What is a non-profit organization?

    Non-Profit Corporations   
    I. Non-Profit Corporations   
    This booklet is intended for people who are members or directors    
    or are interested in becoming members or directors of non-profit    
    corporations.  It is of particular interest to people involved    
    with an organization and who want to incorporate that organization    
    for one reason or another.  Although non-profit corporations    
    properly fall within the area of corporate law, this area of law    
    is of interest to many people who volunteer their time and effort    
    to these organizations.  The area of non-profit corporation law is    
    presented here in an understandable way that makes it accessible    
    to everyone.   
    The booklet discusses why an organization may want to incorporate,    
    the different types of non-profit corporations and how to    
    incorporate.  It also explains the responsibilities, duties and    
    liabilities of the members and directors of non-profit    
    organizations incorporated in Saskatchewan.  The final section of    
    the booklet contains the names and addresses of the government    
    departments that can provide additional information on    
    incorporating a non-profit organization.   
    A.      What is a Non-Profit Corporation?   
    The main classes of corporations are business corporations and    
    non-profit corporations.   
    A business corporation is formed to make a profit and to    
    distribute the profit to its shareholders in the form of    
    dividends.  Business corporations are regulated by The Business    
    Corporations Act of Saskatchewan which is administered by the    
    Corporations Branch of the Department of Justice.   
    A non-profit corporation, on the other hand, is formed to carry on    
    activities for purposes other than personal financial gain.  A    
    non-profit corporation can earn a profit, but the profit must be    
    used to further the goals of the group rather than to pay    
    dividends to its membership.  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, day cares and service groups.  Some non-   
    profit organizations are incorporated and some are not.  As well,    
    some non-profit organizations may be co-operatives.   
    Non-profit co-operatives are organized on a voluntary basis to    
    meet the economic, social or cultural needs of their members.  For    
    example, many day cares in Saskatchewan are co-operatives.  All    
    members of a co-operative share in the control and responsibility    
    of the organization, and benefits are returned to the members in    
    proportion to their use of services.  Co-operatives have Co-   
    operative in their name and are regulated by The Co-operatives    
    Act - 1989.  The Corporations Branch, Department of Justice    
    administers this law.   
    This booklet contains information relating only to non-profit    
    corporations incorporated under The Non-profit Corporations Act of    
    Saskatchewan.  A co-operative organization will need to obtain    
    other information relating to co-operatives.  (See addresses at    
    the end of this booklet.)  
    B.      Types of Non-Profit Corporations   
    There are two types of non-profit corporations: membership     
    corporations and charitable corporations.  It is necessary to    
    distinguish between the two types because the responsibilities of    
    each vary.   
    A membership corporation carries on activities that are primarily    
    for the benefit of its members.  It is supported by its members    
    through fees, donations, loans or any combination of these.     
    Examples of membership corporations are golf clubs, social clubs,    
    special interest organizations, day cares, etc.   
    A charitable corporation carries on activities that are primarily    
    for the benefit of the public.  It may solicit donations from the    
    public, receive government grants in excess of 10% of its yearly    
    income or register as a charity within the meaning of the Income    
    Tax Act.   
    Remember, both types of corporations have members.  A corporation    
    is not a membership corporation just because it has members; a    
    charitable corporation has members too.  The members of any non-   
    profit corporation, membership or charitable, have a status    
    similar to that of the shareholders of a business corporation.   
    The main differences between a membership corporation and a    
    charitable corporation are:   
    - who benefits from the activities (the members or the    
    - who supports the organization financially; and   
    - how the surplus is distributed upon dissolution.    
    (See IV.  Dissolving a Non-Profit Corporation)   
    C.      Laws Governing Non-Profit Corporations   
    The Non-profit Corporations Act governs the incorporating of all    
    societies, charities and non-profit corporations in Saskatchewan.     
    The Act is administered by the Corporations Branch of the    
    Department of Justice, under the direction of an appointed    
    As well, non-profit corporations are subject to all laws of    
    contract, tort, labour standards, etc.   
    II.  Incorporation of a Non-Profit Organization   
    A.      Why Incorporate?   
    Incorporating gives an organization legal status.  It is not    
    essential for a non-profit organization to incorporate.  Whether    
    an organization decides to incorporate or not depends upon its    
    activities, nature or type of organization.   
    As a legal entity, an incorporated association is recognized by    
    the legal system as having rights and responsibilities.  An    
    incorporated organization can enter into contracts, buy land,    
    borrow money, have bank accounts, etc., in its own name.   
