Ontario Nature Fact Sheets

Incorporation and charitable status

Why incorporate?

Setting up a corporation creates a new legal body that can act in many of the same ways as an individual person can. Time, effort and cost are involved, in both creating a corporation and maintaining it. So for a small club or a short-term project, often incorporation is an unnecessary complication. But for organizations that deal with ongoing programs, land management or employees, incorporation as a not-for-profit organization is a necessary step. Here’s why:

• Incorporation provides a considerable degree of liability protection for the members and officers of an organization, so that they are not generally liable for its debts and obligations.
• Incorporation provides continuity, so that the members can change over time but the organization continues. That makes it easier to own land, sign contracts and make other, long-term commitments.
• Incorporation creates a clear framework for making decisions, with by-laws that lay out how officers are elected and what powers they have. It generally provides a better framework for accountability to members and government agencies.

Do we need a lawyer to incorporate?

You can go through the steps of incorporation without a lawyer, but the help of an experienced lawyer will make the process smoother and probably faster. Many volunteer groups are able to enlist the unpaid help of a sympathetic lawyer to do the necessary paperwork. Or you may be able to find a lawyer who, for a minimal fee, will check over application forms you draw up yourself.

What do we need to know before applying for incorporation?

Before you start, you need to decide on:

• A location for your corporate "head office," where records will be kept. This can be the street address of one of your members or of your lawyer, but it cannot be a box number.
• Three or more individuals who will act as the first directors of the corporation and who will sign the application forms. They hold this responsibility until the first annual meeting of your corporation elects a board of directors.
• A definition of the objects of the corporation, setting out the purpose of the organization. Objects should be kept short and relatively broad so that you don’t unduly restrict your future activities, but they also have to be specific enough to be clear. Ask other similar organizations for a copy of their objects to provide a model, or refer to one or more of the guidebooks listed below for suggested wording.

How do we choose a name?

Your corporate name is reserved for your group alone, and can’t be used by anyone else in the province. Securing that name, however, involves some cost and paperwork. It helps to begin by making sure that your proposed name is as distinctive as possible. A combination of wording to denote the purpose of your organization and its geographic location–for example, the Orillia Nature Club–is a good place to start. Be careful not to imply any connection with royalty or government, unless you want to go through the hoops to obtain the necessary consents. Take a look in the telephone directory or in association newsletters to be sure your proposed name is not similar to that of an existing group. Finally, look at the acronym that your initials or other short forms make, to be sure that you don’t unwittingly embarrass yourself.

As part of the incorporation process, you have to obtain clearance for your proposed name. In Ontario, that is done by private companies who access a database called NUANS, at a cost of between $40 and $100 for each name searched. These search houses are listed in the yellow pages of your telephone directory under "Searchers of Records." A list is also provided with your incorporation application forms.

How do we incorporate provincially?

You can choose to incorporate either provincially or federally. The process differs slightly, but there is no real difference in the outcome for your organization. The provincial process involves four steps:

1. Contact the Ontario Ministry of Consumer and Commercial Relations, Companies Branch at 1-800-361-3223 and ask for application forms for not-for-profit incorporation. As well, call Publications Ontario at (416) 326-5300 or 1-800-668-9938, or visit the Ontario Government bookstore at 880 Bay Street in Toronto to obtain (by credit card, if ordering by phone) a copy of the Not-for-Profit Incorporator’s Handbook ($5.00), which provides all kinds of helpful detail.
2. Obtain clearance on your proposed name and objects from the Office of the Public Guardian and Trustee by submitting to them two copies of your completed incorporation forms from Step 1. There is a fee of $150, payable by cheque made out to the "Public Guardian and Trustee." Call them if you have questions: 1-800-366-0335. It will take about four weeks to obtain clearance.
3. Contract your NUANS name search. This process should take only a few days and your name is then reserved for the next 90 days.
4. Once you have received the clearance and had your incorporation applications forms returned to you from Step 2, submit the completed forms, along with a cheque for $155, to the Ministry of Consumer and Commercial Relations. (All necessary addresses for Steps 1 to 4 are on the application forms.) It is not necessary to submit your by-laws.

