How To Start a Non-Profit Corporation

The non profit sector is one of the fastest growing in North America today.  With over 15,000 registered charities in Canada alone, it is important for newly formed non profits to fill an existing need in the community.  Non profit organizations must have a clear understanding of their mission and goals in forming the organization in order to not impede on existing corporations and to find success as an organization.

Similarly to corporations, non profits need to also address the legal requirements associated with starting their organization.  Non profit corporations are required to have a board of directors.  Likely this will be a group of founding members of the organization.  The board should be established right off the bat so that all other decisions are made by those who have a vested interested in the corporation.  Mission, roles, responsibilities, headquarters and financing will need to be hashed out before any legal paperwork can be started.  Most importantly, the board will need to establish a name for the organization and whether to incorporate the organization, become a registered charity, or both.

After selecting and registering your corporate name, you may choose to incorporate your non profit.  Though not essential to do so, incorporating will give the organization a legal status and with it rights and responsibilities.  The process to incorporate a non profit is generally the same as a corporation.  You can incorporate federally or provincially and requirements are dependent upon the jurisdiction in which you incorporate.  The one difference is the option to also register for charitable status.

In order to be granted charitable status, you must apply through the Canada Customs and Revenue Agency by fulfilling a number of requirements. In order for an organization to be registered its purpose needs to either relieve poverty, provide advancement in education, advancement in religion, or benefit the community in certain ways in which a court has deemed acceptable.  The process can take up to 8 months to complete, but after completion your non profit will have the advantage of providing tax receipts to charitable donors as well as receiving certain tax deductions. 

Following these first steps will help your non profit corporation achieve success in its mission and future activities in the community!

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Overview of the Canada Not-For-Profit Corporations Act

Recently, a new law called the Canada Not-For-Profit Corporations Act ("CNPCA") came into effect aimed at eliminating unnecessary regulation and providing flexibility to the not-for-profit sector. The new legislation modernizes the corporate governance of not-for-profit corporations by promoting accountability, transparency and efficiency.

The Act in its entirety is lengthy and detailed so not-for-profits will have up to 3 years to transition into compliance. Below is a list of some of the Act’s more important provisions that may affect you and your not-for-profit.

Incorporation:

The process of incorporation has become more streamlined under the new Act making it faster and more efficient. Instead of submitting the letters patent and by-laws for review, incorporations now occur “as of right” upon submission of the signed articles of incorporation.

By-laws:

Before the Act was implemented Industry Canada required incorporating not-for-profits to prepare and submit by-laws governing corporate matters to be reviewed and approved at the time of incorporation.  Under the new legislation it is no longer necessary to draft and submit by-laws with the application for articles of incorporation. The new Act requires by-laws that deal with member issues only. 

Members:

Members’ rights are enhanced under the new Act. The new rights include: the right to submit a notice of proposal to request said proposal to be discussed during a members meeting; the right to request a meeting at any time; the right for non-voting members to vote separately from voting members on matters that impact membership rights; and the right to access corporate records to monitor board compliance.

Directors:

A director’s liability and standard of care are protected by the “due diligence” defence as understood in the common law duty of acting in honest and good faith. In this legislation specific liabilities are given to directors concerning payment and distribution to members, debt obligations, and wages payable to employees. However, directors who meet the standard of care are protected from liabilities through the “due diligence” defence under the new Act.

Financial Accountability:

The Act divides not-for-profit corporations into soliciting and non-soliciting corporations, which are subject to different regulations depending on which category your not-for-profit falls under. Your gross revenues are also dependent upon the rules and requirements for reporting under the new legislation.  

To facilitate the change, Industry Canada will not charge initial filing fees related to transitioning from the CCA to the NFP Act. To view the Act in its entirety, please click here.

Career Path for an MBA in Canada

It's best to begin with the good news. Overall, on the global level, the Canadian economy is in much stronger shape than the American economy. That having been stated, life is still rather difficult at a grass roots' level, especially if you are a recent graduate of a fine university, clutching the license to a successful career – your MBA.

This is not to say that an MBA degree is unimportant. Just the contrary! It is a degree well worth pursuing, especially if your career vision is targeted in the business or financial sectors. Unfortunately, though, the current employment market is not the most promising for new MBA's. In the finance sector, traditionally the major MBA employment sector, career centres for MBA graduates report a decline in finance jobs ranging from 6% - 16%. In addition, graduate schools have reported a drop of on-campus recruitment of at least 10%. Furthermore, graduates seeking internships have encountered a serious reduction in available placements. Back to the good news, the dip in salaries in Canada was slight, compared to the major drop in 2002. Estimates are that salaries will return to the pre-recession level by late 2010 or 2011. However, if you can't secure a position, the salary is irrelevant.

Recruitment has been on the rise in some sectors, though. More positions requiring MBA's have become available in government, health care, non-profit, and energy. While these sectors comprise a relatively small percentage of all available jobs, it may cause new graduates to begin thinking in different career directions, away from the traditional employment sectors. Also, a growing number of recent grads have turned to entrepreneurial endeavours, as have many Canadians who have been unable to find employment.