    Other advantages to incorporating include:   
    (a)  the liability of the members is limited (members are not    
    personally liable for debts of the corporation);   
    (b)  continuity of the organization is assured while the    
    membership changes;   
    (c)  the ability to bring a legal action in its own name (an    
    unincorporated body cannot); and   
    (d)  the chances of receiving government grants may increase    
    because of the stability the organization appears to have.   
    An unincorporated association is 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; each member must sue or be sued    
    individually.  Title to property has to be in all the members    
    names if the group is not incorporated.  This can make selling the    
    property difficult.  Some difficulties associated with being an    
    unincorporated association may be overcome by the creation of a    
    trust, but a discussion of trusts is beyond the scope of this    
    B.      Where to Incorporate   
    An organization may incorporate federally or provincially.  This    
    decision is based on the location of the organization.  If the    
    organization is to carry on its activities in more than one    
    province under the same corporate name and wishes to move its    
    registered office around the country with ease, it will    
    incorporate federally.  A local organization that will remain in    
    the community or province usually incorporates provincially.  An    
    organization that is incorporated federally may also be required    
    to register provincially depending on the nature of its activities    
    in Saskatchewan.  This booklet deals with incorporating a    
    corporation provincially under The Non-profit Corporations Act of    
    Similarities may exist for incorporating federally.  For further    
    information on incorporating federally, write to the federal    
    Corporations Branch.  The address is listed in the back of this    
    C.      How to Incorporate a Non-Profit Organization   
    The Corporations Branch will supply an organization with an    
    Incorporation Kit.  The Kit contains the forms necessary to    
    incorporate and the instructions for completing them.  The four    
    forms that must be completed are the Articles of Incorporation,    
    Notice of Registered Office, Notice of Directors (names and    
    addresses of the Board of Directors) and Request For Name Search    
    and Name Reservation.   
    In completing the forms, read the accompanying instructions    
    carefully.  The organizations name must be the same on each form,    
    including abbreviations and punctuation.  The name must also end    
    with Inc., Incorporated, Corp. or Corporation.   
    Once the forms are completed and returned to the Corporations    
    Branch with the necessary fees, the Director of the Corporations    
    Branch will issue a Certificate of Incorporation.   
    1.   Name Search   
    It is a good idea to have the name of the organization searched    
    before completing the incorporation forms.  An organization can    
    phone or write the Corporations Branch, which will need a couple    
    of days to search the name.  If the proposed corporations name is    
    already being used or is misleading or deceptive in any way, the    
    Director of the Corporations Branch will not accept the name.     
    Having the name searched before completing the forms saves time in    
    the event that the name is not acceptable.  A fee is charged for    
    this service whether it is done before or at the time the other    
    forms are submitted.   
    2.   Articles & By-laws   
    The Articles of Incorporation is the document that identifies the    
    unique characteristics of each  corporation.  The articles state    
    the name of the company and its objectives, the number of     
    directors and the classes of membership.  Once the corporation is    
    set up, it can pass by-laws which are the rules and regulations    
    that govern the internal workings of the organization.  By-laws    
    are not required by law but they help to clarify the conduct of    
    the corporation.   
    It is not necessary to include provisions in the articles that can    
    be included in the corporations by-laws.  It is easier to change    
    a by-law than to change the articles.  Keep the provisions in the    
    articles to a minimum.   
    In the articles, it is only necessary to state one class of    
    members if all members have the same rights and privileges, even    
    if members have different titles.  However, if members have    
    different voting privileges, the articles must state the different    
    classes.  For example, if certain members cannot vote on    
    particular issues, those members form a different class.  An    
    example may be that members who are paid staff cannot vote on    
    items concerning salaries.  A class of members that has    
    restrictions with respect to voting must be designated as a    
    separate class in the articles of the corporation.  However, if    
    the only difference between members; for example, regular members    
    and honorary members, is the length of service but all rights and    
    privileges are the same, the articles should only state one    
    Do not designate a corporation as a membership corporation solely    
    because it has members.  Remember that a charitable corporation    
    has members too.   
    D.      Changes to be Reported to the Corporations Branch   
    Articles of incorporation can be amended by completing and    
    submitting the prescribed forms with the appropriate fees to the    
    Corporations Branch.  Amendments are effective after the Director    
    of the Corporations Branch issues a certificate of amendment.   
    Any change in the address or location of the registered office of    
    the corporation or any change in directors of the non-profit    
    corporation must be sent to the Corporations Branch on the    
    prescribed forms.   
