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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
public);
- 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
Director.
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
booklet.
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
Saskatchewan.
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
booklet.
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
class.
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
deductions).
For the necessary forms and information to register as a charity,
contact Revenue Canada at the address listed in the back of this
booklet.
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
differences.
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
notice.
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
corporation.
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
heard.
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