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NOT-FOR-PROFIT AND CHARITY
INCORPORATION IN ONTARIO

Incorporating a charity

The majority of Ontario charitable corporations are incorporated by Letters Patent issued under the provincial Corporations Act.

What is a charitable corporation
Charities are a special kind of not-for-profit corporation. In order to be a charity, a corporation must meet the general requirements for not-for-profit corporations and some additional requirements. A summary of these additional requirements is set out below.

1. The name of the corporation
The name of a charitable corporation must satisfy all of the requirements set out in the Act. The name should also describe the purpose of the charity. The name of a foundation can include the name of a person or family, for example, the "Smith Foundation".

2. The objects or purposes of the corporation:
The objects, or purposes, of a corporation are set out in one or more paragraphs, in the Letters Patent, called the object clauses. The object clauses describe the nature of the work the charitable corporation will undertake.

A corporation can carry out activities described in the object clauses. It can also carry out other activities provided they further the objects or are minor in relation to the activities described in the object clauses. It is not permissible to use the property of the corporation for purposes, charitable or not, which are outside the scope of the objects set out in the Letters Patent. Examples of object clauses are found in Appendix G.

For a corporation to be a charity, the objects must satisfy the following requirements:

a. The objects of the corporation must be legally charitable:
If a corporation is to be a charity its objects must be charitable. The legal meaning of charity is not the same as the popular meaning of the word. Charity, in the legal sense, describes four areas.

A charitable corporation must be set up to carry out activities in one or all of these areas. They are:

• Relief of poverty;
• Advancement of education;
• Advancement of religion; and
• Other purposes beneficial to the community, as determined by the courts, but not falling under any of the above.

It is important that the object clauses clearly describe the activities the corporation will carry out. It is not acceptable simply to reproduce the four principal areas of charity.

All of the objects of a charitable corporation must be charitable. A corporation which has some charitable objects and some non-charitable objects is not a charity.

Objects must be stated precisely so that it is clear how the property of the charity is supposed to be used. If it is not clear whether an object is charitable, the courts have decided that it will not be considered charitable.

b. The objects must promote a public benefit:
A charity must benefit the community or a large part of the community - not only a few people. For example, raising funds for one person who suffers from a disease is not considered charitable because it provides a benefit only to that person. Raising funds for disease research is considered charitable because, while only the people who suffer from the disease benefit directly from research, the community as a whole benefits from decreased health care costs and decreased risk of contracting the disease.

3. Special Provisions
The special provisions set out some of the duties and obligations of the charity and its directors. The Public Guardian and Trustee requires the special provisions found in Appendix H to be set out in the Letters Patent.

4. Incidental and ancillary Powers
The incidental and ancillary powers are the means by which the charity will fulfil its objects. If the applicant is not using the pre-approved object clauses, the applicant may decide to use power clauses. If no power clauses are stated in the Letters Patent, the corporation will have the powers set out in the Corporations Act, subject to any restrictions found in charities law.

Deciding Whether to Use the Pre-approved Objects

The pre-approved object clauses cannot be used by all charities. A charity should only use the pre-approved object clauses if one or more of the clauses describes the intended purposes of that organization. It is important that the object clauses accurately describe the charitable purposes the corporation will carry out.

Before deciding to use the pre-approved object clauses you should think about the activities your charity will carry out both on start-up and in the foreseeable future. Engaging in activities beyond the scope of the objects set out in the Letters Patent is not permissible. Directors of a corporation which uses property for purposes not in the object clauses may be required by a court to repay the money used for other purposes.

If the pre-approved object clauses do not accurately describe the purposes you intend the corporation to carry out, or if you wish to add additional object clauses, the pre-approved object clauses should not be used. Other object clauses will have to be drafted and the application for incorporation must be reviewed and approved by the Public Guardian and Trustee.

How to Use the Pre-approved Objects

If you use the pre-approved object clauses to apply directly to Companies Branch you must also use the pre-approved special provisions.

To use the pre-approved object clauses you must use the pre-approved object and special provision clauses word-for-word.

From time to time, the Public Guardian and Trustee will approve additional pre-approved object clauses. The most recent list of pre-approved object clauses is available from the Public Guardian and Trustee and from Companies Branch.

Revenue Canada

Revenue Canada has pre-approved the pre-approved clauses to simplify applying for a charitable registration number (now known as a business number). If you intend to apply to Revenue Canada for charitable registration and you wish to use any of the pre-approved clauses, it is your responsibility to make sure that you have used the pre-approved clauses word-for-word. Even if Companies Branch issues the Letters Patent, Revenue Canada may not approve the clauses if there is a variation in wording.

