Not-for-profit is one of the fastest growing sectors in North America. According to Imagine Canada, the approximately 160,000 nonprofit and voluntary organizations in this country (20,000 in BC) employ more than two million people and generate almost $80 billion in revenues. This accounts for nearly 8% of the GDP, more than the automotive or manufacturing sectors.
Your first 5 steps.
If you’re thinking about setting up a not-for-profit (or non-profit) organization, here are things you should consider. Like any business, it’s important to develop a plan – what service you’ll provide and to whom, what area you’ll serve, where it will be located, what expenses you’ll incur, how you’ll cover costs, etc. There are five initial things you need to do.
- Clarify your concept.
- Gather your core group.
- Do the research.
- Choose a name.
- Get legal, tax and financial advice.
Establish what you’ll do and how you’ll do it.
Workshop the idea with people you’ll be working with and other interested parties.
Ensure there is a need for your concept.
Naming an organization can be tricky, but sometimes it’s easiest to make it as straightforward as possible. Then check availability.
Learn the rules and regulations of running a not-for-profit before you jump in. There may be implications and hoops you need to jump through you aren’t aware of.
Making a difference starts with making a decision. Charity or not?
In Canada, non-profit organizations fall into three broad groups: registered charities, not-for-profit societies and foundations. Registered charities are different from not-for-profits in a variety of ways, such as general activities, structural model and audience served; while foundations primarily provide funding or resources to charities. You’ll need to look at what you want to do, then decide what you need to be. An BlueShore Financial business advisor can help you through this process to establish the best approach.
A not-for-profit organization registered under the federal or provincial Society Acts is similar to any business and can purchase property and borrow money as a legal entity. Generally, individual members of the group are not liable for any debts. Any profits earned must be retained within the organization and not distributed to its members. Registering with the Canada Revenue Agency allows the group to issue tax receipts to donors and receive tax exemptions. If your group won’t be accepting gifts or donations and has no need for tax-exempt status, it doesn’t need to be registered with CRA. Organizations that start as not-for-profits can become charities later on.
Charities must be registered with the Canada Revenue Agency (a process taking between 6 -18 months plus legal expenses). Once receiving registered charitable status, a charity can issue tax receipts to donors and receive certain tax exemptions. Registered charities are automatically eligible for a 50% HST refund. Registration also enables gambling or bingo to be used for fundraising. Charities must adhere to a number of regulations, file an income tax return every two years, and make certain records public.
Incorporate or not?
A not-for-profit or charity can be incorporated either provincially or federally, although it isn’t required by law. Incorporating means becoming a legal entity that can acquire assets, borrow money and be legally liable. In Canada, an incorporated not-for-profit doesn’t pay income tax. Without incorporating or registering, your organization won’t be legally recognized and your group’s name won’t be protected against being used by someone else. If you think your organization will be employing staff, incorporating is a good idea. Be sure to submit your group’s name to the provincial Corporate Registry before incorporating.
Your next steps.
Once you’re made your basic decisions about what kind of organization you’ll be, it’s time formalize your team, establish your operational structure and define your goals.
1. Assemble a board of directors and decide on a board governance model. These can include Working Governing (where the board members are actually doing the day-today work), Policy Governing (board attends primarily to strategic matters while staff attend to daily operations) or Collective Board (where board and staff share responsibility for decisions).
2. Establish a constitution and bylaws, determine structure, rules, roles and duties. If you anticipate incorporating, a constitution and bylaws are mandatory. Even a simple constitution is a legal document and is difficult to amend once it’s approved, so be sure to get legal advice and include a clear procedure for making changes or amendments.
3. Create a mission, vision and value statement. It’s important to get clarity and consensus on overall goals.
4. Develop a strategic plan. Discuss and explore ways to accomplish your goals, generate interest and ensure the operation is sustainable. It may not be about making money. Funding is a different matter.
Like any start-up, you may need to access financing or to get help in finalizing your business model to ensure your organization is sustainable. That’s where we can help. Talk to a business advisor. They can help ensure your business plan and goals are achievable and that you’ve taken all the right legal and organizational steps. Because when it comes to doing good, we want you to do well.
There’s a lot to consider in starting a not-for-profit organization, but there are some great resources to consult as you get started. We’ve assembled a few here, for your reference.