On occasion we are asked to discuss the differences between associations and corporations. There are several important legal distinctions between charities and non-profits established as non-share capital corporations and charities establish as unincorporated associations.

Separate Entity

A corporation is a separate legal entity under Canadian law, whereas an unincorporated association is not a separate entity. An unincorporated entity is a collection of individuals acting together. An unincorporated association is not recognized as separate from the group of individuals administering it.

Governing Law

Charities and non-profits established as non-share corporations have members who have the right to elect directors in the same manner as shareholders in for-profit corporations, but unlike shareholders, the members do not participate in the financial success of the corporation. In Ontario, non-share capital corporations are established under the Corporations Act. Federally, non-share corporations are currently incorporated under the Canada Corporations Act and soon under the Canada Not For Profit Corporations Act. These statutes provide rules regarding the corporation’s structure and powers.

Unincorporated Associations are not established and governed under a statute. Thus, an unincorporated association has more flexibility as to how the association is structured. Unlike corporations, these associations do not file annual corporate forms with the government. The individuals carry on the association’s business and can take all of the actions of a Canadian individual. However, this lack of regulation means that there is no formal statute addressing how to resolve disputes within an association.

Powers

A corporation has the power to do acts in its own right such as contract, to sue and be sued, and hold title to property. These powers are set out in the governing statute of the corporation. An unincorporated association has no independent power as it is not a separate entity. The unincorporated association itself does not contract, it cannot sue or be sued and it cannot hold property. It is the individuals who administer the unincorporated association who carry out these actions personally for the association. An unincorporated association must seek leave of a court to have the power to bring an action.

Liability

Incorporation limits the liability of the entity to the corporation’s own assets. Section 122 of the Corporations Act (Ontario) provides that the members of the corporation are not liable for the acts and liabilities of the corporation. The new Canada Not For Profit Corporation Act has a similar provision.

An unincorporated association is not separate from the individuals running the association. Therefore, the individuals carrying out the association’s activities are personally liable for the acts and liabilities of the association. This means that each individual’s personal assets are exposed to the creditors of the association once the association has exhausted its insurance and assets.

While an unincorporated association is a flexible structure, if the organization is carrying on any activities that could give rise to liabilities it is prudent to consider incorporating to limit the liability of the organization to its own assets.