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Not-for-Profits: How to Choose Between a Provincial or Federal Incorporation

Meet Marie, an environmental activist based in Montreal, Quebec. For years, she has dedicated her time and energy to advocating for sustainable practices and raising awareness about environmental issues in her community. 


Marie has decided to take her activism to the next level by incorporating a non-profit organization dedicated to environmental conservation and education. 


One of the first important decisions she faces is whether to incorporate under Quebec's provincial laws or opt for a federal incorporation. If you, like Marie, are deciding whether to incorporate your not-for-profit under Quebec or federal law, then you're in the right place. 


In this post, we’ll highlight the main differences between the two to help Marie, and you, make an informed decision. For personalized assistance tailored to your situation, we recommend booking a consultation with us today


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In Quebec, not-for-profits are governed by Part III of the Companies Act, which provides a relatively straightforward legal framework. There are not many rules in Part III which simplifies the incorporation and maintenance process, all of which is done through the Registraire des entreprises.


The Canada Not-for-profit Corporations Act, created in 2009, has broader rules for incorporation, decision-making, and member activities. The incorporation is done through Corporations Canada and subsequently the not-for-profit must register provincially with the Registraire des entreprises


Deciding Between the Provincial or Federal Jurisdiction


How do you decide whether you should operate under the provincial regime or the federal one?


Many factors influence the decision-making process when deciding whether to incorporate provincially or federally. While this list is by no means exhaustive, it will help you get started. 


Let’s jump right in. 


The Location of Your Head Office


The head office of a not-for-profit corporation governed by the Companies Act must be located within the province of Quebec. Specific rules govern how to change the head office within the province. 


Do you plan on moving your head office out of Quebec in the future? 


Then provincial incorporation may not be the right choice for you. Not-for-profits governed by the provincial legislation must have their head office located in Quebec. 


By contrast, those under the Canada Not-for-profits Corporations Act must only declare the province of their head office in the articles of incorporation. This makes the process of moving the head office within the same province relatively straightforward. Furthermore, unlike its provincial counterpart, the federal law allows not-for-profits to move their head office to another province as long as certain formalities are respected, including amending the articles of incorporation. 


Choosing a Name


Both federal and provincial legislation have specific requirements when it comes to choosing the name. In Quebec, in addition to respecting the rules and regulations set out in the Companies Act, the name must also comply with the Act respecting the legal publicity of enterprises and the Charter of the French Language


By contrast, a federal name must respect the rules and regulations of the Canada Not-for-profit Corporations Act. If the not-for-profit intends to operate in Quebec, then consider choosing a French name to comply with provincial rules as well. 


Founders of a Not-for-profit Corporation


So, who can create a not-for-profit? 


In Quebec, the Companies Act requires a minimum of 3 individuals aged at least 18 years or older to constitute a not-for-profit corporation.


On the other hand, the Canada Not-for-profit Corporations Act provides greater flexibility in this matter. A federal not-for-profit can be created by one or more capable individuals aged at least 18 years old and who are not bankrupt, or by legal entities. 


Board of Directors


First, the good news. Neither provincial nor federal legislation contain any director residency requirements, nor any citizenship rules. The directors of a not-for-profit can not only be citizens of a foreign country, they can even reside outside of Canada.  


Now for the rules. 


Under the Companies Act, the board must be made up of at least 3 directors. The letters patent (which is the provincial equivalent of the federal articles of incorporation) must indicate a fixed number of directors, such as 3 or 5 directors. 


By contrast, non-solliciting federal not-for-profits can have 1 or more directors, and the articles of incorporation can provide a range (for example, between 1 and 10) rather than a fixed number. 


Member Involvement


Think of members as the equivalent of shareholders in for-profit corporations. Similarly, there can be voting members and non-voting members. Provincial legislation is more restrictive, providing fewer situations in which non-voting members can have a say in matters. However, the federal law provides more ways for non-voting members to have a say in the affairs of the non-profit.


There are no legal requirements for the qualities of a member. Legal entities or minors can become members. It is up to the non-profit to describe the qualities of its members and the conditions under which they will be accepted. For example, a non-profit corporation might make it a condition to accept any member that donates. 


Annual Maintenance Requirements


Annually, both provincial and federal nonprofits file a report with the governing authority. Provincial corporations file it with the Registraire des entreprises, while federal not-for-profits must file two reports, one with Corporations Canada and the other with the Registraire des entreprises. 


Along with the report, not-for-profits must also make their annual registration payment. Consequently, federal not-for-profits come with not only higher start-up costs but also higher maintenance costs


Other Factors to Consider


Certain non-profit organizations are required to be constituted under a specific law. Before deciding on the jurisdiction, it is important to consider any specific rules that apply to the type of non-profit you are planning to operate. 


Additionally, if you plan on getting funding or grants from the government it’s important to consider their requirements. In some cases, certain grants or funds that would be important for your non-profit are only available if you are constituted under a specific regime.

Conclusion


When considering whether you want to incorporate a federal not-for-profit or a provincial one, you must go beyond the Canada Not-for-Profit Corporations Act and the Companies Act to analyze the broader legal context under which you will operate. 


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