Legalese November 10, 2004
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This column is not intended to provide legal advice. You should contact a lawyer to determine your legal rights and obligations.
To Incorporate or Not? Today many communities are relying more on volunteer-based groups. With government unable to provide services, this trend will undoubtedly continue.
Groups formed for the good of the community are varied. They range from seniors groups to sports organizations providing recreational opportunities for youth.
When any such group forms, it is faced with a decision as to how best to organize. What is the best structure for the group to help it to reach its objectives?
A key issue is whether to incorporate or to run the organization as a non-incorporated association. By incorporating the group creates a separate legal entity, the not-for-profit corporation. In a non-incorporated association all members are essentially acting in their individual capacities.
The greatest benefit to incorporating is the protection of limited liability. As a separate legal entity the not-for-profit corporation can sue and be sued in its own name. Members of the corporation are generally not liable for the debts of the corporation.
Another advantage of incorporation is that it provides a framework for the organization. The by-laws set out procedures to be followed in operating the corporation. For example, they set out how and when meetings of members and directors are to be called. The by-laws provide details of the procedure to be followed at meeting - who is to chair the meetings and how many persons are required for a quorum. They often set out the duties of the officers of the corporation and committees of the Board. Generally, these procedures assist the organization by setting out rules describing who has the power and responsibility to take action on behalf of the corporation and how that power is to be exercised.
The Letters Patent, the document that is issued at the time of incorporation, sets out the objects of the corporation. The objects summarize the types of activities which the corporation is empowered to undertake. An advantage of this is that because the objects are clearly set out, all members will have guidance as to what the organization should be doing. A possible disadvantage is that the corporation cannot do anything that does not further its objects. To expand its field of activity, an application for Supplementary Letters Patent is required.
There are also a number of legal requirements to maintain a corporation. These include the filing of an annual return with the government that lists current officers and directors. Many records, such as minutes, registers of members and directors and financial statements, must be kept at the Head Office of the corporation. There is also an obligation for not-for-profit corporations to provide audited financial statements to its members each year at an annual general meeting of members.
Although there are some disadvantages to incorporating, the advantages frequently outweigh them. It is important that if an organization decides to incorporate, it be aware of the rules that must be followed. The benefits of incorporation may be negated if the organization continues to operate as if it was unincorporated. To avoid this problem or if you have any other questions about not-for-profit corporations, do not hesitate to call us at the legal clinic.
-Peter Graham, Lawyer
