Should We Incorporate? Not-For-Profit Corporations vs Unincorporated Associations

This article highlights some of the most common reasons to operate as a not-for-profit corporation, rather than operating as an unincorporated association. For information on Canadian corporations generally, see our article: Corporations in Canada - What Are They?

Note that we make some generalizations in this article about corporations based on common not-for-profit corporate legislation in Canada, such as the Canada Not-for-profit Corporations Act, the Societies Act (Alberta), and the Not-for-Profit Corporations Act (Ontario).

Limiting Liability

One of the most common reasons for incorporating is to limit liability. Members of a not-for-profit corporation generally enjoy limited liability. Members of an unincorporated association may find themselves jointly and severable liable for the acts and liabilities of the association – just like an individual may be held responsible for the activities they personally participate in.

Legal Status

Incorporating means the organization is its own legal entity, capable of:

· entering into contracts

· owning its own property

· suing or being sued in its own name

As a corporation is a separate legal entity, incorporation may also assist with succession planning and ensuring the long-term existence of the organization.

Eligibility for Funding

As unincorporated associations in Canada do not own their own property, typically it is necessary to incorporate in order to access government grants or other funding opportunities. Potential donors and funders may also perceive an incorporated organization as more credible and stable.

Formal Structure

Corporate legislation offers a formal framework for how an organization is structured and how decisions are made, and imposes the requirement to adopt by-laws to further detail its governance processes. In comparison, an unincorporated association (outside of Quebec) is governed by case law and its own governing documents, if any. This means that while corporate legislation reduces the organization’s flexibility in its own governance, it imposes a standard framework for governance and decision-making. Without this framework to fall back on, an unincorporated association may struggle when an internal disagreement arises unless it has invested in robust governing documents.

Conclusion

While it is not necessary to incorporate your not-for-profit, and in some situations it may not be worth the investment, incorporation does offer a number of benefits. If you have questions about the incorporation process and whether incorporation is right for your charity or non-profit organization, reach out to one of the lawyers in Outsiders Law’s Charity & Non-Profit Group.

Disclaimer

The information provided in this article is for educational purposes only. Nothing contained herein should be considered as legal, professional, or tax advice. Please contact us directly if you require legal assistance.