By K.H. Koehler
Launching a nonprofit in Canada requires several legal responsibilities. To achieve your mission as a nonprofit leader and founder, avoid legal issues and protect the ones running your organization, you must follow essential guidelines, including adhering to the Canadian Revenue Agency (CRA) requirements and maintaining integrity.
What Are Nonprofit Leaders Responsible For?
Nonprofit legal services ensure that charitable organizations comply with laws and regulations in their operations. Naturally, nonprofit leaders are going to be held to a high legal standard, including fiduciary duties such as:
- Duty of Care: Make smart decisions, participate in all meetings, and stay informed.
- Duty of Loyalty: Avoid conflicts of interest and disclose any you discover.
- Duty of Obedience: Ensure everyone adheres to the organization’s charitable purpose.
Even with incorporation, members of the organization can still risk liability for unpaid wages, unremitted payroll taxes, or any gross negligence. Directors and Officers (D&O) Liability Insurance should be considered, as it can cover financial claims arising from poor board decisions and actions.
How to Set Up a Charity in Canada
Setting up a charity in Canada involves several specific legal steps, the most important being registration with the CRA. But even before you start filing forms, it’s essential to understand the difference between a general nonprofit and a registered charity. Nonprofits engage in a wide range of activities and are exempt from the more stringent regulations that registered charities face. You will need to see what fits your vision.
To register with the CRA, you need two things to start: a completed Form T2050, an Application to Register a Charity under the Income Tax Act, and all of your supporting documents.
These forms can take many forms, including:
- Bylaws: Internal rules dictating operations, the board structure, meeting procedures, and member rights.
- Incorporation Papers: All documents formally establish the organization’s legal existence.
- T3010 Returns: Annual forms that registered charities file with CRA regarding their finances and operations.
Keeping Up with the CRA
To maintain your status as a charity, you need to follow all CRA regulations, including:
- Annual Reporting: Registered charities must file an annual information return (Form T3010) with the CRA within six months of their fiscal year-end, detailing their financial activities and executive actions.
- Financial Transparency: Charities must prepare financial statements that are essential for maintaining CRA compliance and the public’s trust in the organization.
- Maintaining Charitable Status: Charities must operate for the good of their charitable purpose and dedicate their resources to those activities, not for personal gain.
- CRA Guidance and Audits: The CRA offers extensive resources and will conduct audits to ensure the charity complies with the Income Tax Act and other regulations.
Good Leadership Reduces Legal Risks
Maintaining a good organizational and administrative structure is essential for reducing legal risks. Consider:
- Creating Effective Board Policies: Clearly stated policies help guide all organizations’ decisions and keep operations ethical.
- Conflict-of-Interest Rules: All board members and staff have access to good guidelines and regular disclosure practices to uphold their duty of loyalty.
- Documenting Meetings: Keeping the minutes as essential legal records that can be used to defend against liability claims should something move to the courts.
- Training Board Members on Legal Obligations: You should offer regular training to board members so they understand and can uphold their roles and responsibilities.
Staying Current with Changes
The regulations for nonprofits and charities are constantly evolving. Leaders must stay informed of changes at all times in the legal structure by:
- Regularly Reviewing Charity Law Updates: Subscribe to the CRA’s updates and review their legislative changes regularly.
- Subscribing to Legal Bulletins: Subscribe to updates from the legal firm connected to your organization or otherwise regularly engage legal professionals who can keep you notified of changes.
- Understanding the Risks of Outdated Governance: Remember that outdated governance can damage your organization legally and financially, leading to penalties and even a loss of charitable status.
Legal Responsibilities and Leadership Go Hand-in-Hand
Canadian nonprofit leaders carry significant legal responsibilities. To be a good leader, one must always comply with local laws and regulations, including CRA laws.
Staying vigilant, transparent, and ethical is essential in protecting the organization’s legal standing, ensuring the mission, the reason the organization was founded in the first place, is properly fulfilled, and protecting those in charge.
