Are NPOs Required To Incorporate?

Non-profit organizations (NPOs) are not required to incorporate.

This is because an organization that does not set out to generate a profit is included under the umbrella of an “NPO”, this would include clubs (such as NPOC), churches, political organizations, etc. Essentially, any group of people who come together for a mission that is not to generate a profit would be an NPO and as such, would not need to have to go through the incorporation process.

Some Differences Between Incorporated NPOs and For-Profit Corporations

  • Non-profit corporations are made up of members, where for-profit corporations are made up of shareholders
  • Members of an NPO cannot receive any financial gain from the corporation. In contrast, for-profit corporations distribute profits as dividends to their shareholders
  • Note that the process of incorporation is different for non-profit organizations and NPOs can choose to either incorporate federally or provincially, depending on their purpose and activities. In many jurisdictions across Canada, incorporating a non-profit requires government renewal and approval.

Advantages To Incorporation

An NPO gains legal status separate from its members and as such benefits from the following advantages Incorporated NPOs can:

  • Buy and own assets
  • Take on debt under its name
  • Take on contracts under its name
  • Continue its legal status as members join and leave
  • Be more attractive to grants and governments entities looking to fund organizations long-term

Disadvantages To Incorporation

With incorporation comes regular administrative duties of the new legal entity. This includes:

  • Throughout Canada, most jurisdictions will require corporations to submit an annual filing related to the location of the head office and details about the director.
  • Federal corporations incorporated under the Canada Corporations act must get approval to change certain bylaws.
  • There are also constraints on the type of activities that the organization may engage in. Lastly, there will be a need to devote time and resources to maintaining corporate structure, including legal and accounting costs, as well as board of director meetings. This time will be taken away from other activities or purposes of the organization.

Overall, when deciding whether to incorporate or not, an organization must be able to identify the pros and cons of doing so. A thoroughly reviewed decision-making process with the leaders of the organization is required.

Contact us today to learn more about considerations related to incorporation for your organization today!

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