The Canadian Charity Law Podcast


This episode discusses the advantages and disadvantages of incorporating a nonprofit organization (NPO) in Canada. Key benefits of incorporation include liability protection for members, continuity, a formal framework for dispute resolution, and the legal capacity to enter contracts and own property. Conversely, remaining unincorporated offers more flexibility, but leaves the nonprofit vulnerable to legal risks. The overall message encourages careful consideration of the implications before making a decision.

This episode is jointly sponsored by B.I.G. Charity Law Group Professional Corporation, a Charity Law Firm exclusively serving charity and not-for-profit clients in Toronto, Ontario and across Canada with registration and governance, and B&H Charity Accounts Group, a bookkeeping firm serving Canadian charities in Ontario with all their financial and tax filing needs.

https://www.charitylawgroup.ca/
P: 416-488-5888

https://www.charityaccountingfirm.ca/
P: 289-301-8883

Creators and Guests

DJ
Producer
Dov Goldberg, J.D.
Dov Goldberg is a manager partner at B.I.G. Charity Law Group Professional Corporation, a Charity Law Firm Providing Services Exclusively to Charities Across Canada

What is The Canadian Charity Law Podcast ?

Exploring the ins-and-outs of Canadian Charity Law in a way that can be understood by the layperson, including Charity Registration, Not-for-Profit Incorporation, Charity Governance, Charity Fundraising, Tax Receipting, and much more!

David:

Okay. So, you're likely kinda grappling with this, pretty major question. Right? For your not for profit, I mean, should you incorporate or not? Yeah.

David:

It's a big one. Lots of organizations face this. And, we're gonna kinda deep dive into this whole thing with you today.

Sara:

Okay.

David:

I've got this super insightful article from B. I. G. Charity Law Group. It's called, should we incorporate our MPO?

David:

And we're gonna break down the benefits and the risks of both incorporating AD remaining unincorporated. Alright. So by the end, you should be equipped to confidently chart your course.

Sara:

Yeah. That's right. Yeah. It's definitely not a one size fits all kind of situation. Right.

Sara:

What makes sense for one NPO may not for another, so we really gotta look at all the angles here.

David:

For sure. For sure. So let's just imagine, you know, a hypothetical NPO.

Sara:

Okay.

David:

They're maybe just starting out, and they're really drawn to this idea of staying unincorporated.

Sara:

Mhmm. I get it. It seems simple. Right?

David:

Yeah.

Sara:

No complex legislation to navigate. Just pure flexibility.

David:

Right. The freedom can be really appealing.

Sara:

Yeah. Especially for a new group. You know, everyone's full of passion and ready to kind of jump in and make things happen.

David:

Absolutely.

Sara:

And and to be fair, there are some upsides practically.

David:

Yeah.

Sara:

Yeah. Like, no need to file those annual corporate returns with corporations Canada.

David:

Right.

Sara:

That's one less thing on the to do list for busy organizers.

David:

Oh, for sure. Time is a valuable resource for any NPO.

Sara:

Absolutely.

David:

But but here's where it gets kind of interesting is what seems like an advantage on the surface can actually carry hidden risks.

Sara:

Oh, yeah.

David:

Let's say this hypothetical NPO is putting on, like, a community event

Sara:

Okay.

David:

And someone gets injured.

Sara:

Oh, that's a good example.

David:

Yeah.

Sara:

If they were incorporated, the NPO itself would be liable, not Right. But because they chose to remain unincorporated Yeah. Those members could be held personally responsible.

David:

Oh, wow.

Sara:

And we're talking potential lawsuits putting their personal assets at risk.

David:

Right.

Sara:

It's a whole different ballgame.

David:

It yeah. That puts things into perspective for sure. It's easy to overlook those risks when you're just thinking about the, you know, the flexibility Absolutely. Staying unincorporated.

Sara:

Yeah. And the same goes for things like entering into contracts or owning property.

David:

Right.

Sara:

Let's say our hypothetical NPO wants to apply for a grant, but the foundation requires you to be incorporated.