    E.      Income Tax   
    Non-profit corporations are normally tax exempt under the Income    
    Tax Act.  If the corporation is a charitable one but does not    
    register as a charity (that is, does not have a registration    
    number), it is not tax exempt.  If a corporation does not qualify    
    as a registered charity, it may still be tax exempt as a non-   
    profit corporation.   
    F.      Registering as a Charity   
    If an organization is created in Canada, is non-profit and is    
    charitable in purpose, it qualifies as a charity within the    
    meaning of the Income Tax Act.  By submitting a formal application    
    and the required documents to Revenue Canada, an organization may    
    become a registered charity and receive a registration number.   
    Benefits of becoming a registered charity are that the    
    organization is tax exempt (remember that if the organization is a    
    charity and does not register, it will not be tax exempt); and    
    that official receipts can be issued to donors (to be used for tax    
    For the necessary forms and information to register as a charity,    
    contact Revenue Canada at the address listed in the back of this    
    G.      Use of Professionals   
    Whether or not the non-profit corporation needs the help of legal    
    or accounting professionals to incorporate depends on the nature    
    of the organization.  If the organization is large and complex,    
    professional help may be needed.   
    III.  Responsibilities of a Non-Profit Corporation   
    A.      Members   
    There may be different classes of members in a non-profit    
    corporation.  These classes have different rights and privileges    
    only if the articles or by-laws of the corporation stipulate the    
    The Non-profit Corporations Act (a provincial statute) gives    
    members their basic rights:  the right to elect the directors, the    
    right to one vote at a meeting of members, etc.  Some members    
    rights can be changed by the articles or the by-laws.  The rights    
    given in the Act apply where no changes have been made.  Some    
    rights, however, cannot be changed. For example, the right of    
    access to the corporations records cannot be taken away.  The Act    
    states which rights can be altered by the articles of the    
    corporation, which can be altered by the by-laws and which rights    
    cannot be altered.   
    The minimum number of members that must be present in order to    
    transact the business of the corporation is called a quorum.     
    There is a quorum of members at a membership meeting if there is a    
    majority of voting members present (or represented by proxy).  A    
    corporation can alter the number of members that constitutes a    
    quorum by changing the by-laws.  A by-law can state that a certain    
    number of members less than the majority constitutes a quorum.   
    B.      Directors   
    Any mentally competent person who is at least 18 years of age and    
    who is not bankrupt can be a director.  A majority of the    
    directors of a non-profit corporation must be resident Canadians    
    and at least one director must live in Saskatchewan.   
    The board of directors provides continuity and has the overall    
    responsibility for managing the activities and affairs of the    
    corporation.  The boards functions often include:  budgeting,    
    financing, planning, fundraising, setting policy, hiring and    
    firing personnel and handling public relations.   
    A membership corporation can have a minimum of one director but a    
    charitable corporation must have a minimum of three directors (at    
    least two must not be officers or employees of the corporation or    
    its affiliates).   
    Before business can be transacted at a directors meeting, a    
    minimum number of directors must be present.  This number is    
    called a quorum.  The number of directors needed to make up a    
    quorum is determined in one of three ways.   First, the articles    
    or by-laws may state how many directors constitute a quorum.   
      Second, the articles may state how many directors the    
    corporation is to have; in which case, a quorum is the majority of    
    that number of directors.  Finally, the articles may state a    
    minimum, or a minimum and maximum, number of directors that the    
    corporation must have.  In that case, a quorum is the majority of    
    the minimum number of directors.   
    Any change of directors must be reported to the Corporations    
    Branch on the prescribed form.   
    C.      Liability of Directors   
    Directors of non-profit corporations, like directors of business    
    corporations, are largely shielded from personal liability.  In    
    most instances, their obligation to pay any debt or liability    
    incurred by a corporation is limited to their investment in it.     
    There are three exceptions to this rule.First, directors of a non-   
    profit corporation may be found liable to that corporation or to a    
    third party as a consequence of voting for an improper payment of    
    money out of the corporation.  For example, if a loan is made to a    
    director and, as a result, there is severe financial problems for    
    the corporation, the directors may be held liable.   
    Second, directors of a corporation may be found liable to that    
    corporation or to its members for failing to discharge their    
    responsibilities in the way that a reasonable, prudent person    
    would in similar circumstances.   In addition, directors may be    
    found liable if they fail to act honestly and in good faith, with    
    a view to the best interests of the corporation.  For example, the    
    directors of a non-profit corporation set up to run a day care    
    centre would be exposed to liability on both of these grounds if    
    they arranged for the centre to occupy unsuitable and expensive    
    premises in return for a secret payment from the landlord.   