Some graduates have begun looking for foreign employment, although the prospects abroad are also not very encouraging. For most, though, they will weather the storm in Canada, hoping for better times down the road because, when all is said and done, there's no place like home.

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Government Financing for Small Business

One of the most difficult results of the financial recession has been the drastically reduced amount of credit available to small businesses. Banks have become highly selective in granting loans – the lifeblood of many a business.

An important program in Canada's Economic Action Plan is the Canada Small Business Financing Program (CSBFP). This program is designed to help small and medium-sized businesses access financing. For-profit enterprises with gross annual revenues of $5 million or less may be eligible for loan amounts up to $350,000 and $500,000 for real property.

The CSBFP is administered by Industry Canada in partnership with private sector lending institutions across all the provinces and territories. In total, more than 1200 service locations have been established to facilitate business owners seeking loans. The government does not participate in the lending process, nor does it make the decisions. The final decision is solely at the discretion of the financial institution. However, in order to encourage lenders to make loans that they otherwise might not, the federal government will cover a portion of losses due to default. A lending institution with a portfolio greater than $500,000 will be eligible for reimbursement of losses up to 12 percent of its portfolio's value.

Loans to small and medium-sized businesses are not guaranteed under the CSBFP. Business owners should discuss their needs with a financial officer at a participating financial institution. Upon approval, the loan will be registered with Industry Canada.

This program is not available for farming businesses, not-for-profit organizations, or charitable and religious organizations.

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Strengthening Your Business Using Advisory Boards

A small business or start-up that is approaching a major change – expanding into a new market; launching a new product line; breaking into a foreign market – may decide that it needs help or coaching before taking on this business challenge. For many such companies, the best tool is the establishment of an advisory board. While there are no set rules about setting up such a body, it generally is comprised of seasoned, experienced professionals from outside the business. A well-balanced, effective board can become an indispensable tool to help strengthen a business professionally and help it advance its goals.

As the purpose of the board is to be advisory, not operational, its members should be appropriate to the task at hand. If your goal is expansion of the business, the board members should be able to provide you with business leads and contacts. A business seeking to strengthen its executive team should recruit board members who can serve as mentors to the top staff and provide business skills. When financial contacts are your need, recruit business people from the financial world.

Of course, only you can evaluate the effectiveness of an advisory board. You must establish clear objectives and delineate the benchmarks that the board should reach. Also, be prepared to compensate board members fairly. These are professional people whose time has value to it. It is well advised that you seek the majority of your advisors from within your own personal contacts. After all, this is your company and complete strangers may be professionally appropriate but can you work with them?

Finally, don't get carried away with establishing a board with many members. Keep the number manageable so that the board will become a workable group. Quality, not quantity, is what counts.

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Nonprofits: A Growth Sector in Canada: Part II

Database Management, Consultants, Staffing and Branding

Despite large operating budgets, the bigger Canadian charities don't invest so much into IT such as economical database or web-based CRM programs that they could use to help with volunteer management, according to Artez Interactive CEO Philip King. Though mom-and-pop businesses are being employed by a few charities, “Few sophisticated, modern businesses have turned their attention to the charitable sector,” he says.

According to CharityVillage.com, the top 1% of nonprofits in Canada that have large budgets and earn about 59% of all revenue have too many consultants as it is. And 42% of Canadian charities operate with $30,000 or less. Charity consultant Alex Gill points to mid-sized charities as having potential because they are looking for efficient ways to improve their operations.

One area these groups may be willing to invest in is consultants and staff for projects in areas such as finance, fundraising and HR; if there are quality professionals available for less money. These may be easier to find in the current economy.

Another area is branding. Even though some ad agencies will work pro-bono for nonprofits, some charities are willing to invest in paying an agency that specializes in their sector and can work within a limited budget to develop the organization's identity.

However, King cautions that it takes awhile to build up a trusting work relationship with many charities and those groups are not so free with spending money. On the other hand, “For smart, patient people, it’s a good business — and a rewarding business,” he says.


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Nonprofits: A Growth Sector in Canada: Part I

Digitizing, IT Solutions

Though we might not think of nonprofits being on the up and up, they actually are now. Statistics Canada claims that in 2007 the total for charitable donations has gone up by 33% in five years to $8.6 billion. Despite the recession, the factors that drive donations, such as the richest sector getting richer and the population's aging, continue to go in the same direction. Those at the top income levels can still afford to increase their giving and do so. The top Canadian donors are now in their 60s and the amount of people in that age range are expected to expand by 50% between 2006 and 2016. The general population is only predicted to increase by 8% over the same period.

However, most of the donations arrive in the old fashioned ways. Artez Interactive, a company specializing in online fundraising and technology estimates that only 3% of US$500 billion in donations were made online. “There are huge opportunities in helping charities move to digital systems,” says Artez CEO Philip King.

Another issue that came to the fore following the 2004 tsunami was that despite a large amount of donations, how can the funds be distributed quickly to those in need? British companies have begun working on this type of technology but North America has not yet made inroads. This could be a great opportunity for a company that can find better ways to get money out to the relevant organizations easily and with the proper security in place.

Stay tuned for Part II in this series.

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