All federally incorporated not-for-profit corporations will fall under the new Not-for-Profit Corporations Act (the Act) by October 17, 2014—are you ready?
A soliciting corporation, by definition under this new legislation, is a corporation that has received more than $10,000 in public funding in a single fiscal year.
Public funding includes:
A member of the public is does not include the organization’s members, directors, officers, employees or specified family members at the time of the donation. Therefore, donations or gifts from these individuals are excluded from the calculation of the $10,000 threshold. For example, a private family foundation that receives $100,000 in donations from family members and/or directors of the organization would not meet the definition of a soliciting corporation.
There are differences between a soliciting and non-soliciting corporation, including different requirements or thresholds for determining whether you need to engage a public accountant to complete an audit, a review, or a compilation engagement. A soliciting corporation is required to file financial statements with Industry Canada on an annual basis and must have a minimum of three directors on the board, two of which cannot be officers or employees of the corporation.
The challenge in determining whether you are a soliciting corporation is the classification of government grants. If the funding agreement between the corporation and the government agency is a true purchase of services agreement with obligations on behalf of the recipient, the contract could be excluded from the $10,000 threshold calculation. On the other hand, if a government agency receives little benefit from the contract, then it should be included in your $10,000 soliciting revenue calculation.
To determine whether a benefit has been incurred, you need to consider whether the grant or sponsorship represents a commercial transaction. Did the grantor or sponsor receive a benefit in exchange for their funds? If so, did they pay fair market value?
There are penalty provisions under the Act for breaching the characteristics or requirements of being a soliciting corporation. It is important to determine which category applies to your corporation, and whether you have any revenue streams not clearly tied to public funding.
Your legal counsel can assist you in this matter, along with other similar issues, and address them in your continuance process. Your lawyer can assist you in updating your contracts as required to clearly spell out benefits and obligations of all parties under the contract.
The time to act is now! Soliciting corporations that are not deemed to be compliant face revocation. A member of our NPO team would be glad to assist you, and if required, refer you to legal counsel if you do not presently have a legal advisor.