    Third, a director of a non-profit corporation may be ordered under    
    The Labour Standards Act to pay the wages of employees.  This may    
    occur if the wages were earned by the employees but not paid to    
    them during the directors term of office.   
    D.      Insurance   
    Directors may personally arrange for the purchase and maintenance    
    of insurance to protect themselves from liability.  The Non-profit    
    Corporations Act also allows for the corporation to purchase and    
    maintain such insurance for the benefit of the directors.  In    
    either case, the proceeds of the policy can only be paid to a    
    director who has acted honestly and in good faith.  For example,    
    directors cannot insure themselves against the consequences of    
    stealing from the corporation.  Directors insurance is less    
    common than it once was because of the dramatic increase in the    
    premiums in recent years.   
    The directors of non-profit corporations may want to seriously    
    consider a comprehensive general liability policy of insurance for    
    the corporation.  An appropriately drawn up policy of this type    
    will reduce the danger of financial disaster if a large judgment    
    is made against the corporation.  To assure coverage, all hazards    
    must be reported to the insurer when the policy is drawn up and    
    the insurer must be informed of new risks when they arise.  For    
    example, if a day care centre operating as a non-profit    
    corporation expands to include a playground open to the public,    
    the insurer must be notified.   
    If employees or volunteers of a non-profit corporation cause    
    damages while acting within the scope of their duties, the    
    corporation is liable for these damages.  For example, if a person    
    is injured as a result of a fall on a badly prepared ice surface    
    in an outdoor arena operated by a non-profit corporation, the    
    corporation will be liable rather than the employee or volunteer    
    who prepared the ice surface improperly.  The situation is    
    different if, while working on the ice, the same employee or    
    volunteer sees an old enemy sitting in the stands and attacks him    
    for reasons of vengeance alone.  In this case, the corporation is    
    not liable for the damages caused because the individual was    
    acting outside the scope of his or her duties.  The individual    
    will be liable for the damages caused and would not be covered by    
    the insurance policy of the non-profit corporation.   
    E.      Auditor   
    The auditor reviews and verifies the financial statements of the    
    corporation.  The auditor can be a member of the corporation but    
    must be independent of the corporation and its affiliates.  For    
    example, the auditor can be a member but cannot be a director or    
    an officer of the corporation.  The auditor does not need to be an    
    accountant.  He or she must present a statement on the finances of    
    the corporation to the membership at the annual meeting.  In this    
    statement, the auditor verifies the accuracy of the financial    
    records based on the information given to him or her.  If the    
    membership does not elect a new auditor at the annual meeting, the    
    current auditor remains in that position for the next year.   
    F.      Records   
    The corporation must retain an adequate set of records at the    
    registered office of the corporation or at a place that is fit and    
    reasonable and where they are always accessable to the directors    
    of the corporation for inspection.   
    An adequate set of records includes the articles of incorporation,    
    the by-laws and all the amendments, the minutes of the meetings    
    and all resolutions, a register of members entitled to vote and    
    the financial records.   
    G.      Access to Records   
    Members may have access to records and, without charge and upon    
    request, are entitled to a copy of the articles and by-laws.   
    With 10 days notice, members are entitled to a list of members and    
    addresses that is not more than 10 days old at the date of the    
    request.  The membership list is supplied for a fee and an    
    affidavit is required.  This list can only be used to influence    
    voting or any other affairs of the corporation.   
    In a membership corporation, any member is entitled to access to    
    the records.  In a charitable corporation, any person is entitled    
    to access to the records.  
    H.      Meetings   
    Annual membership meetings must be held within 15 months of the    
    last preceding annual meeting, usually about three months after    
    the fiscal year end of the non-profit corporation.  Financial    
    statements and the auditors report are presented at this meeting    
    but these documents must be sent to the membership 15 days prior    
    to the date of the meeting.   
    Other membership and directors meetings are held as often as the    
    by-laws require.  Members meetings require at least 15 days    
    At any time, 5% of the voting members can ask the directors to    
    call a members meeting.  The members request must state the    
    purpose of such a meeting.   
    I.      By-laws   
    The law does not require a non-profit corporation to have by-laws.     
    By-laws are for the convenience and efficiency of the management    
    of the corporation itself.  By-laws are effective tools for    
    changing the requirements of The Non-profit Corporations Act.     
    Before drafting by-laws, the drafters must carefully review the    
    Act to see which provisions can be changed and which provisions    
    should be changed to better suit the needs of the corporation.   
    Changes to by-laws may be made by the directors but members    
    approval is required at the next membership meeting.   
