Deeming a Corporation Non-soliciting
This policy sets out information about applying to the Director appointed under the Canada Not-for-profit Corporations Act (NFP Act) to have a soliciting corporation be considered a non-soliciting corporation. It will help you determine:
- whether a corporation is 'soliciting';
- whether it should apply to be non-soliciting; and
- the factors that the Director will consider when deciding whether or not it is appropriate to deem a corporation non-soliciting.
This policy is intended to provide information and set out guidelines. It is not intended to be definitive of decisions that will be made in any particular case. It is also not intended to replace legal advice. You may wish to consult a lawyer or other professional advisor to ensure that your specific needs are taken into consideration when making an application.
October 17, 2011
A corporation is a soliciting corporation if it receives more than $10 000 in money or property from the public. To safeguard this public money, the NFP Act imposes five requirements on a soliciting corporation that other corporations do not have to meet. These requirements are very important because they:
- ensure that a corporation that receives money from the public maintains a higher standard of corporate accountability;
- ensure transparency and disclosure; and
- give the public the confidence to continue to fund these corporations.
In some very limited circumstances, it may not be necessary for a soliciting corporation to meet these five requirements. In these particular cases, a corporation can apply to the Director appointed under the NFP Act for a decision to deem the corporation non-soliciting. This is done under subsection 2(6) of the NFP Act. The Director has the power to consider a corporation as not being a soliciting corporation as long as it would not be prejudicial to the public interest. If deemed non-soliciting, a corporation does not have to meet the five requirements imposed on a soliciting corporation by the NFP Act.
Requirements and Definition of a Soliciting Corporation
What are the five requirements that a soliciting corporation has to meet?
A soliciting corporation must Footnote 1:
- have a minimum of three (3) directors, at least two (2) of whom are not officers or employees of the corporation or its affiliates;
- comply with specific requirements for public accountants and financial review;
- send financial statements and the report of the public accountant, if any, to the Director at least 21 days before each annual meeting of the corporation;
- provide, in its articles, for the distribution of property to a "qualified donee", as defined in the Income Tax Act, for any property remaining on liquidation of the corporation; and
- not have a unanimous member agreement.
What is a soliciting corporation?
A corporation is a soliciting corporationFootnote 2 if it receives income during a single financial year in excess of $10 000 in the form of:
- donations or gifts or, in Quebec, gifts or legacies of money or other property requested from any person who is not
- a member, director, officer or employee of the corporation at the time of the request,
- the spouse of a person referred to in subparagraph (i) or an individual who is cohabiting with that person in a conjugal relationship, having so cohabited for a period of at least one year, or
- a child, parent, brother, sister, grandparent, uncle, aunt, nephew or niece of a person referred to in subparagraph (i) or of the spouse or individual referred to in subparagraph (ii);
- grants or similar financial assistance received from the federal government or a provincial or municipal government, or an agency of such a government; or
- donations or gifts or, in Quebec, gifts or legacies of money or other property from a corporation or other entity that has, during the most recent financial year, received income in excess of $10 000 in the form of donations, gifts or legacies referred to in paragraph (a) or grants or similar financial assistance referred to in paragraph (b).
These three sources of funding are referred to as "public funding" or "public income" throughout this policy.
How does a corporation determine if it is a soliciting corporation?
On its financial year-end, a corporation applies the definition set out above to determine whether or not it meets the definition of a soliciting corporation. It is only at this point that a corporation will know how much public funding it received in a particular financial year.
If it meets the definition of a soliciting corporation, when does a corporation actually become 'soliciting' and have to meet the five requirements?
Although a corporation determines whether or not it meets the definition of a soliciting corporation on its financial year-end, it does not actually become 'soliciting' until the first annual meeting of its members following that financial year-endFootnote 3. It can make any changes required to meet the five requirements at that annual meeting.
For example, if a corporation's financial year-end is March 31 and it determines on that date that it meets the definition of a soliciting corporation, it actually becomes 'soliciting' at its next annual meeting of members (e.g., on June 30). It is at that meeting (i.e., on June 30) that it can make any changes required to meet the five requirements (e.g., elect a minimum of three directors).
When does a corporation stop being a soliciting corporation?
