Understanding the scope of Non-profit Organizations
Many people have “causes” that are near and dear to their hearts. These causes may involve improving the lives of those belonging to a given social group, contributing to the social welfare of less privileged members of society, or even creating opportunities for people to participate in a specific sport or activity. It is often possible to pursue these causes by creating a non-profit organization dedicated to advancing these objectives.
Let us very briefly overview the concept of non-profit organizations.
What is a non-profit organization?
A non-profit organization is an organization established to operate in furtherance of various objectives, including social, religious, recreational, civic, artistic or scientific purposes. Such an organization must not operate in the pursuit of profit. Churches, community groups, minority rights organizations and sports clubs, for example may often utilize the not-for-profit model.
Not-for-profit organizations can be incorporated or they can adopt alternative legal forms. They may be incorporated under the federal Not-for-profit Corporations Act or provincially, under Part III of Quebec’s Companies’ Act.
How is a non-profit organization different from a for-profit organization?
The shareholders of a regular corporation are entitled to receive dividends when the business makes a profit. However, any surplus revenues generated by a non-profit organization must be used strictly in furtherance of the objectives declared in the organization’s charter.
In this vein, if a for-profit corporation ceases its operations, any assets remaining after the corporation’s debts have been paid off will be divided among the shareholders. However, if a non-profit ceases its operations, the organization will generally transfer its assets to another organization with similar objectives.
What differentiates non-profit organizations from charities?
A not-for-profit organization is not necessarily a charity. Charitable status is granted by the Canada Revenue Agency to organizations established to pursue charitable objectives.
Like a non-profit organization, a charity may not use its income to personally benefit its members. Also, both non-profit organizations and charities receive various tax benefits.
However, there are important differences between non-profits and charities. While a non-profit organization may be created to pursue any of the purposes described above, a charity must dedicate its resources to pursuing charitable purposes.
Like charities, not-for-profit organizations often rely heavily upon donations for their survival. For this reason, being registered as a charity can be quite beneficial for a not-for-profit. Charities can issue official donation receipts for income tax purposes to persons who make donations. Non-profit organizations that have not been granted charity status cannot issue such receipts.
Charities can only make donations to “qualified donees” such as other charities, for example. If it is determined that a charity is using their funds inappropriately, its charitable status may be revoked by the Canada Revenue Agency.
For more information about not-for-profits and charities, contact Kelly Francis at (514) 802-7736 or at firstname.lastname@example.org.
Disclaimer: This article merely gives readers an overview of the issues discussed therein and is not legal advice. Please do not take action based on this article alone without first seeking the legal counsel appropriate for your specific situation!