NPO and corporation, what are the differences?

The formation of a federal not-for-profit organization is in many ways similar to the incorporation process of a corporation. Articles of incorporation are filed electronically with Corporations Canada, indicating the name of the organization, the number ofdirector (fixed or variable) and a list of the first directors who will form the board of directors. Following the incorporation and the obtaining of the certificate of incorporation, the board of directors holds an organizational meeting (or signs resolutions in lieu thereof) in which, among other things, by-laws will be adopted. There are, however, major legal differences between these two types of entities.

Share capital

A fundamental feature of business corporations is that they have a statutory capital stock, which by default is unlimited and consists of a single class of shares with equal rights. The articles of incorporation may provide for several classes of shares, with different rights, privileges, restrictions and conditions attached to them. The issuance of shares is a way for a corporation to finance itself: the shareholder makes a contribution to the corporation, and in return receives shares conferring, for example, the right to receive any declared dividends, to vote at the shareholders' meetings, and to receive a portion of the corporation's residue upon its liquidation or dissolution.

Non-profit organizations do not have share capital. Instead of issuing shares, NPOs will register memberships. The NPC's articles of incorporation may provide for a single class of membership or for multiple classes of membership, for example, a Class A membership with voting rights at members' meetings, and a Class B membership with no voting rights, except as provided by law. Most of the time, the incorporation structure of the NPO will be simple, compared to corporations which often have a large number of classes of shares.

Declaration of intent

Corporations do not have to state in their incorporation documents the purpose for which the corporation is incorporated. By default, the corporation is not limited in its activities. However, the articles may provide for restrictions to this effect, which is often seen in professional corporations.

On the other hand, an NPO must provide, in its articles of incorporation, a statement of purpose in which it describes the activities or missions that the organization intends to carry out. This statement of purpose will be relevant, among other things, if it applies to be registered as a charity with the tax authorities. It should be noted, however, that a statement of purpose does not necessarily limit the activities that the NPO can carry out.

Member Registration

Membership registration is fundamentally different from the share issuance process in several ways. First, NPOs are not required to register members in return for any contribution from the member. The directors may require annual dues to maintain membership, but it is at the discretion of the board of directors whether or not to require such dues. It should be noted that for corporations, the directors must determine the contribution that the subscriber is required to make in exchange for the shares, and that under the federal corporation regime, the shares must be fully paid up before they are issued.

In addition, in a corporation, the power to authorize a share issue is reserved to the board of directors, and it cannot delegate this power to a committee or to specific officers or directors . The NPO statutory regime does not prohibit the board of directors from delegating its power to register members, which allows for greater efficiency for organizations with a large number of members and members.