Compliance requirements for Canadian not-for-profit organizations

Not-for-profit organizations (“NFPs”) incorporated under the Canada Not-for-profit Corporations Act (the “Act”) must be careful to take all necessary administrative steps to maintain their legal standing after incorporation.

In this article, I describe some key compliance requirements to keep an NFP in good standing with Corporations Canada.

Many NFPs are also registered charities in Canada under the Income Tax Act (Canada) (the “ITA”). Charitable status imposes an additional layer of reporting obligations on the NFP, separate from those discussed in this article.

It is important to note that Corporations Canada and the Canada Revenue Agency[1] do not share information, notwithstanding that they are both governmental bodies. An NFP under the Act must ensure it meets all its filing obligations, whether the filings are Annual Information Returns, income tax returns, or any other corporate or regulatory filings that may be required under the circumstances.

Reporting obligations

A Canadian NFP has a number of ongoing reporting obligations to Corporations Canada. These include obligations to:

• file its annual return;
• provide notice and registration of a change in its registered office;
• file any changes to its directors;
• file its financial statements and public accounting records (when applicable);
• keep its articles up to date; and
• deliver its by-laws to Corporations Canada.[2]

Filing the NFP’s annual return

The annual return is a required annual corporate filing for an NFP. It is distinct from the preparation and filing of the NFP’s income tax return or its T3010 Annual Information Return (if the NFP is also a registered charity under the ITA). The NFP’s annual return provides up-to-date information about the NFP, which is filed with Corporations Canada and includes the publicly available information about the NFP as prescribed under the Act.

The annual return must be filed every year after the NFP is incorporated and within sixty (60) days following the NFPs anniversary date.[3]  The annual return must include the date of the NFP’s last annual meeting of its members and indicate whether the NFP is “soliciting” or “non-soliciting” under the Act.[4]

Consequences of not filing the annual return

Corporations Canada has the ability to dissolve an NFP for failing to file its annual return. Dissolution can have serious consequences, including but not limited to the NFP losing its legal capacity to conduct operations and activities. This can affect a number of activities and ongoing obligations of the NFP, such as entering into contracts, performing existing contracts, or obtaining grants or funding, which often require the NFP to remain in good standing. Depending on the NFP’s financial obligations, it could also be in default of its covenants under any financing arrangements that require the organization to maintain its good standing.

Importantly, if the NFP is also a registered charity under the ITA, dissolution by Corporations Canada could result in the revocation of the NFP’s charitable registration, as it would no longer be in compliance with the requirement to maintain its corporate legal existence.

While Corporations Canada can dissolve an NFP after one (1) year of failing to file an annual return, in practice, Corporations Canada only takes steps to dissolve an NFP when it has not filed an annual return for three (3) years.  After that time, Corporations Canada will send a notice to the NFP stating its intention to dissolve the organization. The NFP will then be required to file all outstanding annual returns within 120 days.

If the NFP does not respond by filing all outstanding annual returns within the 120-day timeframe, Corporations Canada will issue a Certificate of Dissolution following the expiration of this deadline.

Changes to the registered office

The registered office address of an NFP is the official address for communicating with the organization. It is important to keep this address up to date, as this is the address used by Corporations Canada to notify the NFP of its obligations, including reminders to file its annual return.

We often see directors use their home addresses as the NFP’s registered office address, but they may forget to update this address after moving.

There are two important caveats. First, a change to an NFP’s registered office address is only effective once it has been accepted by Corporations Canada. Second, if the registered office changes to a location outside the province or territory noted in the NFP’s articles, the NFP must first update its articles with Corporations Canada before it can register the change in its registered office.

Changes to directors

In addition to reporting changes to the address of its registered office, an NFP is required to report any changes regarding its directors to Corporations Canada, such as:

• the election or appointment of new directors;
• the resignation or removal of directors; and
• any change in the address of a current director.

These changes must be communicated to Corporations Canada within 15 days of the change, or, if a director’s address has changed, within 15 days of the NFP being notified of the change.

Another often overlooked compliance matter is ensuring that the number of directors is the same as either the fixed number of directors or remains within the minimum/maximum range set out in the articles. If the number of Directors is different or outside these parameters, the NFP must first update its articles; otherwise it will not be in compliance with its charter documents.

