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Tax Benefits: Non-profit organizations in Canada are exempt from taxes automatically, if the groups qualify under the definition of an NPO in the Income Tax Act. These groups pay no federal, state, and local taxes, that means more of your funds can go directly to your cause instead of going to the taxman. Just make sure you fit the rules under the Income Tax Act.
Limited Liability Protection: Nonprofits gain the advantage of tax-exempt status and protection of directors, officers, and members from personal liability. Personal assets of officers and board members are generally exempt from organizational debt and liability.
Increased Credibility and Legitimacy: Being incorporated gives your group a serious credibility boost. People, grant providers, and the public are more likely to trust and support an official organization with paperwork and bylaws in place.
Access to Funding Sources: Non-Profit status also makes groups eligible to receive special grants or government funding, and special rates on services or even postage. Public and private grants available to incorporated organizations only can be accessed by some nonprofits.
Perpetual Existence: Unlike unincorporated associations, a corporation continues to exist even if founders or board members leave, providing organizational stability and continuity.
Better Governance Structure: The not-for-profit corporation has an enhanced ability, through its governing documents, to address membership status issues (e.g., removal for unpaid dues or death, and expulsion for disciplinary reasons).
Easier Tax-Exempt Status: While a group or association that has not been formed under state law can apply for tax-exempt status it is generally easier for a statutory business entity (and especially a corporation) to get IRS approval.
Examples of non-profit organizations
Here are a few types of non-profit organizations and examples of each:
Feature |
Non-Profit Corporation |
Standard Corporation |
|---|---|---|
Purpose |
Operates for social, cultural, charitable, or community goals (not for making profit) | Operates to earn profit for shareholders |
Profit Distribution |
Cannot distribute profits to members or directors | Can distribute profits as dividends to shareholders |
Ownership |
No shareholders—has members or directors | Owned by shareholders |
Tax Status |
May qualify for tax-exempt status (if registered charity) | Pays corporate taxes on profits |
Fundraising Options |
Donations, grants, membership fees | Sales, investments, business revenue |
Use of Surplus |
Reinvested into the organization’s mission | Can be used or distributed at owner's discretion |
Naming Restrictions |
Cannot use “Limited,” “Ltd.” unless special approval | Must include “Limited,” “Ltd.,” “Inc.,” or “Corp.” |
Governing Law |
Ontario Not-for-Profit Corporations Act (ONCA) | Ontario Business Corporations Act (OBCA) |
Directors |
At least 3 directors are required | At least 1 director |
Residency Requirement |
No requirement, unless you plan to register a Charity status. | No requirement. |
Limited liability protection for directors and members
Legal recognition and credibility
Ability to enter into contracts, own property, and receive grants
Continuity regardless of changes in membership
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