For-Profit and Not-For-Profits: What’s the Difference?
Disclaimer: This article on For-Profit and Not-For-Profits is intended for the purpose of providing information only. It is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.
The differences between for-profit and not-for-profit corporations in Ontario can be significant and are important to understand if you’re considering setting up either type of corporation in the province. While both types of business entities have similarities, there are also some distinct differences that you must consider.
In this blog post, we will explore the key distinctions between for-profit and not-for-profit corporations in Ontario. This information can help you make an informed decision about which type of corporation is right for your business.
What is a not-for-profit corporation?
Not-for-profit corporations, also referred to as “nonprofits” or NFPs, are businesses that are set up to provide goods, services and assistance to the community. They do not offer a financial return on investment (ROI) and instead provide benefits to their members and/or the public at large.
Not-for-profit corporations typically serve a certain sector of the community. For example, a community garden or athletics group may opt to incorporate as a not-for-profit corporation to help with obtaining funding.
What law governs for-profit and not-for-profit corporations?
The Ontario Business Corporations Act governs for-profit corporations, while the Ontario Not-for-Profit Corporations Act governs not-for-profit corporations.
Who owns for-profit and not-for-profit corporations?
The ownership structure of for-profit corporations is typically linked to the shareholders, who own the company’s assets and profits. In contrast, Not-for-Profits are controlled by their members, who act as custodians of the organization’s assets and activities.
What is the cost to set up a not-for-profit corporation?
The cost of setting up a for-profit corporation in Ontario depends on several factors. These factors include the number and structure of shares issued, filing fees and other requirements such as obtaining professional advice or assistance.
For nonprofit organizations, your cost would include all of the factors noted above. However, there are additional costs to incorporate under the Not-For Profit Corporations Act. These costs include filing fees, legal review costs and more. These corporations are more complicated and the fees, therefore, reflect those additional considerations.
Requirements for Non for Profits
There are some requirements for not-for-profit corporations that do not apply to for-profit corporations.
For example, a for-profit corporation can set out any number of directors in the Articles of Incorporation. By contrast, a not-for-profit corporation must have a minimum of three directors.
Additionally, a not-for-profit corporation must set out the corporation’s activity and how it will assist the community. Generally speaking, you would include between two and six paragraphs outlining the intention of the corporation. You must carefully word that statement to avoid confusion or legal troubles down the road – this is one area where you definitely need to seek legal advice before filing!
Finally, a not-for-profit corporation includes the following special provision: Commercial purposes, if any, included in the articles are intended only to advance or support one or more of the non-profit purposes of the corporation. No part of a corporation’s profits or of its property or accretions to the value of the property may be distributed, directly or indirectly, to a member, a director or an officer of the corporation except in furtherance of its activities or as otherwise permitted by this Act.
Can a not-for-profit earn a profit?
Absolutely! For example, a not-for-profit can earn a profit from activities that are related to its purpose or mission. However, you must distribute any profits back into the organization to help it achieve its goals and objectives, such as providing services or products to its members.
To Summarize…
| For Profit Corporations | Not For Profit Corporations |
| Is governed by the Ontario Business Corporations Act | Is governed by the Not-For-Profit Corporations Act |
| Is owned by the shareholders | Is owned by the members |
| Can earn a profit | Can earn a profit but must distribute that profit back into the organization |
Setting up your not-for-profit corporation with Beeksma Law.
At Beeksma Law, we understand the unique needs of not-for-profit corporations and can help you navigate the legal process. We are here to help you navigate the process and answer any questions that you may have. To book your complimentary consultation, please click here. We look forward to speaking with you!