You will receive your corporate letters patent, typically in four to six weeks; they act as your constitution. You can then create by-laws to establish how officers will be elected, who can be members, appointment of auditors, and a host of other details to make your organization work smoothly.

What if we decide to incorporate federally?

The process of federal incorporation differs only slightly. You can obtain an application kit from Industry Canada, Corporations Directorate, 9^th Floor, Jean Edmonds Tower South, 365 Laurier Avenue West, Ottawa K1A 0C8, or by calling (613) 941-9042 (no toll-free number). The kit includes the necessary forms and the steps you need to follow. One significant difference from provincial incorporation is that you need to provide your proposed by-laws along with your application; the information kit provides a model set of by-laws that you can use or modify as you choose. The current federal incorporation fee is $200.

Do we need to register as a charity?

There are two main reasons to register as a charity.

1. It exempts your organization from paying income tax on any income you earn.
2. It allows you to issue tax receipts to donors, which is an important incentive for many.

This extends beyond individual donors; even some foundations and corporations restrict their grants to charitable organizations.

Becoming a charity does add to the responsibilities you take on, especially in requiring you to act prudently in all financial matters, avoid conflicts of interest, and always act in the public interest. It also restricts some of your flexibility; for example, you must meet a disbursement quota to spend at least 80 percent of the previous year’s donations on meeting your charitable objects. And you are limited to directing no more than 20 percent of your income towards administration and fundraising. However, for many organizations seeking major donations, becoming a registered charity is almost a necessity, far outweighing the administrative drawbacks.

How do we apply for charitable registration?

The best way to begin is by writing Charities Division, Revenue Canada, Ottawa K1A 0L5 or by calling them at 1-800-267-2384 or (613) 954-0410. They will send you an application kit, which includes Form T2050 and an explanatory booklet called Registering Your Charity. Then send them a copy of your name and objects and a description of your activities, and ask for a quick review prior to submitting your formal application. This early review, which can be done either before you formally submit your incorporation application or while you are waiting for your incorporation approvals, helps flag any major problems in advance and reduces the waiting time. You can then submit your formal application for charitable status once your incorporation process is complete.

Along with the completed application form, you will be asked to submit:

• a list of officers and directors
• a certified copy of your letters patent
• a copy of your by-laws
• a statement of activities that describes how you will carry out your objects
• any brochures or other printed materials that you have produced
• a first-year budget.

The good news is that there is no application fee.

Charitable registration is likely to take three or four months at a minimum, with several years not unusual if the process hits snags along the way. One helpful step is to contact your federal Member of Parliament to introduce him/her to your organization and let him/her know you have applied for charitable status. A MPs support can be invaluable if the approval process gets bogged down.

Other information sources

Creative Conservation: A Handbook for Ontario Land Trusts. Stewart Hilts and Ron Reid (1993) $10.00

Not-For-Profit Incorporator’s Handbook. Ministry of Consumer and Commercial Relations. $5.00. Call Publications Ontario at (416) 326-5300 or 1-800-668-9938 and place a phone order with a credit card, or visit the Ontario Government bookstore at 880 Bay Street in Toronto.

Forming and Managing a Non-Profit Organization in Canada, 3^rd edition. Flora MacLeod (1995) International Self-Counsel Press Ltd., Vancouver, BC.

Produced by Ontario Nature, September 1999. The other factsheets in this series are Individual Gifts to Local Conservation Organizations and Dealing with Liability.

Ontario Nature gratefully acknowledges the financial assistance of the Tip of the Mitt Watershed Council (Great Lakes Aquatic Habitat Fund) in the production of this factsheet series.

This factsheet or information from it may be reproduced provided credit is given to Ontario Nature.