Becoming Incorporated
INTRODUCTION
Non-profit organizations are not required to incorporate. Unincorporated organizations are not legally separated from their members. This means that legal responsibilities belong to the members themselves.
By incorporating the organization, the advantage of limited liability is afforded to its members. As a corporation, the organization becomes a distinct legal entity that can both sue and be sued. Accordingly, the members are not personally responsible for the corporations debts and obligations. Furthermore, changes in the membership of a corporation do not affect its ability to function on a day to day basis. Finally, a majority of the members of a corporation have the power to bind others by their acts.
There are, however, some disadvantages of incorporation. As an entity created by statute, it is subject to some supervision by the Government jurisdiction under which it was incorporated. Moreover, a corporation is required to report certain information on a regular basis to certain departments of the Government.
The following is a brief synopsis of the steps to be taken in incorporating non-profit and charitable organizations. This synopsis, however, does not profess to consider exhaustively all incorporation issues. Indeed, incorporation must be considered within the greater context of running charitable and non-profit organizations.
PART I: INCORPORATING PROVINCIALLY IN ONTARIO
The process of becoming incorporated in Ontario may take several weeks to several months from the time of application to receipt of letters patent. Delays may occur due to incomplete applications, administrative backlog and the like.
There are three major steps to the incorporation process:
STEP 1: SELECTING A NAME
There are three elements to a corporate name:
i. Distinctive: Corporations Act requires that the name of a new corporation be "distinctive";
-this means that it will not be confused with existing names of corporations, trademarks or unincorporated organizations
ii. Descriptive: describe the main corporate undertaking with care taken not to use terms that may be misleading or confusing;
this means that the name chosen will not make people think that the purpose of the organization is something other than what it actually is.
iii. Indicate the legal status of the corporation: this refers to the optional inclusion of the word "Corporation" or "Incorporated".
Prohibitions for a Corporate Name
A name cannot be too general as it may infringe upon a number of existing names and will likely contribute to confusion;
usually a name that is too general will lack the distinctive element required.
A name cannot suggest a connection with the Crown (ie through the word "Royal") or with the Government (ie through the use of the word "Canada") without express permission;
-certain other provinces restrict the use of the name of their Province in a corporate name; accordingly, written consent from the Province in question is required.
Restricted Words for a Corporate Name
Words that are prohibited:
a. "amalgamated"; unless the corporation is an amalgamation of two or more corporations;
b. "college", "institute", or "university"; except with written consent from the Ministry of Education and Training;
c. "engineer" or "engineering" or any variation thereof; except with written consent from the Association of Professional Engineers of the Province of Ontario;
d. "housing"; unless the corporation is owned by, sponsored by, or connected with the Government of Canada, the Government of Ontario or a municipal government in Ontario;
e. numerals indicating the year of incorporation; unless the year is the year of amalgamation of the corporation or the proposed corporation is the successor to a corporation whose name is similar to the proposed corporation;
f. any word or expression that would suggest that the corporation is a business corporation;
g. any word or expression an element of which is the name of a particular individual who is living or who has dies within the previous thirty years; unless the inidividual, his/her heir, executor, administrator, assigns or guardian gives written consent;
h. any word or expression in any language that described the activities or services in association with the corporation in a misleading manner.
Once a corporate name that follows these guidelines has been chosen, a Search House should be contacted in order to obtain an Ontario biased name search report for the proposed name.
a Search House is a private company that has access to NUANS (New Upgraded Automatic Name Search)
the application for incorporation should not be completed until the name search report has been received.
STEP 2: APPLICATION FOR LETTERS PATENT
Letters Patent: This is basically the incorporating document (that is, the piece of paper that proves that a particular organization has been incorporated).
An organization must submit an application for letters patent, filled out in duplicate, containing the following information:
A. Head Office:
every corporation is required to have a head office in Ontario
the corporation need not own or lease the premises; it is simply required that the corporation has an address formally designated as the head office where certain records are kept and where the corporation may be reached by an interested party
A. Directors:
There must be at least three first directors
A first director must be at least 18 years of age, a member of the organization and not an undischarged bankrupt.
The first directors will have all the authorities, duties and liabilities of elected directors
A. Objects:
Objects are a concise statement of the ultimate purpose of the corporation
The objects are not a list of the proposed activities but rather a statement of the primary and secondary purposes
A. Ancillary Powers:
All corporations automatically acquire ancillary or supplementary powers unless explicitly withheld in the Letters Patent
These powers include: entering into agreements with public authorities, pay all costs and expenses that the corporation has and purchase or lease real property
A. Special Provisions:
Any of the ancillary or incidental powers may be withheld or limited by the Letters Patent or supplementary Letters Patent
Other items that may be included in the Special Provisions:
Borrowing powers
Distribution of assets
Directors: terms/remuneration
Membership qualification
French or foreign version of name
Other powers
A. Supporting Documents:
In certain circumstances, additional documents are required
Example: if at the time of making the application there exists an unincorporated organization, a "Consent and Undertaking" is required;
-if the corporation will be a service club, a consent form is required from the Parent Organization
The Public Guardian and Trustee must approve the application for Letters Patent for a charitable organization before the Ontario Corporations Branch of the Ministry will consider the entire incorporation application.
STEP 3: ESTABLISHING THE CORPORATION
Once the Letters Patent have been issued by the Ministry of Consumer and Commercial Relations, the first directors must:
1. meet and adopt the by-laws;
2. make banking and financial arrangements;
3. adopt the corporate seal (recently made optional by the Red Tape Reduction Act);
4. appoint the auditors and the officers of the corporation;
5. file an Initial Return under the Corporations Information Act within 60 days of the issuance of the Letters Patent (this is placed on public record to provide information about the corporation and its officers and the location of the head office).
Disclaimer: This fact sheet is intended for general information purposes only, before making decisions based on your specific situation it is advisable to consult a lawyer.
