A key to understanding the regulatory regime under the Canada Not-for-profit Corporations Act is to recognize that it differentiates among certain not-for-profit ("NFP") corporations and accords modest differential treatment depending on the defining characteristics of the corporation. In particular, the Act recognizes three types of federal NFP corporations:
A religious corporation, which is not defined under the Act, will usually be a soliciting corporation (depending on the source and amount of its funding as explained further below).
Non-soliciting corporations are the residual category. Thus, any corporation that is not a soliciting corporation fits into the non-soliciting category.
The Act recognizes a fundamental distinction between soliciting and non-soliciting corporations. The statutory distinction roughly correlates to the distinction between public benefit corporations (which are akin to soliciting corporations) and mutual benefit corporations (which are akin to non-soliciting corporations) except that the Act relies on a measure of public funding as a proxy for the difference in the corporation's intended beneficiaries or purpose.
The basic premise is that corporations that receive public funds (in a broad sense) should, in the public interest, be subject to tighter regulation than those corporations that do not rely on public funding.
The Act imposes minimum governance standards or rules on soliciting corporations that are not imposed on non-soliciting corporations. Thus, there is a need to differentiate the two types of corporations. In this regard, the Act relies on the brightest of bright-line tests: funds received in a specified timeframe.
The Act does not attempt to distinguish between soliciting and non-soliciting corporations on the basis of their underlying objects or purposes, the nature of their underlying activities or their charitable (or non-charitable) status under the Income Tax Act. Instead, the definition of "soliciting corporation" is based on whether aggregate receipts from a short-list of public sources during a financial period are in excess of $10,000. If a corporation's revenues from public sources exceed $10,000 in, say, 2015 (FY1), the corporation would be a soliciting corporation commencing at its next ensuing annual meeting (held in 2016 or FY2) and ending (unless extended by its revenues in a subsequent financial period) at the annual meeting held three years later (i.e., in 2019 or FY5). In effect, this low financial threshold comprises a de minimus exemption. It is designed to filter out the inadvertent capture of corporations that do not receive significant public funds. The annual period to calculate revenues strikes a balance between continuity for an organization over time and flexibility where its funding sources have permanently changed.
The funding sources that determine whether a corporation is "soliciting" are:
(a) donations or gifts from persons who were, at the time of the request, public donors (i.e., more specifically, donors who are not members, directors, officers or employees of the corporation at the time of the funding request or persons who are related by blood, marriage or cohabitation arrangement to such persons);
(c) donations or gifts from conduit entities (i.e., other soliciting corporations or other entities that have received funds in excess of $10,000 in the previous financial period from these same sources).
Funding source (c) (conduit entities) is primarily intended to capture indirect funding from public sources, i.e., funds received through a conduit that is itself publicly funded (such as the United Way).
To clarify, a donation from a person who is not an existing member at the time of the funding request, but who, in accordance with the articles or by-laws governing admission of members, becomes a member as a result of making a donation is to be included in calculating the receipt of public funds. However, a donation from, or membership contributions or dues payable by, an already existing member does not count in determining the receipt of public funds. Similarly, unsolicited donations (such as a gift left to the corporation under a will) do not count in determining the amount of public funding.
Not all revenues received from governmental sources are included in calculating the receipt of public funds. For example, if the government pays for services or goods of the corporation at market rates, the payments would not be grants or similar financial assistance.
The test for determining whether a corporation is a "soliciting corporation" is effectively applied on the last day of its financial year-end. Thus, for example, assume that the financial period of corporation C ends on December 31 each year and that it only receives $6,000 in public funds on December 15, 2014 and a further $6,000 in public funds on January 15, 2015. C will not become a soliciting corporation by virtue of these receipts because in no financial year did its receipts from public funds exceed $10,000. On the other hand, if C receives $6,000 on January 15, 2015 and a further $6,000 on December 15, 2015, it would become a soliciting corporation from the close of its 2016 annual meeting through to its 2019 annual meeting. A non-soliciting corporation becomes a soliciting corporation at the first annual meeting held after the financial period in which its revenues from public sources exceed $10,000.
As a further safety-value, the Act empowers the Director of Corporations Canada to determine that a specific applicant corporation is not, or was not, "...a soliciting corporation if the Director is satisfied that the determination would not be prejudicial to the public interest."