demystifying charities, not-for-profits and social enterprises

Social Venture Partners TorontoHosted by SkyLaw Professional Corporation

Toronto, ON | June 22, 2016

Demystifying Charities, Not-‐For-‐Profitsand Social Enterprises

SVP Wine & Learn Education Event:

2

SkyLaw Professional Corporation

SkyLaw is a boutique corporate and securities law firm offering sophisticated legal and strategic advice to public and private companies and shareholders through an innovative law firm structure.

.www.skylaw.ca

Brought to you by:

Social Venture Partners Toronto

Using the venture philanthropy model, SVP helps progressive and innovative charities increase their ability to create positive change in Toronto and in so doing, educate and unleash the full potential of progressive Toronto philanthropists to become true change-‐makers.

www.socialventurepartners.org

Hosted by:

Kevin R. WestFounderSkyLaw

• Kevin is a senior corporate and securities lawyer with more than 16 years of experience.

• After clerking for Justice Binnie at the Supreme Court of Canada, Kevin practiced with Sullivan & Cromwell in New York and Australia and was a partner at Davies in Toronto for over 5 years.

• Kevin founded SkyLaw in 2010.• Kevin works with many not-‐for-‐profit corporations,

charities and social enterprises and leads several pro bono initiatives at SkyLaw. Kevin has volunteered his time with a number of organizations, including as a partner with Social Venture Partners, as a director of Skills for Change and on the corporate governance committee of Project Canoe.

3

Presented by:

Andrew CooleyAssociateSkyLaw

• Andrew joined SkyLaw as a corporate and securities lawyer in 2015.

• Prior to joining SkyLaw, Andrew was an associate at Davies Ward Phillips & Vineberg LLP in Toronto where he had a broad corporate practice.

• Andrew has helped form not-‐for-‐profit corporations and has worked on a variety of transactions including mergers and acquisitions, proxy contests and other shareholder activism matters, financings, fund formations and general corporate matters.

• He also has experience advising companies and shareholders on corporate governance, disclosure and compliance matters.

4

Presented by:

Devi PandaySenior Law ClerkSkyLaw

• Devi is a Senior Corporate Law Clerk with more than 11 years of experience.

• Prior to joining SkyLaw, she worked in the charities group at Blake, Cassels & Graydon LLP, Miller Thomson LLP, as well as in-‐house at a public corporation.

• Devi specializes in corporate governance and transactions. She assists in all matters with respect to incorporating, organizing and maintaining corporations and charities, including by-‐law development, preparation of resolutions and/or minutes, as well as compliance matters such as annual returns and business name registrations.

5

Presented by:

About Our Host: SkyLaw Professional Corporation

SkyLaw is a corporate and securities law firm that was recently named one of Canada’s Top 10 corporate law boutiques by Canadian Lawyer Magazine.The SkyLaw team works with a variety of public and private companies and provides top tier legal services to its clients around the globe.

6

About Our Host: SkyLaw’s Community Involvement

The SkyLaw team is actively involved in the community. We volunteer for a variety of organizations and provide our services to clients that are making a real difference. Here is a list of some of our current clients that we support:

• SkyLaw assisted Social Venture Partners Toronto tobecome a not-‐for-‐profit corporation on a pro bono basis.

• We are a proud Corporate Partner of SkyLaw client Women Get on Board Inc., an organization that connects, promotes and empowers women to corporate boards.

• We are a strong supporter and Corporate Partner of SkyLaw client Toronto Homecoming since its inception in 2010, with a mission to boost the Toronto economy by connecting Canadians working abroad with professional opportunities in Toronto.

• SkyLaw supports the Tyson Bailey Fund, dedicated to helping underprivileged young athletes, by providing pro bono corporate services.

7

8

Demystifying Charities, Not-‐For-‐Profitsand Social Enterprises

Question & Answer Period:

Question #1:What is a registered charity?

• A charity is an entity that has been registered with the Canada Revenue Agency as a charity.

• A charity is required to have only charitable purposes:• Relief of poverty (food bank)• Advancement of education (university)• Advancement of religion (place of worship)• Other purposes that benefit the community (library)

9

Question #2:Why become a registered charity?

• Charities can issue tax receipts for donations of money or property.

• Charities do not pay income tax on any income earned.

• To receive grants from other charities, governments and foundations that are only available to charities.

• To use the designation as a charity to encourage volunteers and raise profile in the community.

10

Question #3:Can you do charitable work without

registering as a charity?

• Yes, but you would not have the benefits of a registered charity (see previous slide).

• For example, you could incorporate a not-‐for-‐profit corporation or simply work as a group or on your own to benefit the community.

• You do not need to incorporate to register as a charity.

11

Question #4:What is the difference between a charity

and a not-‐for-‐profit corporation?

12

• Most charities start as a not-‐for-‐profit corporation and then apply to the CRA for registration as a charity and have only charitable objectives.