Financial Statements and Public Accountant’s report

An NFP’s financial reporting obligations depend on whether it is a “soliciting” or “non-soliciting” corporation under the Act. This is an important distinction. A soliciting corporation has elevated obligations regarding financial compliance and an increased risk of audit if it fails to comply properly. The rationale for these heightened obligations and standards of accountability  for soliciting corporations under the Act is for policy reasons – specifically, to safeguard public funds. Soliciting corporations under the Act are organizations that receive a certain amount of public donations and/or government grants in excess of $10,000 in a single financial year, thus necessitating increased financial scrutiny.

If an NFP qualifies as a “soliciting corporation” under the Act, it must send its annual financial statements to Corporations Canada each year, where they will be available for inspection and copying by any member of the public. A non-soliciting corporation is generally exempt from filing annual financial statements with Corporations Canada, and its financial statements are consequently not open to public inspection.

There may also be a requirement for the NFP to appoint a public accountant to perform an audit or review engagement report for a non-soliciting or soliciting corporation. For instance:

• A non-soliciting corporation is required to have an auditor if its annual revenues in its previous financial year exceed $1,000,000. If its annual revenues are less than $1,000,000, a review engagement is required unless the members entitled to vote at the annual meeting waive the appointment of a public accountant or pass a resolution to have an audit.
• A soliciting corporation is required to have an audit if its annual revenues in its previous financial year exceed $250,000. If the soliciting corporation’s annual revenues in its previous financial year are more than $50,000 but not more than $250,000, the members may, by special resolution, opt for a review engagement instead of an audit.
• If the soliciting corporation’s annual revenues in its previous financial year are $50,000 or less, all members entitled to vote at the annual meeting can waive the appointment of a public accountant or pass a resolution to have an audit.

Finally, when it comes to submitting an NFP’s financial statements, an often-overlooked requirement of the Act is that the directors must approve the financial statements, with this approval evidenced by the signature of one or more directors of the NFP.  This is a compliance aspect that can sometimes be overlooked or not well understood by the NFP or its advisors. It is an important technical point for the NFP to be mindful of as it undertakes its annual financial reporting obligations and filings.

Articles

The articles of the NFP set out the organization’s basic corporate information. From time to time, the NFP may wish to make changes to the articles. If the NFP wishes to change any of the following items, it must amend its articles:

• the NFP’s name;
• the province or territory in which the NFP’s registered office is located;
• the fixed, minimum, or maximum number of directors;
• the classes, or regional or other groups of members;
• the restrictions on the activities the NFP may conduct;
• the statement of the purpose of the NFP;
• the statement regarding the distribution of property remaining on liquidation; and
• any other provision included in the articles.

Articles of Amendment will need to be filed with Corporations Canada; however, the changes must first be approved by the members of the NFP.  The amendments to the articles become effective on the date indicated on the Certificate of Amendment that the NFP will receive from Corporations Canada.

By-laws

By-laws are the general rules and procedures that govern the NFP. They cover corporate governance matters such as members, directors, members’ meetings, directors’ meetings, and notice requirements. Corporations Canada does not review an NFP’s by-laws, but once submitted to Corporations Canada, the by-laws will be made available to the public. The by-laws of the NFP are generally created, amended, or repealed by the directors of the NFP (with immediate effect) and then submitted to its members for authorization and confirmation. With respect to its by-laws, an NFP is required to send Corporations Canada copies of:

• all new by-laws;
• any revisions to the by-laws; and
• any repeal of by-laws.

Copies of the initial by-laws (after the NFP is established), along with any amendments or repeals, must be sent to Corporations Canada within 12 months of the by-laws being adopted, changed, or repealed.

Conclusions

What is clear from the foregoing is that the recurrent reporting and compliance requirements for an NFP can be technical and time-sensitive. This underscores the importance of the NFP obtaining competent professional support, including experienced legal and accounting advice in the NFP industry, particularly for soliciting corporations.

To learn more how we may be able to assist you with ongoing compliance matters for your NFP please contact a member of Miller Thomson’s Social Impact Group.

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[1] The Canada Revenue Agency is the governmental agency in Canada with authority over the establishment and maintenance of registered Canadian charities under the ITA.

[2] Corporations Canada requires the by-laws to be filed within one year of the by-laws being approved by the NFP’s members.

[3] The anniversary date is the date the NFP was incorporated, amalgamated, or continued under the Act. This date is located on the NFP’s Certificate or Incorporation, Amalgamation, or Continuance.

[4] See further commentary on obligations related to “soliciting corporations” under the “Financial Statements and Public Accountant Reports” section below.