Registered Charities: Do You Need to Incorporate?

You run ABC, a charity that helps people who have difficulty reading and writing.

While looking into registering your charity, you read something about incorporation and becoming a company. What exactly does it mean to incorporate? Do you have to incorporate before applying to be a registered charity?

In this article, Éducaloi explains the ins and outs of incorporation for registered charities.

What is incorporation?

Incorporation means you create a legal entity that exists separately from the people who run or are members of an organization. This separate legal entity – Do-Good Charity Inc., for example – can do things in its own name, such as having a bank account, signing contracts or owning things.

Applying to be a registered charity and incorporating are separate processes. Registered charities do not have to incorporate, but it is sometimes a good idea.

Incorporating has several advantages:

• The separation between the legal entity and the people involved in the organization provides some protection for these people: if something goes wrong, generally the organization will be held legally responsible instead of the people running it.
• Incorporation means the legal structure continues despite turnover among the people in the organization.

However, incorporating also has some disadvantages:

• There are government fees to pay for the incorporation and it might be necessary to pay a professional advisor to help with the process.
• There are also ongoing obligations that take time and money: incorporated organizations must file a form annually with the government, pay an annual registration fee, hold an annual meeting, follow formal rules on how they operate, and more.

Other things to consider before incorporating

In order to incorporate or to become a registered charity in Quebec, a non-profit organization’s purposes (mission) must meet certain tests. The acceptable purposes to register a charity are more limited than those acceptable to incorporate.

Charities that want to register with the Canada Revenue Agency should therefore make sure that their purposes meet the narrower test that applies. To learn more about the four categories of purposes that are accepted, consult our article Introduction to Registered Charities.

Organizations that want to both incorporate and apply to be a registered charity should make sure that the documents they file when they incorporate reflect the requirements they must meet as registered charities, notably regarding the activities charities tend to carry out.

For example, the incorporating documents should mention that the charity can receive donations and hold fundraising activities, and that if it ceases to exist, it will give any leftover assets (money, property, etc.) to a “qualified donee.” Often, the government department responsible for incorporation can provide suggested wording for these standard parts of incorporating documents.

If a registered charity wants to incorporate, how does it work?

Charities can incorporate either at the federal, provincial or territorial level. Depending on where an organization incorporates, different rules will apply to it.

For incorporations in Quebec, the government agency responsible for the process is the Registraire des enterprises. On its website, the Registraire has a guide about the incorporation process. Note that if your group is a religious organization, the form to fill out is different than for other groups.