Filing For Your Business' Incoporation
When file incorporating a charity, it may pay to go jurisdiction shopping. Whether your organization incorporates federally or provincially depends on what it intends to do and where it intends to do it, says Maxwell Gottlieb, a partner with Cassels Brock & Blackwell in Toronto.
Speaking at a recent conference on "Charity and Not-for-Profit Law," co-sponsored by the Canadian Bar Association-Ontario, the Canadian Centre for Philanthropy and the Canadian Association of Gift Planners, Mr. Gottlieb said he prefers to incorporate charities federally rather than provincially-at least in Ontario. "All things being equal, it results in less scrutiny initially, it can be done quicker, and there's more flexibility in ongoing operations."
If the organization will be carrying on activities in an area under federal jurisdiction, it must incorporate federally, under the Canada Corporations Act. If it will be operating in more than one province, federal incorporation is also advised. If the organization intends to carry on activities in only one province, or in an area under provincial jurisdiction, it may incorporate under the appropriate provincial laws.
Organizations considering incorporation in Ontario should be prepared to deal with the Provincial Guardian and Trustee (PGT), which oversees the administration and regulation of charities in the province, and scrutinizes every application for incorporation of a non-share capital corporation or registered charity. Unless you're dealing with a "plain vanilla" corporation, the PGT pre-approval process will generally result in correspondence and questions that can delay incorporation, sometimes for a significant period of time, said Mr. Gottlieb. Federal incorporation avoids scrutiny by the PGT, unless the corporation later decides to operate within Ontario. It would then be required to comply with Ontario's Charities Accounting Act and file annual audited statements, which would be examined by the PGT. Significant powers Similarly, Ontario's Charitable Gifts Act provides the PGT with significant powers regarding the ability of a charity to own land that is not used for its operations, or to preclude a charity from acquiring more than two per cent of a business. If a charity incorporated in Ontario acquires land outside of the province, the PGT may scrutinize the corporation's out-of-province activities. The PGT has also become involved when an entrepreneur has set up a private foundation and made a charitable gift to it of a term loan or debenture of a private company, in order to get a charitable donation credit for that year, with the money not being paid for a term of years. The PGT claimed this type of charity was similar to a trust, with the directors being trustees, and therefore in a position of conflict. To circumvent this, Mr. Gottlieb said, it has been his practice to set up private foundations for Ontario-based clients in Alberta instead.
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