Literacy Basics - Community Literacy of Ontario

Incorporation and Charitable Status

A non-profit organization carries out activities that benefit the community and has individual members who do not gain a profit from the work of the organization. Some boards may be confused by the term ‘non-profit’, thinking this means the organization cannot make money nor have surpluses or reserve funds at the end of the fiscal year. As long as the surplus or reserve is used to carry out the programs and services of the organization and not for the personal gain of members or staff, it is acceptable (and actually encouraged) for a non-profit organization to have a ‘profit’. (Source:  Duties and Responsibilities of Directors of Non-Profit Organizations. Canadian Society of Association Executives).

It is not mandatory for a non-profit organization to become incorporated or to apply to be a registered charity. These are separate and distinct processes that create certain benefits and responsibilities for organizations that choose to do so.

Incorporation

Incorporation is the process of creating a legal entity that has an independent existence, separate and distinct from that of its members. Members sitting on a board of an unincorporated organization are considered the ‘owners’ of the organization and are therefore liable for the assets, funds and debts of the organization. (For more information see the section of this module on Boards and Risk Management).

An organization must be incorporated to be eligible to receive government funding. For example, the Ministry of Training, Colleges and Universities requires agencies that apply for Literacy and Basic Skills funding to be incorporated. As well, the Ontario Trillium Foundation and many other funders require organizations that apply for funding to be incorporated. Most foundations also require organizations seeking funding to be registered charities.

An incorporated organization is required to file regular reports and comply with certain regulations or risk losing its corporation status. Most organizations in Canada can apply for corporation status through the appropriate ministry of their provincial government. In Ontario it is the Ministry of Small Business and Consumer Services. Some organizations, depending on their mission, are required to apply for federal incorporation.

top of page

NEXT PAGE

Designed and hosted by in collaboration with CLO