David:

Okay.

Sara:

Or they find the perfect space for a community center, but the landlord only leases to an incorporated entity.

David:

Right.

Sara:

Suddenly, that unincorporated status becomes a major roadblock.

David:

Yeah. They're hitting these invisible walls right as they're building momentum.

Sara:

Exactly. Yeah. And we haven't even talked about

David:

the fundraising aspect.

Sara:

Fundraising. Yeah. Donors are often much more likely to support organizations that are incorporated, have charitable status, and can issue tax receipts. Right. It's about trust and transparency.

Sara:

They wanna know that their contributions are being used wisely.

David:

That makes a lot of sense. Yeah. So even though it might seem, like, simpler at first glance Yeah. Remaining unincorporated can actually limit an NPO's growth and impact in some pretty significant ways.

Sara:

That's the key takeaway here.

David:

Yeah.

Sara:

It's not just about avoiding paperwork. It's about weighing the long term consequences of each decision.

David:

Okay. So let's flip the script and look at the incorporated side of things. What are some of the advantages that might appeal to our hypothetical NPO?

Sara:

Well, we already touched on a big one, that separation of liability.

David:

Yeah.

Sara:

Incorporating creates a distinct legal entity providing that safety net for individual members.

David:

Yeah. That peace of mind must be invaluable for, you know, anyone involved, especially as the MPO's activities expand.

Sara:

Definitely.

David:

What else what else is kind of on that list?

Sara:

Well, remember those potential we talked about earlier? Oh,

David:

yeah. Right.

Sara:

Just a reality when you're working with the passionate people.

David:

For sure.

Sara:

But incorporated MPOs have that structure of their bylaws and legislation to help navigate those disagreements.

David:

Okay.

Sara:

Unincorporated groups often lack that framework, which can make conflict resolution a lot more challenging.

David:

Yeah. It's like having a road map when you're navigating unfamiliar territory.

Sara:

Exactly.

David:

It's not about eliminating disagreements. It's about having a process to work through them constructively.

Sara:

Precisely. And that sense of structure extends to other areas as well. Okay. Incorporation gives NPOs that legal standing to enter into contracts, own property, and even pursue legal action if necessary.

David:

Oh, wow.

Sara:

They're empowered to operate with more autonomy and flexibility.

David:

Speaking of flexibility, it seems like being incorporated actually unlocks a different kind of flexibility, one that's more strategic and long term.

Sara:

I think that's a great way to put it. Yeah. It's not just about freedom from rules. It's about the freedom to operate effectively in a complex world.

David:

So we've talked about liability protection, dispute resolution, and this enhanced legal standing.

Sara:

Mhmm.

David:

What other advantages come with incorporating?

Sara:

Well, we touched on this briefly, but it's worth emphasizing. Okay. Incorporation can really enhance an NPO's credibility and transparency

David:

Yeah.

Sara:

In the eyes of funders, partners, and the public.

David:

It's like a signal that they're, you know, committed to operating in a responsible and accountable way.

Sara:

Exact think about it from a donor's perspective.

David:

Yeah.

Sara:

They're more likely to contribute to an organization that has a clear structure, financial accountability, and a proven track record.

David:

Right.

Sara:

Incorporation can really help build that trust and make a big difference in fundraising efforts.

David:

So it goes beyond just attracting individual donors too.

Sara:

Oh, for sure.

David:

We're talking about accessing, like, larger grants, potentially even government funding. Those are game changers.

Sara:

Absolutely. And let's not forget the long term stability that incorporation provides.

David:

Oh, yeah. That's huge.

Sara:

Protects assets, ensures continuity even if key people move on, and creates a legacy that can last for generations.

David:

Wow.

Sara:

That's a powerful thing for an organization dedicated to making a difference in the world.

David:

It is. So it sounds like incorporating really opens a lot of doors Yeah. You know, that might otherwise remain closed. Yeah. But it's not all sunshine and roses, is it?

Sara:

You're right.

