MODULE I. Incorporation. Chapter 1. Setting up of a corporation (Person at law) IMPORTANT NOTICE

Transcription

1 MODULE I Chapter 1 Setting up of a corporation (Person at law) IMPORTANT NOTICE On October 17, 2014, Industry Canada will abolish the Canadian Corporations Act (Part II); all organizations incorporated under this law need to carry out the continuance... read section 4 of this chapter.

2 Table of content Setting up of a corporation (person at law) Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7 What is a corporation (person at law)? Advantages to proceeding via a corporation Legal powers of the corporation Under which law should we incorporate? Operation of the corporation Production of declarations Numbers assigned to the corporation Section A Section B Important references Appendices Registraire des entreprises, PROVINCIAL charter under one of the following laws: - Religious Corporations Act - Québec Companies Act, Part III Industry Canada, FEDERAL charter under one of the following laws: - Canada Not-for-profit Corporations Act (new law) - Canadian Corporations Act, Part II (this law will be abolished in 2014) Tools for the charity!

3 Section 1 What is a corporation (person at law)? 1.1. A person at law is a legal entity distinct from its founders. It has its own legal status. The directors are individuals whereas the very existence of the legal entity comes from obtaining a birth certificate commonly called letters patent, charter or constitutive statutes. The person at law has an unlimited lifespan. The term "person at law" is often replaced by "corporation", "company", "company without share capitals", "organization", etc A person at law can be a corporation with lucrative goal of which the first goal is to generate profits. The person at law can also be a not-for-profit corporation and its first mission is the advancement of religion, the relief of poverty, etc. We will concentrate our interest only on the not-for-profit corporations A not-for-profit corporation can be constituted under one of the three following laws: a. Religious Corporations Act; b. Québec Companies Act, Part III; c. Canada Not-for-profit Corporations Act (this law is in force since October 17 th, It has replaced the Canadian Corporations Act, Part II.) 1.4. The corporation (person at law) that constitutes a charity must file reports and make payments, among others, to the following agencies: a. To "Revenu Québec" (RQ) Tax deductions at source, if applicable The QST (in certain cases) The annual declaration TP Its annual financial statement b. To the Canada Revenue Agency (CRA) Tax deductions at source, if applicable the GST (in certain cases) The annual declaration T3010 Its annual financial statement c. To the "Régie des rentes du Québec", if applicable d. To the "Commission de la santé et de la sécurité du travail" (CSST), if applicable e. To the "Registraire des entreprises" (REQ) its annual updating declaration f. To Industry Canada - Corporations Canada its annual summary (if federal charter under Canadian Corporations Act, Part II ) its annual return (if federal charter under Canada Not-for-profit Corporations Act)

4 Section 2 Advantages to proceeding via a corporation 2.1. Protection of the directors against civil pursuit for prejudices caused by thirds Financial protection of the directors regarding debts incurred by the corporation. However, this corporate veil protection does not apply to tax deductions at source, to unpaid salaries for a maximum of six months and to unpaid GST/QTS. The directors remain personally responsible for these Given that a person at law does not die, it ensures the continuity of the corporation It could allow the corporation to qualify for exemption of property tax and business tax. Generally, an individual does not qualify for this exemption If the senior pastor wants his property to qualify for the property tax exemption, the church has to be a person at law incorporated under a Québec law.

5 Section 3 Legal powers of the corporation The corporation has exactly the same legal powers and privileges as an individual: a. to acquire and to sell goods, whether free or at a cost; b. to build new facilities; c. to help anyone pursuing similar goals as the corporation; d. to borrow, mortgage, give a movable mortgage; e. to grant loans; f. to sue or to be sued; g. to rent a building and/or a piece of equipment; h. to carry on charitable and/or related commercial activities.

6 4.1. Religious Corporations Act Section 4 Under which law should we incorporate? This law, as its name suggests, applies only to charities that wish to offer a place of worship. The law defines a church as a group of people forming a religious body. This law offers the following advantages: a. an additional protection for directors and members of the corporation; b. facilitates the application to obtain a registration number to issue income tax receipts; c. facilitates obtaining tax exemptions for business, as well as school and municipal; d. allows a legal structure and by-laws adapted to the needs of the church; e. facilitates the senior pastor to obtain property tax exemption. When incorporating under the Religious Corporations Act, each director founder must obtain a "certificate of good conduct" attesting the absence of a criminal record from the Royal Canadian Mounted Police, or from the Sûreté du Québec or of the director s local municipal police force (Québec). A church can also be incorporated under the Canada Not-for-profit Corporations Act or under the Québec Companies Act, part III. However, this choice does not provide any advantage. To help you better understand the Religious Corporations Act, you will find in Appendix a copy of the text of the law Québec Companies Act (Part III) This law addresses charities, other than a church, that plan to work only in Canada. In certain situations, the use of Part III increases the degree of difficulties when incorporating and when registering as a charity. Since the use of the French language is a general rule in Québec, the use of the Québec Companies Act can be a laborious experience for Anglophones Canada Not-for-profit Corporations Act This law allows charities to work everywhere in Canada or in the world, without legal constraints. That is particularly significant when the organization is involved in missionary work. As previously mentioned, this law being in force since October 17 th, 2011 has replaced the Canadian Corporations Act, Part II. All organizations that have been incorporated under the latter shall take the necessary measures to carry out the continuance under the new law. The deadline for doing so is October 17 th, After this date, if no action has been made, the charter of these organizations could be revoked. For more information, go to Section B "Appendices" and click B.3.

