This resource has been prepared by Nicholas dePencier Wright of Wright Business Law for educational purposes. This information is current as of the date of writing and does not constitute legal advice, which should be obtained prior to relying on anything herein.
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Soliciting vs. Non-Soliciting Not-for-Profit Corporations in Canada
In Canada, not-for-profit corporations are governed by the Canada Not-for-Profit Corporations Act (CNCA) if they are federally incorporated. Among the important distinctions under this framework is the classification of not-for-profits as either soliciting or non-soliciting corporations. This distinction affects governance, reporting obligations, and public accountability. This article examines the differences between soliciting and non-soliciting not-for-profits and their practical implications.
Soliciting vs. Non-Soliciting: What Do These Terms Mean?
1. Soliciting Corporations
A not-for-profit corporation is considered soliciting if it receives more than $10,000 in a single fiscal year from:
• Public donations,
• Government grants or contributions, or
• Funds from other soliciting organizations.
The rationale behind this classification is that organizations receiving public or government funds should meet higher transparency and accountability standards.
2. Non-Soliciting Corporations
A corporation is classified as non-soliciting if it does not receive more than $10,000 from the above public sources in a financial year. These organizations typically rely on private funding sources, such as membership fees or private donations, and are not subject to the same level of regulatory scrutiny.
Key Differences Between Soliciting and Non-Soliciting Corporations
1. Governance Requirements
Soliciting Corporations:
• Must have a minimum of three directors, two of whom cannot be officers or employees of the corporation.
• This ensures independent oversight, reflecting their public accountability.
Non-Soliciting Corporations:
• Can operate with a minimum of one director, offering greater flexibility for smaller or privately funded organizations.
2. Financial Reporting Obligations
Soliciting Corporations:
• Must file their financial statements with Corporations Canada, making them accessible to the public.
• Additional transparency measures are required, particularly if revenues exceed specific thresholds:
• Under $50,000 in revenue: Members can vote to waive the audit requirement.
• Between $50,000 and $250,000: A review engagement is required unless waived by members.
• Over $250,000: A full audit is mandatory.
Non-Soliciting Corporations:
• Are not required to file financial statements with Corporations Canada.
• Financial reporting requirements are less stringent, with similar audit thresholds based on revenue but without public disclosure.
3. Accountability to Stakeholders
Soliciting Corporations:
• Owing to their reliance on public or government funds, they must demonstrate responsible stewardship and alignment of funds with their stated purposes.
• Enhanced reporting and governance ensure accountability to public contributors and funders.
Non-Soliciting Corporations:
• Face fewer external accountability requirements as their funding typically comes from private or internal sources.
4. Duration of Classification
Once classified as soliciting, the designation remains in effect for three years after the fiscal year in which the $10,000 threshold was exceeded, even if the organization does not receive additional public funds during that period. Non-soliciting corporations do not face a similar time-bound classification.
Practical Implications for Not-for-Profit Corporations
Governance Planning
Soliciting corporations must ensure their board composition complies with the CNCA’s requirements for independence. Smaller organizations transitioning to soliciting status may need to recruit additional directors.
Financial Management
Organizations expecting to cross the $10,000 public funding threshold should prepare for the more stringent financial reporting and auditing requirements of soliciting corporations. Non-soliciting corporations can benefit from reduced administrative burdens but should still maintain robust internal controls.
Fundraising Strategies
• Non-soliciting organizations may choose to limit public fundraising or government grant applications to avoid triggering soliciting status.
• Soliciting corporations should prioritize transparency in how public funds are used, as this will be subject to greater scrutiny.
Transition Management
Fluctuations in funding sources can result in status changes. Organizations should monitor their revenue streams carefully to determine when they must adapt their governance and reporting structures.
Examples
1. Soliciting Corporation:
A federally incorporated environmental organization receives a $25,000 grant from a provincial government to support a conservation project. This organization will be classified as soliciting for the next three fiscal years.
2. Non-Soliciting Corporation:
A private club funded entirely by membership dues of $50,000 annually is considered non-soliciting because it does not receive public or government funds.
Conclusion
The distinction between soliciting and non-soliciting corporations under the CNCA reflects the need for transparency and accountability in organizations that rely on public contributions. Soliciting corporations face stricter governance and reporting obligations, while non-soliciting corporations benefit from more flexible requirements. Understanding this distinction is crucial for not-for-profits to maintain compliance with the law, plan governance structures effectively, and optimize their funding strategies. By staying informed and proactive, not-for-profit organizations can align their operations with their classification, fulfilling both their legal obligations and their mission.