $10,000 in a financial year in donations from people who are not members, directors, officers or employees, or in grants from any level of government.

Two things about that definition are easy to miss.

“Charitable corporation” under ONCA turns on your purposes — relief of poverty, advancement of education, advancement of religion, or other charitable purpose — and not on whether CRA has registered you. A corporation with charitable purposes is a charitable corporation, and therefore a public benefit corporation, from day one, even if it never applies to CRA.

For a non-charitable corporation there is a one-year lag. Section 1(2) says a corporation that crosses $10,000 is deemed not to be a PBC in that year, and becomes one in the next financial year as of the date of the first annual meeting. So a community group that lands a $15,000 municipal grant does not become a PBC that afternoon — but it will.

What PBC status does: caps employees at one-third of the board (s. 23(3), and it counts employees of affiliates too); tightens the audit thresholds; removes the ability to pay out the value of a membership on termination (s. 89(2)); restricts where the property can go on winding up or dissolution (ss. 150, 167); and removes dissent-and-appraisal rights (s. 187).

Do you need an audit?

Source: ONCA s. 76, and the Ministry’s own summary table.

Two practical points. The step down from an audit is not an ordinary resolution — section 76(4) requires an extraordinary resolution, which it defines for this purpose as 80% of the votes cast at a special meeting, or the written consent of every voting member. And section 76(3) says the resolution “is valid until the next annual meeting of the members.” It is not a standing decision. You re-pass it every year or the audit requirement comes back.

Note also the exact wording at the top: a public benefit corporation at exactly $500,000 must be audited, because the review-engagement band reaches only revenue “less than $500,000.”

The annual return, and why it is not optional

Since May 2021 the Ontario annual return is a separate filing in the Ontario Business Registry. It is free. It is also the compliance obligation Ontario non-profits most often do not know exists, because it used to ride along with the T2.

The deadline is set by reference to your CRA return: O. Reg. 400/21, s. 3 gives you the same window as your T2 or, for a registered charity, your T3010. Both are six months after fiscal year end, so in practice the annual return is due six months after fiscal year end too.

Three consequences of not filing, in ascending order of unpleasantness. There is a late fee. There is administrative dissolution — ONCA s. 170(1) lets the Director give notice and dissolve the corporation if it has not complied within 90 days. And there is section 18(1) of the Corporations Information Act, which says a corporation in default “is not capable of maintaining a proceeding in a court in Ontario… except with leave of the court.” The first a board usually hears of it is when the corporation tries to sue somebody.

Non-profit is not the same as charity

These are different things at different levels of law. ONCA is provincial corporate law and decides whether you exist and how you are governed. Registered charity status is federal tax law under the Income Tax Act and decides how you are taxed and whether you can issue receipts. Neither follows from the other, and CRA is explicit that a non-profit organization “cannot issue official donation receipts.”

The asymmetry that catches people is the tax exemption. A registered charity’s is complete. A non-profit’s exemption under paragraph 149(1)(l) is conditional and does not cover property income or capital gains. And the filings differ: a non-charitable ONCA corporation files a T2 every year even with no tax payable, plus a T1044 if it has more than $10,000 of investment-type income or more than $200,000 of assets; a registered charity files a T3010 instead of both.

If charitable registration is the goal, decide that before you draft the purposes. CRA’s published service standard is a decision within nine months of receiving a complete application, met 80% of the time — and the clock runs from a complete application, so real elapsed time is routinely longer. Rewriting your objects and re-filing articles because the purposes clause was drafted for a filing service rather than for CRA is a bad way to spend that year.