Incorporating: For Profit or Not-For-Profit, That is the Question
Much like a typical corporation, a not-for-profit company must be incorporated under the Prince Edward Island Companies Act, R.S.P.E.I. 1988, Cap. C-14; however, there are several distinctions between “regular” corporations and not-for-profits that should be understood before you begin the process of preparing a petition for letters patent.
The first and perhaps most predictable distinction between a typical corporation and a not-for-profit organization is that a not-for-profit must be created to operate towards an object other than financial gain. Acceptable purposes for creating a not-for-profit organization under the Companies Act are as follows:
- Patriotism;
- Religion;
- Philanthropy;
- Charity;
- Science;
- Arts;
- Social;
- Professional purposes;
- Sport; or
- Any other like object.
A second distinction between a typical corporation and a not-for-profit organization is that a not for profit does not have shareholders, nor does it require share capital.
The petitioners for letters patent of a not-for-profit organization instead become “members” of the organization upon its incorporation. Similar to how a corporation will outline things like its various classes of shares, its rules surrounding share capital and transfer in its application for letters patent, a not-for-profit must outline its conditions for membership, voting rights of members and requirements for membership withdrawals, among other things, in its application.A third distinction between typical corporations and not-for-profits is the different requirements of the petition for letters patent for a not-for-profit. A not-for-profit requires three petitioners who are the full age of 18 years for letters patent to be granted. Further to this, the petitioners must include a memorandum of agreement in their application for incorporation which states their agreement on various aspects of the organization, such as:
A third distinction between typical corporations and not-for-profits is the different requirements of the petition for letters patent for a not-for-profit. A not-for-profit requires three petitioners who are the full age of 18 years for letters patent to be granted. Further to this, the petitioners must include a memorandum of agreement in their application for incorporation which states their agreement on various aspects of the organization, such as:onditions of membership;
- Conditions of membership;meeting/bylaw-amendment procedures and voting rights;
- Meeting/bylaw-amendment procedures and voting rights;owers of directors and officers and the procedure for their appointment and removal;
- Powers of directors and officers and the procedure for their appointment and removal;
- Audit procedures;ow withdrawal of membership is to occur; and
- How withdrawal of membership is to occur;
- Possession of the corporate seal and certifying of documents.
Lastly, as is the case with structuring any type of business organization, there are likely tax implications that apply specifically to not-for-profit organizations. It is always prudent to consult with your accountant or tax specialist before deciding to incorporate a not-for-profit.
If you are interested in or considering starting either a not-for-profit organization on Prince Edward Island or a typical corporation, please do not hesitate to contact one of our experienced business lawyers at Key Murray Law.
Jared Kelly
Articled Clerk
902-368-7807
jared.kelly@keymurraylaw.com
Legal information appearing in this article and elsewhere on Key Murray Law’s website is intended for informational purposes only and is not intended to substitute for or replace any legal or other professional advice. If you have specific concerns or a situation in which you require legal advice, you should consult directly with one of our lawyers.