David:

What about those risks and challenges we mentioned?

Sara:

It's important to acknowledge that, you know, incorporation isn't like a magical solution.

David:

Right.

Sara:

And it does come with some considerations of its own.

David:

Let's break those down. What are some of those potential downsides? Yeah. You know, that our hypothetical MPO needs to be aware of.

Sara:

Well, 1st and foremost, there's that upfront investment involved.

David:

Okay.

Sara:

The incorporation process itself takes time, effort, and money. Right. There's paperwork to file legal fees to think about

David:

Uh-huh.

Sara:

And potentially even, like, consulting with professionals to make sure you're doing everything correctly.

David:

Yeah. That makes sense. Yeah. It's not something you can just, you know, whip together overnight.

Sara:

Yeah. Yeah.

David:

There's a certain level of commitment right from the start.

Sara:

Exactly. And that commitment continues once the NPO is actually incorporated.

David:

Oh, okay.

Sara:

There are those ongoing regulatory requirements, like Sure. Filing those annual reports and maintaining proper financial records.

David:

Alright.

Sara:

It's a responsibility that NPO leaders need to be aware of and plan for Yeah. You know, set aside resources.

David:

So it's not just like a onetime hurdle to clear. Right. It's an ongoing commitment to operating in a more structured way.

Sara:

That's a key point.

David:

Yeah.

Sara:

And for some NPOs, that might feel a little burdensome.

David:

I could see that.

Sara:

Especially if they're used to, like, a more informal way of doing things.

David:

Especially those small grassroots organizations

Sara:

Right.

David:

That thrive on flexibility and quick decision making.

Sara:

Exactly. It's really crucial to weigh those administrative burdens against the benefits that come with incorporating.

David:

Okay. So we've got those upfront costs Mhmm. And the ongoing admin requirements.

Sara:

Yeah.

David:

What other potential challenges should our NPO be thinking about?

Sara:

Well, something we touched on earlier was that potential for governance conflicts.

David:

Right.

Sara:

When you have a more formal structure in place with bylaws and a board of directors Yeah. There's more of a chance for differing opinions and perspective.

David:

Well, it's bound to happen. Right? It is. When you bring together passionate people

Sara:

Yeah.

David:

Especially people who are, you know, deeply invested in the mission.

Sara:

Exactly. And while those diverse viewpoints can be really valuable

David:

Yeah.

Sara:

They can also lead to some tension and disagreements if not managed effectively.

David:

So it's not like a bad thing necessarily. Right. But it's something to be aware of Mhmm. And have strategies in place to kinda navigate those differences constructively.

Sara:

Absolutely. Open communication, transparency and a willingness to compromise.

David:

Right.

Sara:

Those are all essential for successful governance in any incorporated NPO.

David:

It sounds like there's a real balancing act here.

Sara:

There is.

David:

Weighing the benefits of that structure and accountability Yeah. Against that potential for bureaucracy and conflict.

Sara:

That's a great way to sum it up. Yeah. There's no easy answer, and, ultimately, that decision comes down to what's best for each specific NPO and what their goals are.

David:

Okay. So let's say our hypothetical NPO has, you know, carefully considered everything.

Sara:

Okay.

David:

We've talked about the pros, the cons. Mhmm. And they decided, okay, incorporation is the right move for us.

Sara:

Right.

David:

What are those practical steps to make it happen?

Sara:

Well, the specific requirements will vary a bit, you know, depending on whether they're incorporating federally or provincially.

David:

Right.

Sara:

But there are some common steps.

David:

Okay. Let's walk through those. What's that first hurdle to clear?

Sara:

One of the foundational steps is developing those bylaws. Okay. You know, those bylaws outline the MPO, developing those bylaws.

David:

Okay.

Sara:

You know, those bylaws outline the MPO's purpose, structure, governance, procedures Mhmm. And how decisions are gonna be made. It's essentially the rule book that guides the organization moving forward.

David:

So it's not just like a formality. It's a crucial document

Sara:

It is.

