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Types of Non-Profits

Business and non-profit corporations are the main types of corporation. Within non-profits, there are different types. The type depends on its purpose and activities.

Differences Between Corporations

A business corporation is formed to make a profit. The profit comes from the specific business venture that the business is engaged in. This profit is then distributed to its owners.

The goal of a non-profit corporation, on the other hand, is not personal financial gain. A non-profit corporation can earn a profit, but the profit must be used to further the goals of the group. Most activities of a non-profit corporation are not of a commercial nature. Examples of non-profit corporations are:

  • sports groups
  • activity clubs
  • dance groups
  • daycares
  • service groups

The Non-profit Corporations Act, 2022 is the law that governs non-profit corporations in Saskatchewan. These corporations are also still subject to all laws of contract, tort, employment standards and so on.

There are two types of non-profit corporations:

  • membership corporations
  • charitable corporations

Each type has different rules and responsibilities.

Membership Corporations

A membership corporation is formed primarily for the benefit of its members. Its purpose is not the direct financial gain of its members. Instead, the purpose is to put its income into a particular activity. It is supported by its members through fees, donations, loans, or any combination of these. Examples of membership corporations are:

  • golfing clubs
  • social clubs
  • special interest organizations
  • daycares

Membership corporations:

  • are usually financed by members through membership fees, loans, fundraising
  • are primarily for the benefit of members
  • require at least one director
  • can have paid employees
  • can allow members to receive any remaining property if the corporation is dissolved
  • may invest its funds as directors think fit, subject to the limitations placed on any gifts and in the corporation’s articles or bylaws

Charitable Corporations

Remember, both membership and charitable non-profits have members. A corporation is not a membership corporation just because it has members. A charitable corporation has members too.

A charitable corporation exists to pursue some charitable purpose that is primarily of benefit to the public. Its income goes toward that charitable purpose. For example, a charity may exist to raise money for a specific hospital.

Charitable corporations:

  • are usually financed by government grants and donations
  • are primarily for the benefit of the public
  • require at least three directors
  • can have paid employees
  • cannot allow members to receive any remaining property if the corporation is dissolved
  • have restrictions on how they can invest their funds
  • have more stringent audit and financial review requirements

Even if it did not designate itself as charitable, a non‑profit will be considered to be a charitable corporation under the Act if it does any of the following:

  • carries on any activities that are not primarily for the benefit of their members
  • receives donations or gifts of money or property from the public in excess of 10% of its yearly income
  • receives government grants in excess of 10% of its yearly income
  • registers as a charity within the meaning of the Income Tax Act

If this happens, the corporation must comply with the rules of charitable corporations. Alternatively, they can apply to court for an order that they not be deemed a charitable corporation.

Benefits of Incorporation

Non-profit organizations are not required to incorporate, but doing so has some benefits. Deciding to incorporate can depend on the group’s activities and how they are organized.

When a non-profit incorporates, it becomes a legal entity. At this point, it is essentially the same as an individual at law. An incorporated organization do things in its own name, such as:

  • enter into contracts
  • buy land
  • borrow money
  • open bank accounts

If a non-profit is not incorporated, one or more people involved with the group would have to do these things in their own name.

Advantages to incorporating include:

  • liability of the members and directors is limited which means, for example, they are not personally liable for debts of the corporation
  • the organization will continue even if the membership changes
  • the corporation can own property in its name regardless of membership change
  • ability to bring a legal action in its own name while an unincorporated body cannot
  • likelihood of receiving government grants may increase because of the appearance of stability of the organization

An unincorporated association is created by an agreement between individuals and has no legal status. The members are personally liable to the creditors for the full amount of any debts. An unincorporated body cannot sue or be sued. Members must sue or be sued in their personal capacity. Title to property must be in all the members' names if the group is not incorporated. This can make selling the property difficult. It could also be in just one member’s name, but then it is the member who owns the property at law, not the group.

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