Your organization’s use of proper objects is only part of Revenue Canada’s requirements for charitable registration. Revenue Canada must take other factors into consideration, including the activities and programs your organization undertakes to achieve its objects. For information on how to apply to Revenue Canada for charitable registration you may wish to contact your local Revenue Canada office which can be found in the blue pages of your telephone book.

Applications for incorporation through the Public Guardian and Trustee
All applicants who do not use the pre-approved object and special provision clauses must submit their applications for incorporation to the Public Guardian and Trustee for approval. Applicants should submit their applications to the Public Guardian and Trustee as if they were applying to the Companies Branch of the Ministry of Consumer and Commercial Relations.

Objects

If you submit your application to the Public Guardian and Trustee for approval, you may draft object clauses tailored to fit the unique nature of the work your corporation will undertake. The Public Guardian and Trustee will review your objects to determine whether they are charitable.

Powers

If no powers are stated, the corporation will have the powers provided in the Corporations Act, subject to any restrictions found in charities law.

Grounds for refusing applications for charitable organizations
The following are some of the reasons for which the Public Guardian and Trustee may refuse to approve an application to incorporate a charitable organization:

• Objects are not wholly and exclusively charitable
• Objects are too broad or are vague
• The power clauses include a purpose which is not legally charitable
• There are concerns that the proposed charity will not be properly administered, considering a previous failure of the incorporators to comply with the law relating to charities
• The organization has been operating as an unincorporated association and its financial documents show that a disproportionate amount of charitable funds are being used for non-charitable purposes or administrative expenses
• The name of the organization does not reflect the purposes set out in the application
• The organization is primarily promoting private members’ interests or benefits
• The organization is pursuing political purposes
• The organization’s liabilities exceed its assets

If your application does not meet the Public Guardian and Trustee’s requirements you will be notified of the deficiencies and, in most cases, given an opportunity to amend your application.

Benefits of being a charity

Charities enjoy certain tax privileges. Charities have exemption from, and reduced liability for, some municipal, provincial and federal taxes. Registered charities under the federal Income Tax Act can issue income tax donation receipts so that donors can obtain tax credits.

Charities enjoy legal protections intended to protect charitable property. When a charitable purpose or object becomes impossible or impracticable to carry out, the courts apply charitable property to new purposes which are as similar as possible to the original purposes. The courts can also use this power when charitable organizations dissolve without a clause in their Letters Patent providing for the distribution of its remaining property.

A charity reporting to the Public Guardian and Trustee derives the following benefits:

• Members of the public, charitable foundations and government agencies that provide funding and donations often seek confirmation from the Public Guardian and Trustee that the charity is complying with the Public Guardian and Trustee’s reporting requirements.
• The Public Guardian and Trustee maintains a database of Ontario charities that is regularly used to find charities entitled to receive gifts under Ontario estates.
• The Public Guardian and Trustee’s database may also be used to identify charities which may be suitable to receive the property of dissolved charities or gifts from estates to non-existent, defunct or unidentifiable charities.

Special situations of religious organizations

Religious organizations should consider certain issues carefully before incorporating.

Governing Law

If a religious organization becomes incorporated, its ecclesiastical, canon or church laws, rules or regulations may be subject to the Corporations Act. This means that if any ecclesiastical, canon or church law, rule or regulations conflicts with the Corporations Act, the organization, once incorporated, must comply with the Corporations Act and will no longer be able to use that law, rule or regulation in administering its affairs.

Real Estate

In addition, a religious organization’s power to lease real estate or buildings to others may be substantially restricted by the Charities Accounting Act. The Religious Organizations’ Lands Act applies to unincorporated religious organizations. That Act allows the trustees of a religious organization to lease land held by them on behalf of the organization for a maximum period of 40 years, provided the land is no longer required for any of the organization’s religious purposes. When a religious organization incorporates, the Charities Accounting Act applies. That Act generally allows charities to hold land only for their own use. If the organization is currently leasing property, it may wish to consult a lawyer before incorporating.

Initial Reporting Requirements

When you incorporate a charity, you must provide to the Public Guardian and Trustee the following documents and information:

• A copy of the Letters Patent governing the charity
• The street and mailing addresses of the charity, and the names and the street and mailing addresses of its directors and officers
• All legal and popular or common names or acronyms by which the charity is known or identified
• The registration and business identification numbers assigned by Revenue Canada for charitable donation tax-credit purposes. Please advise if a registration number has not been assigned, or subsequently is revoked, and provide an explanation.

These reporting requirement also apply to charitable trusts and incorporated charitable organizations.

Registration with Revenue Canada

Any charitable corporation wishing to apply for registration with Revenue Canada as a registered charity must file with Revenue Canada.

The application forms and an explanatory brochure are available from any Revenue Canada Office. See the blue pages of your telephone book for the office nearest you.

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