David:

That lays the groundwork for how the MPO is gonna function.

Sara:

Absolutely. And this is where, you know, seeking legal counsel can be super valuable.

David:

K.

Sara:

A lawyer who specializes in nonprofit law can help make sure those bylaws are comprehensive, legally sound, and align with the NPO's mission.

David:

That's a smart move, especially if this is all new to them.

Sara:

Right.

David:

Better to get some expert guidance early on.

Sara:

Absolutely agree. Once those bylaws are drafted and approved by those founding members

David:

Okay.

Sara:

The next step is typically filing articles of incorporation with the right government body. So either Corporations Canada for federal or the provincial or territorial corporate registry.

David:

What kind of information is in those articles?

Sara:

They typically have some basic info about the NPO, you know, like the name, purpose registered address Right. The names and addresses of those initial directors.

David:

So it's essentially that official document that makes the NPO a real legal entity.

Sara:

Exactly. And once those articles are approved and filed Yeah. The NPO is officially incorporated.

David:

Congratulations to our hypothetical NPO. But the journey doesn't end there, does it?

Sara:

You're right. What else? Depending on the NPL's activities and location Okay. They may need to get additional licenses or permits to operate legally.

David:

Likewise.

Sara:

So for example, if they plan to do any fundraising

David:

Okay.

Sara:

They might need to register with the appropriate regulator.

David:

That sounds like there's a lot of attention to detail involved here.

Sara:

There is.

David:

Making sure all the boxes are ticked and they're complying with all the regulations.

Sara:

Absolutely. It's about setting themselves up for success from a legal and compliance perspective.

David:

Even though it seems daunting at first.

Sara:

Yeah.

David:

I mean, the good news is there are resources to help MPOs through this.

Sara:

Oh, for sure. Right. Organizations like BIG Charity Law Group

David:

Right.

Sara:

Who wrote the article we're talking about today Yeah. Provide great information and guidance.

David:

Okay.

Sara:

Many government websites have resources and checklists.

David:

Right.

Sara:

And there are even workshops and seminars to help NTO leaders really understand all of this.

David:

So they don't have to go it alone. There's a whole network of support out there.

Sara:

Exactly. Yeah. That's a key message here Yeah. Whether an NPO chooses to incorporate or not.

David:

Right.

Sara:

The process of exploring these options and understanding what's involved is

David:

so valuable. It's about taking that proactive approach.

Sara:

Right? It is.

David:

To organizational development Yeah. And making those strategic choices that align with that long term vision.

Sara:

Exactly. And that brings us to an important point. Okay. Even if an NPO decides incorporation point.

David:

Okay.

Sara:

Even if an NPO decides incorporation isn't right for them at this time, understanding the pros and cons can help them make informed decisions as they move forward.

David:

It's like adding another tool to their toolbox. Yeah. Right? Equipping them to adapt and evolve as they grow, and their needs change.

Sara:

Precisely. It's not a one time decision.

David:

Right.

Sara:

It's an ongoing conversation, you know, that MPO leaders can have with their board members, volunteers, and stakeholders.

David:

Mhmm.

Sara:

What matters most is that they're making informed choices, you know, choices that align with their mission, values, and goals.

David:

Beautifully said. It's about empowering them to take ownership of their future Yeah. And create the impact they wanna see. So it sounds like this whole, you know, process of deciding whether to incorporate or not

Sara:

Yeah.

David:

Is less about finding the right answer

Sara:

Right.

David:

And more about asking the right questions.

Sara:

That's a great way to put it. Yeah. It's about taking a step back Mhmm. And really examining what matters most

David:

Yeah.

Sara:

For the NPO, its mission, and the people involved.

David:

So if our hypothetical NPO is going through this process, what are some of those key questions they should be asking?

Sara:

Well, one of the most fundamental ones is k. What are the potential risks we face as an organization, and how would incorporating or remaining unincorporated affect those risks?

David:

Okay.

Sara:

We talked about liability, but there are other things to consider too. Yeah. Financial risks, reputational risks, even operational risks.