7 Section 5 Operation of the corporation When preparing the constitutive documents, the provisional directors (founders of the organization) must write the by-laws of the organization. These clearly defined by-laws explain the operations of the organization and bring precise details concerning, among others, the following points: a. The operation of the board of directors; b. The power of the directors; c. The election and functions of the officers; d. The annual general meeting of the members; e. Voting rights; f. Modifications of the by-laws. To help you understand by-laws better, you will find in the Appendix a model of by-laws of a provincial charter under the Religious Corporations Act. Take note that this type of by-laws can easily be adapted to the needs of a charity incorporated under the Québec Companies Act, Part III. Regarding organizations governed by Canada Not-for-profit Corporations Act, Industry Canada has created a tool to help them elaborate their own by-laws. It is available via their website at:

8 Section 6 Production of declarations The persons at law are held responsible to complete and forward various declarations to different government ministries. We will examine some of these NEQ Registration of a legal person Any legal person having activities in Québec must obtain a Québec business number (called in French a NEQ) with the REQ. Since February 14, 2011, this step can be done directly on their website through their online services. In order to do the registration correctly, it will be important to read carefully the instructions and choose between the two following options: Declaration of Registration (*déclaration d immatriculation d une personne morale): If your incorporation is constituted under the Canada Not-for-profit Corporations Act (Federal charter) or under the terms of a Québec Act before The cost of the declaration is 34$ and is payable to the "Registraire des entreprises". Initial Declaration (*déclaration initiale d une personne morale): If your incorporation is constituted under the Québec Companies Act, Part III or the Religious Corporations Act since January 1 st, The directors must complete this form within sixty (60) days after the date of the registration. After the deadline, the declaration must be accompanied by the required fee. This first declaration identifies the directors, the activities of the corporation, the other known names that it uses (if the case) and its coordinates. This declaration is produced only once. Also, notice that the declaration can be completed in *French only. Corporations are obligated to produce such a declaration under the Act respecting the legal publicity of enterprises Annual updating declaration (previously named: Annual Declaration) After you have completed your first declaration (detailed in 6.1), you must produce the "Annual updating declaration" to the REQ. The purpose of this form is to update information declared at registration. The corporation is obligated to produce its "Annual updating declaration" during the prescribed period beginning on May 15 th and finishing on November 15 th. When the REQ does not receive the form in time, there is a penalty. Before this period, take note that the REQ does not transmit anymore an Annual updating declaration so that you may verify the reliability of the information. You must use the online services at (My office / access and follow the instructions). To do so, you will need your clicséqur express code received at the beginning of 2011 or following your NEQ registration. If you do not have it or lost it, have your NEQ

9 number on hand and phone at to order a new one. Also, notice that the declaration can be completed in French only under the name of Déclaration de mise à jour annuelle. To help you file your declaration, go to Section B "Appendices" and click B.4. Because the REQ is not obliged to send a reminder by mail, we encourage you to write down a reminder in your agenda. The filing fee is 34$ and payable to the "Registraire des entreprises". Through the online services, you will have the option to pay by credit card, to send a check or a money order with the slip that you will have to print or to go in person to their office. Notice that the declaration will be treated only after your payment is received. Default in producing the Annual updating declaration and paying the 34$ filing fee, can result in serious legal consequences. When a corporation fails to produce two consecutive annual declarations, its registration may be struck off ex officio by the REQ. Take note that the revocation of the registration for a corporation constituted under Québec laws will result in its dissolution Current updating declaration (previously named: Amending Declaration) When the person at law realizes that declared information at the REQ is incomplete or not accurate, it must be corrected by producing a "Current updating declaration". This declaration must also be produced by the online services within 30 business days of a change. This declaration is free of charge. Also, notice that the declaration can be completed in French only under the name of Déclaration de mise à jour courante. To help you file your declaration, go to Section B "Appendices" and click B Annual Summary or Annual Return The summary or return essentially contains the same information as the REQ. Only persons at law constituted under the federal government must produce it annually to Industry Canada. - Annual Summary: only a person at law governed under the former Canadian Corporations Act, Part II must produce it. It must be, therefore, deposited each year, on or before June 1 st, to Industry Canada. Take note that Industry Canada sends, before the beginning of this period, the summary that you will need to complete and return to the mailing address indicated in the file. However, should you have not received or have misplaced the summary, you can obtain one at the offices of Industry Canada. The filing fee is 30$ and payable to the Receiver General of Canada. An organization that fails to file its summary is subjected to monetary penalties that may lead to the revocation of its charter.

