Non-Profit, Not-for-Profit, Charity, or Society: What Difference Does it Make?

...Did you know that it makes a big difference in legal, financial and other contexts whether you call your organization a non-profit, not-for-profit, Charity or Society?

I thought I would share the following article, written by ARC allied partner, Donald Golob and Anders Ourom, LLB on some of the legal differences between the terms we often use to describe organizations in our sector:

In British Columbia (B.C.), the words 'non-profit' and 'not-for-profit' are often used to distinguish organizations that exist primarily to advance socially desirable outcomes, from business corporations which exist to generate monetary profit. Non-profits are usually incorporated societies, and often also registered charities. However, the various related terms are often used loosely, although they may have specific legal meanings. When one or more of the identifying terms applies to your organization, you should be careful to use it, particularly in legal, financial, and similar contexts.

The main terms are presented below, but are generalizations, as there are exceptions to most of these comments. It is important for each B.C. organization to determine which legal term(s) apply to it, and, if necessary, obtain appropriate advice as to its status. The terminology in other provinces is the same or very similar in relation to charitable registration, but not necessarily to incorporation. For example, a few provinces say "non-profit corporation" instead of "society".

'Non-profit': Legally, this means an organization that is registered as a non-profit under the Income Tax Act, which is relatively uncommon. Many societies and charities refer to themselves as "non-profits", although they are not registered as such. A variation is "not-for-profit", a term which has no general legal definition. 

'Charity': This applies only to organizations registered as charities under the Income Tax Act. There are three main sub-types: registered (operating) charities; public foundations; and private foundations. 'Non-profits' and 'registered charities' are defined classes of taxpayers with particular rights and responsibilities. Registered charities rarely use the word "charity" in their names, but those that are foundations often include that word. Some registered charities refer to themselves as "having a tax number", instead of simply saying that they are charities. There are a variety of tax numbers (e.g. for HST and statutory deductions), and although virtually all non-profits have a tax number of one kind or another, that does not necessarily imply that they are also charities. 

'Society' or 'Association': This means an organization that is incorporated under the Society Act (or its equivalent in another province), or federally under Part II of the Canada Corporations Act. Incorporation creates a legal entity and provides some structure, rights, and responsibilities. Most, but not all, societies use the word 'society' or 'association' in their name. However, not all do. In  B.C., an unincorporated organization may also use those words.

There are about 25,000 societies incorporated under the Society Act in B.C., and about one-third of them are also registered charities of one type or another. There are about 85,000 registered charities in Canada, of all types,  and most are incorporated. Relatively few organizations register as non-profits, as there are no compelling reasons or advantages for doing so. Each term implies certain legal rights and responsibilities. You should be certain as to the legal nature of your organization, as many other things flow from this.

This article was co-authored by Anders Ourom, LLB and Donald Golob.  Copyright  © 2010. Anders Ourom and Donald Golob.  All rights reserved. This information is not nor is it intended to be specific legal advice. Readers are cautioned in all cases to obtain appropriate advice as to these and related matters.

Anders Ourom (aiourom@telus.net, 604- 228 -1798) specializes in advising societies, charities, and other not-for-profit organizations since 1995.  

Donald Golob (www.donaldgolobconsulting.ca, 604-988 3273) specializes in providing facilitation, strategic planning, and organizational development services for societies, charities, and other not-for profit organizations since 1995.