David:

So it's about really doing a thorough risk assessment. Yeah. Understanding those vulnerabilities Mhmm. And then figuring out, okay, which structure kinda offers the best protection.

Sara:

Exactly. And that ties into another really important question.

David:

Okay.

Sara:

What opportunities are we hoping to go after? Yeah. And would incorporating help or hinder those pursuits? Right. We've talked about funding.

Sara:

Yeah. But there's also potential partnerships, collaborations

David:

Oh, man.

Sara:

Even expanding, you know, into new service areas.

David:

Now incorporating might open some doors, but could it also limit some types of flexibility?

Sara:

That's a good point.

David:

You know, like, if an NPO really thrives on being nimble and responsive to the needs of their community Yeah. Would a more formal structure slow them down?

Sara:

Yeah. Sometimes that agility and responsiveness Yeah. Are real strengths Yeah. You know, especially for those grassroots organizations. Mhmm.

Sara:

And it's important to weigh those benefits against what you gain by incorporating. It might be that incorporating later on, you know, as they grow makes more sense.

David:

So it's not like an all or nothing decision. There might be a middle ground or a phased approach

Sara:

Mhmm.

David:

That lets them benefit from both, you know, at different stages.

Sara:

I think that's a valuable way to look at it, and that leads to another key question.

David:

Okay.

Sara:

What are our values as an organization?

David:

Right.

Sara:

And how do those values align with, you know, the principles of incorporating or remaining unincorporated? That's a deeper level of reflection. It is. Incorporating or remaining unincorporated?

David:

That's a deeper level of reflection.

Sara:

It is.

David:

For example, if an NPO really values transparency and accountability Yeah. Incorporating might feel like a natural fit.

Sara:

Absolutely. Yeah. And for some NPOs, there might be a a strong sense of community ownership Uh-huh. And, you know, grassroots decision making.

David:

Yeah.

Sara:

That aligns more with staying unincorporated. It's about that congruence, you know

David:

Yeah. Yeah.

Sara:

Between their structure and their identity.

David:

It sounds like this whole process is about more than just the legal and administrative stuff.

Sara:

It

David:

is. It's a chance for NPOs to define who they are Yeah. What they stand for, and what they want to achieve.

Sara:

I think that's really at the heart of it. Yeah. And that brings us back to your point about the right questions. Mhmm. The most important one an NPO can ask in this context is Yeah.

Sara:

What does success look like for us?

David:

Oh, that's a big one. It is. Because success can mean so many different things.

Sara:

Right. It can.

David:

Depending on, you know, the mission, the values, the community.

Sara:

Exactly. For some, success might be measured in the number of people they help Yeah. Or the impact they make on a certain issue Yeah. Or even the sustainability of their work.

David:

Right? Or for others, success might be more about fostering those community connections. Yeah. Empowering individuals, advocating for change.

Sara:

Exactly. And those different definitions of success Yeah. Are gonna shape their choices about everything Right. From their legal structure to fundraising strategies Yeah. To day to day operations.

David:

It's not just about checking boxes or following a set path.

Sara:

It's about making conscious choices

David:

Right.

Sara:

That line up with their vision of success.

David:

It makes this whole process really exciting.

Sara:

It does.

David:

It's a chance for these NPOs to create their own path Yeah. Build a model that works for them Mhmm. And make a real difference.

Sara:

That's what makes it so exciting.

David:

As we wrap this up

Sara:

Yeah.

David:

I'm left with this feeling of hope and possibility.

Sara:

Me too.

David:

It's clear there's no one right answer when it comes to incorporating. Right. But there's a ton of information and resources out there to help NPOs with this decision.

Sara:

Absolutely. And the biggest takeaway is that the decision should come from the NPO itself. Right. Yeah. Their unique needs, values, and vision for the future.

David:

Well said. Thanks for joining us on this journey.

Sara:

Thanks for having me.

David:

And best of luck to all those NPOs out there charting their course to a brighter future.