    J.      Fiscal year   
    A corporation can set its fiscal year end for any month of the    
    year.  An annual meeting must be held within four months after the    
    fiscal year end to present the financial statements and the    
    auditors report to the membership.   
    IV.  Dissolving a Non-Profit Corporation   
    Dissolving a non-profit corporation in Saskatchewan can be    
    accomplished either directly by the members, by outside    
    authorities such as the Director of the Corporations Branch under    
    The Non-profit Corporations Act, or by a court acting on a    
    request.  Who dissolves the corporation depends on the    
    circumstances of the case.   
    The reason for dissolving a non-profit corporation may be one of    
    the following:   
    (a)     the main objective of the corporation has disappeared;   
    (b)     there is a deadlock in the management of affairs;   
    (c)     the conduct of the directors has been unfairly prejudicial    
    to a certain member or class of members.   
    A liquidator may be appointed by the corporation or by a court to    
    collect money owed, pay debts and distribute the surplus.  How the    
    surplus is distributed upon dissolution depends upon whether the    
    corporation is a membership corporation or a charitable    
    In a membership corporation, the surplus is distributed as stated    
    in the articles.  The surplus may be donated to a similar    
    organization or charity, or it may be divided equally among the    
    members.  If the surplus is divided among members, it may be    
    subject to taxation in their hands.  If the articles do not    
    specify otherwise, the surplus will be distributed to the members.   
    In a charitable corporation, the articles may specify a specific    
    charitable corporation or government to which any surplus is to be    
    distributed.  If nothing is specified in the articles, the surplus    
    amount will be distributed with the approval of the court and then    
    only to a corporation carrying on similar activities or to a    
    government.  If money was received for a specific purpose, it must    
    be returned to the donor, if possible, or it must be donated to an    
    organization with a similar purpose.  The surplus cannot be    
    divided among the members as in a membership corporation.   
    A voluntary dissolution must be passed by special resolution which    
    means that two-thirds of the members of the corporation must vote    
    for the dissolution.  A statement of intent in the prescribed form    
    is sent to the Director of the Corporations Branch under The Non-   
    Profit Corporations Act who issues a certificate of intent.  At    
    this point, the corporation ceases to carry on activities except    
    those necessary for the liquidation.   
    The corporation sends notices to all creditors and publishes    
    notices for four consecutive weeks in a newspaper in the place    
    where the registered office is located.  The corporation collects    
    and disposes of all properties in accordance with the Act.     
    Articles of dissolution are sent in prescribed form to the    
    Director who issues a certificate of dissolution.  The corporation    
    ceases to exist on the date of the certificate of dissolution.   
    A certificate of intent of dissolution can be revoked at any time    
    before the final certificate of dissolution is issued.  To revoke,    
    the corporation notifies the Director of the Corporations Branch    
    in prescribed form, and the Director issues a certificate of    
    revocation of intent effective on its date.  The corporation can    
    then resume activities.   
    The Director of the Corporations Branch may dissolve a corporation    
    that has not carried on its activities within three years after    
    the date of incorporating or has not carried on any activities for    
    three years.  The Director gives 120 days notice to the    
    corporation and to each director and publishes a notice of the    
    decision to dissolve the corporation in the Saskatchewan Gazette.     
    After the period expires and no one has successfully objected, the    
    Director issues a certificate of dissolution and the corporation    
    ceases on that date.   
    The Director of the Corporations Branch or any interested person    
    may apply to the court for dissolution.  Grounds for dissolution    
    include:  (a) the corporation has failed for two consecutive years    
    to comply with the requirements of the Act pertaining to the    
    holding of members meetings; or (b) the corporation is carrying    
    on activities restricted by the articles or contrary to the    
    articles.  The Director of the Corporations Branch is given notice    
    of the application to the court and is entitled to appear and be    
    The court may order dissolution or make any other order it thinks    
    fit.  If the court orders dissolution, the Director of the    
    Corporations Branch  issues a certificate of dissolution.  If the    
    order is to liquidate and dissolve, the Director issues a    
    certificate of intent and publishes a notice in the Gazette.  The    
    court may appoint a liquidator who has the powers to carry out the    
    liquidation and dissolution as prescribed by the Act and under the    
    supervision of the court.  The liquidator may be a director or an    
    officer of the corporation.   
    V.  Investigation of a Non-Profit Corporation   
    Any member of a non-profit corporation may apply to a court for an    
    investigation of the corporation.  The court will order an    
    investigation where it finds grounds to do so.   
    Grounds for investigation may include:  (a) the activities of the    
    corporation are carried on with the intent to defraud any person;    
    (b) the activities are carried on in a manner oppressive or    

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