Once it becomes a soliciting corporation, it stays 'soliciting' for a period of three years. That is, it becomes a soliciting corporation at the first annual meeting following the financial year-end and stays that way until the third annual meeting following that first annual meeting. This will be between 36 to 45 months later. In other words, a soliciting corporation remains 'soliciting' until it has had three consecutive financial years during which it has received public income of $10 000 or less. Note that the $10 000 is calculated each year and not cumulatively (i.e., not over the three-year period)Footnote 4.
For example, if a corporation becomes a soliciting corporation at its annual meeting on June 1, 2012, the earliest it could become a non-soliciting corporation would be at its annual meeting of members in 2015 (e.g., July 20, 2015).
Considering Whether to Make an Application
Why would a soliciting corporation apply to be deemed non-soliciting?
If deemed non-soliciting, a corporation does not have to meet the five requirements. There may be circumstances where it is not in the best interests of a corporation to meet all these requirements.
Whether it is soliciting or not, a corporation that receives public income in excess of $10 000 in the course of any single financial year within its last five years (i.e., the five years before it dissolves) will still need to meet the following requirement (set out above as requirement (d)):
- provide, in its articles, for the distribution of property to a "qualified donee", as defined in the Income Tax Act, for any property remaining on liquidation of the corporation.
Therefore, even if a corporation is deemed non-soliciting by the Director, depending on its particular circumstances, it may still have to meet this one requirementFootnote 5.
When can a corporation apply?
A corporation can apply to be deemed non-soliciting at any time.
Can a corporation apply to be deemed non-soliciting retroactively?
The Director has the power to decide that a corporation is a non-soliciting corporation retroactively. Requests for retrospective decisions will be reviewed on a case-by-case basis.
For how long is a corporation deemed non-soliciting?
If granted, the Director's decision to deem a corporation non-soliciting remains in effect so long as:
- the circumstances which led to the initial decision have not substantially changed; or
- the decision is not modified, revoked or terminated.
It is possible for a corporation to make more than one application throughout its lifetime.
When is it not appropriate for a corporation to apply to be deemed non-soliciting?
It is not appropriate for a corporation to apply to be deemed non-soliciting if:
- it is not a soliciting corporation;
- it only wants relief from one of the five requirements and another provision is available to provide the relief for that specific requirement (e.g., a corporation that only wants relief from the requirement to send financial statements to the Director should apply for an exemption from financial disclosure requirements under section 173 of the NFP Act); or
- it cannot meet the test or does not fall within the factors set out below.
Test to be applied by the Director
Since the five requirements are meant to protect the public interest, the Director will only deem a corporation non-soliciting if satisfied that the decision would not prejudice the public interest. In reviewing an application, the Director will assess the potential for prejudice to any and all potential stakeholders. Essentially, the question the Director will ask is:
Would the persons or groups who would ordinarily benefit from the requirements be prejudiced if those requirements no longer applied to this corporation?
Factors the Director will consider
The Director will consider making a decision that a corporation is non-soliciting in cases where there is little or no prejudice to stakeholders because:
- the requirements are being met in an alternative and equivalent manner; or
- adherence to these requirements would provide no benefit or is no longer necessary.
- A corporation exists solely for the management of a fundraising campaign and all of the money raised during the campaign goes directly to another soliciting corporation that already meets all of the requirements;
- A corporation receives an unusually high level of public funding in one financial year and has spent all of its public funding before the time the application is made; or
- A corporation receives all of its public funding from a government agency and that agency sets out the requirements which the corporation must meet and those requirements are equivalent to the requirements imposed on a soliciting corporation.
It should be noted that the financial expense of meeting the requirements imposed on a soliciting corporation will not generally be considered to be a relevant factor in the Director's decision.
Setting out the test to be applied by the Director and the factors that will be considered in making a decision is not intended to limit the discretion of the Director in making a decision, especially if the decision would be incompatible with the interests of the public generally, including public confidence in charities and other not-for-profit groups.
- Footnote 1
For more specific information on the requirements that a soliciting corporation has to meet, refer to sections 125, 170, 176, 179-196 and 235 of the NFP Act.
- Footnote 2
You can find the definition of a soliciting corporation in subsection 2(5.1) of the NFP Act.
- Footnote 3
You will find the explanation of when a corporation actually becomes ‘soliciting’ in subsection 16(b) of the Canada Not-for-profit Corporations Regulations (NFP Regulations).
- Footnote 4
You will find the explanation of when a corporation stops being a soliciting corporation in subsection 16(a) of the NFP Regulations.
- Footnote 5
You will find the explanation of when this requirement applies in section 235 of the NFP Act.
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