Are all not-for-profit corporations registered charities? Do not-for-profit corporations have restrictions on the types of business activities they can conduct? Are all not-for-profit corporations allowed to make a profit? The term “not-for-profit”, as it is used in the Canada Not-for-profit Corporations Act (NFP Act), is often misunderstood.
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Not-for-profit and business corporations
When an organization is incorporated under the NFP Act, it is commonly known as a federal not for profit corporation. By contrast, an organization that is incorporated under the Canada Business Corporations Act is generally referred to as a business corporation.
Not-for-profit corporations are not automatically considered “registered charities” or “non-profit organizations” for income tax purposes. Not-for-profit corporations, therefore, are not necessarily exempt from paying regular corporate taxes under the Income Tax Act.
Not-for-profit corporations are free to conduct the same business activities as business corporations. In other words, not-for-profit corporations can make a profit. If they do, not-for-profit corporations could have to pay regular corporate taxes under the Income Tax Act.
Shareholders and members
The main difference between not-for-profit corporations and business corporations has to do with the way that they are structured. On the one hand, business corporations issue shares, which represent ownership in a corporation; the owners of business corporations are the shareholders (see Your corporation’s shareholders).
On the other hand, not-for-profit corporations do not issue shares, and they have members. Not-for-profit-corporations cannot pay dividends.