• Not-‐for-‐profit corporations can be incorporated federally or in any province, whereas charitable status is a tax designation for any type of organization.

• Both not-‐for-‐profit corporations and charities must prepare annual financial statements, but charities must annually file these statements and other information that can be accessed on the CRA website.

Question #4 (continued):What is the difference between a charity

and a not-‐for-‐profit corporation?

13

• A charity must meet its annual disbursement quota by spending each year at least 3.5% of the value of its property on its own charitable programs or on gifts to qualified donees, such as another registered charity.

• Charities are exempt from paying income tax, while not-‐for-‐profits generally do not pay income tax provided that profits are incidental and operate primarily on a cost-‐recovery basis and should not have an unreasonably high accumulated surplus.

Question #5:How can a charity start a social enterprise?

• A social enterprise is any organization that is generally a social purpose. There is no legal or tax definition.

• A charity can run a social enterprise that is a “related business”. A related business is generally one that is substantially run by volunteers or that is linked to a charity’s purpose and subordinate to that purpose.

• To be linked to a charity’s purpose it must be (i) usual and necessary to the charity’s program, (ii) an offshoot of the charity, (iii) use excess capacity or (iv) involve the sale of items that promote the charity.

• See the CRA’s policy statement “What is a related business?”

14

Question #6:What is a “dual-‐purpose” corporation?

• In May 2014, the Ontario government examined dual purpose corporate structure legislation.

• The legislation, if adopted, would create a new type of corporation that would have a dual purpose: a social or environmental purpose as well as a private, for-‐profit interest.

• Dual purpose corporate structure legislation has been passed in British Columbia, Nova Scotia and the United Kingdom.

15

Question #7:What kind of personal liability do I have as a director on a charity?

16

• Directors manage or supervise the management of the corporation, including not-‐for-‐profits.

• Directors have a fiduciary duty to the corporation and not the interests of any party they may feel they represent.

• Directors are required to exercise the level of skill and judgment of a person with his or her knowledge and experience.

Question #7 (continued):What kind of personal liability do I have as a director on a charity?

17

• Directors must also adhere to the rules of fiduciary duty, including:

• good faith • honesty• loyalty• confidentiality• avoidance of conflicts of interest

Question #7 (continued):What kind of personal liability do I have as a director on a charity?

18

• Generally, as long as directors act in the best interest of the corporation and follow a proper process relying on the advice of experts, where appropriate, they will not be held accountable for an error in judgment.

• Corporations are separate legal entities and directors generally will not be held personally liable for debts or obligations of the corporation, with some exceptions:

• Breach of fiduciary duty or breach of trust• Unpaid employee wages• Failure to deduct or withhold and remit certain taxes • Non-‐compliance with specific statutes

Question #8:Do employees at a charity have the same

responsibilities and protections as employees at for-‐profit business?

• Yes, all provincial and federal laws apply to charities the same way they would apply to any other business (e.g. employment standards act, health and safety legislation, anti-‐spam legislation, etc.).

• Employees at charities can be unionized and are entitled to severance if they are dismissed without cause.

19

Question #9:Why can’t I get a tax receipt for donating

my services to a charity?

• Charities can only give official tax receipts for gifts, which at common law is a voluntary transfer of money or property. Contribution of services (time and skill) are not property, so a receipt can’t be issued.

• Publicly-‐traded shares can be donated and the donor will receive a tax receipt for the fair market value at the time of donation, generally without paying tax on any capital.

20

Question #10:What is Ontario’s Not-‐for-‐Profit Corporations Act (“ONCA”)?

• The ONCA is the new and modern legislation that will replace Ontario’s Corporations Act, which currently governs Ontario not-‐for-‐profit corporations.

• The ONCA is not yet in force and a firm date for its adoption is unknown at this time. Regulations to the ONCA have not been released yet. The government will give the not-‐for-‐profit sector at least 24 months’ notice before the ONCA comes into force.

21

Question #10 (continued):What is Ontario’s Not-‐for-‐Profit Corporations Act (“ONCA”)?

• Existing Ontario not-‐for-‐profit corporations will have a three-‐year transition period once the ONCA is in force.

• The Canada Not-‐For-‐Profit Corporations Act came into force in October 2011 and is substantially similar to the ONCA.

22

Question #11:What is the role of organizations like TIDES CANADA and TORONTO FOUNDATION?

• Donor advised funds – direct annual grants to charitable organizations within Canada (must have a minimum amount in funds before making grants).

• Administrative services (accounting, legal, donation receipting and granting).

• Professional investment management.

• All regulatory filings.

23

24

Andrew CooleyAssociateTel: 416.644.3190 Email: [email protected]

Devi PandaySenior Law ClerkTel: 416.644.3190 Email: [email protected]

Want to know more?If you have any further questions, please contact:

Kevin WestFounderTel: 416.644.3190 Email: [email protected]

Social Venture Partnerswww.socialventurepartners.org

Thank you for joining us!

demystifying charities, not-for-profits and social enterprises

Business