10 - Annual Return: only a person at law governed by Canada Not-for-profit Corporations Act must produce it. It must be, therefore, filed with Industry Canada within 60 days after the anniversary date of the organization. The anniversary date is the date on which the organization was incorporated or continued under the new Act. This date is either on the certificate of incorporation or on the continuance. Before the start of this period, Industry Canada will provide you with the report to be completed at the address appearing in your record. The filing fee is 40$ and payable to the Receiver General of Canada. Industry Canada offers the possibility to produce online. In this case, the cost is 20$. For more information about this or other obligations under this new law, please visit the following link: For example, with this new law, if there are any changes of directors and/or head office during the year, a form is now available. In addition, some new rules apply to the financial statements, bylaws, etc. An organization that fails to file its report may be subjected to monetary penalties that may lead to the revocation of its charter T3010 Information Return Within six months of the end of its fiscal year, a charity must send to CRA this form containing information on its activities, its directors and its finances. A charity that omits to produce its T3010 Information Return exposes itself to monetary penalties that could lead to have it charitable registration revoked and may be taxable for the total value of the goods that remains TP Information Return This is the Provincial counterpart of the T3010.

11 TABLE SUMMARIZING SECTION 6 FOR A CHARTER UNDER QUÉBEC LAW PROVINCIAL CHARTER Name of the form Ministry Frequency Users fee NEQ Registration Legal person Initial Declaration, if you have a charter under the Québec law since January 1 st, 1994 "Registraire des entreprises" (REQ) One time through the online services No fees or Declaration of Registration, if you a have a charter under Québec law before January 1 st, or 34$ payable to the "Registraire des entreprises" Annual updating declaration REQ Annually through the online services Current updating declaration REQ When the information is incomplete or incorrect (Example: change of director, change of mailing address, etc.) through the online services 34$ payable to the "Registraire des entreprises" No fees

12 TABLE SUMMARIZING SECTION 6 FOR A CHARTER UNDER THE CANADA NOT-FOR-PROFIT CORPORATIONS ACT OR FORMER ACT: CANADIAN CORPORATIONS ACT FEDERAL CHARTER Name of the form Ministry Frequency Users fee NEQ Registration - Legal person Declaration of Registration, if you have a charter according to the Canada Not-forprofit Corporations Act Annual updating declaration Current updating declaration Annual summary Form 3 (If governed by former Canadian Corporations Act) Annual return (If governed by Canada Notfor-profit Corporations Act) "Registraire des entreprises" (REQ) REQ REQ Industry Canada Industry Canada One time through the online services Annually through the online services When the information is incomplete or incorrect (Example: change of director, change of mailing address, etc.) through the online services Annually Annually 34$ payable to the "Registraire des entreprises" 34$ payable to the "Registraire des entreprises" No fees 30$ payable to the Receiver General of Canada 40$ payable to the Receiver General of Canada (if product online, the cost is 20$)

13 Section 7 Numbers assigned to the corporation Each organization has with the provincial (NEQ) and with the federal (BN) a business number (the equivalent of the Social Security Number for an individual) Provincial (NEQ) Any person at law which has its head office in Québec has the obligation to register itself (see Section 6 of this present chapter). The Québec enterprise number (NEQ) is composed of 10 digits. # Type of document # of the Provincial enterprise (NEQ) RR0001 # of charity registration is the same as the Federal charity number (Filling the annual TP form) ** # of DAS (Source or payroll deductions) ** # of QST (Québec Sales Tax) ** DAS and QST numbers are identical though different from the NEQ 7.2. Federal (BN) The federal government gives the BN (business number) automatically as soon as an organization requests incorporation with Industry Canada or if it requests a registration number with CRA. The business number (BN) is composed of 9 digits. The federal government uses a unique number for all documents/reports followed by an individual series of numbers. # Type of document RR0001 # for a charity registration (Filling the annual T3010 form) RP000l # for DAS (Source or payroll deductions) RT0001 # for GST (Goods and Services Tax)

14 Section A Important references A.1. A.2. A.3. A.4. Registraire des entreprises (REQ) (For addresses, physical and mailing, please consult their website) Telephone: General information Fax: Website: Canada Revenue Agency (CRA) Charities Directorate Ottawa Ontario K1A 0L5 Telephone: Fax: Website: Revenu Québec (RQ) 3800 Marly Street Québec Québec G1X 4A5 Telephone: Fax: Website: Corporations Canada Industry Canada 9th Floor, Jean Edmonds Tower South 365 Laurier Avenue West Ottawa Ontario K1A 0C (Bilingual) General information (English) Telephone: General information Fax: Website:

15 Section B Appendices B.1. Example of by-laws under the Religious Corporations Act. B.2. Religious Corporations Act, chapter C-71 B.3. Article in connection with the new law: Canada Not-for-profit Corporations Act B.4. Instructions for completing an Annual or Current updating Declaration