Our incorporated charity and non-profit clients often wonder why
they need members. Organizations with few governance
participants, either because they are small or because they are
controlled by a small group, sometimes wonder if they may operate
with only a board. Our US clients looking to set up a
Canadian affiliate or interact with existing Canadian charities are
often accustomed to non-profit corporate statutes that allow a
corporation to have only a self -perpetuating board without any
The short answer is that all Canadian non-profit corporate
statutes of general application require members. Generally, in
order to avoid having members, a non-profit in Canada needs to be
incorporated by a special statute of the federal parliament or one
of the provinces. This special act process is very slow,
complex and expensive, although it does give flexibility in
membership and in all other things.
Fundamentally, directors of a for-profit share capital
corporation are fiduciaries who act on behalf of the
corporation's interests and its shareholders, with
accountability to such shareholders. A non-profit corporation's
directors must act in the best interests of the corporation and its
purposes, with the members being those who hold the directors
accountable. Members (and shareholders) are generally not
fiduciaries and can act to further interests other than those of
While a US organization that establishes a Canadian affiliate
and selects its initial board members may be dismayed to find that
the Canadian board is obliged to think primarily of the interest of
the new organization, the absence of a fiduciary duty for members
can actually be very useful. For example, although a director
cannot legally represent a constituency of the organization, a
member (or member class) can do so. This means that if the US
organization also holds a membership (including one with special
voting rights), the US organization will be allowed to vote those
membership rights in its own interests, rather than those of the
Canadian organization. It is even possible to have the bylaws of an
organization limit certain kinds of decisions to members, allowing
an extra degree of member control without fiduciary duty where
Where it is desired that there only be a board, it is usually
possible for the board and members to be the same self-perpetuating
group. When a non-profit is structured in this way, mission
drift can be prevented. On the negative side, however, fresh
ideas can also be prevented. In order to keep proper books and
records, organizations with self-perpetuating boards need to be
careful to ensure that directors' decisions are made (and shown
in corporate records to have been made) at directors' meetings
and that decisions made at members' meetings are similarly
reflected. This helps to ensure that at various times there
is no question as to the correct fiduciary standard to be applied
to individuals serving as both directors and members.
Canadian charitable and non-profit corporations need to have
both directors and members, unless incorporated by special act.
The fact that directors owe fiduciary duties not owed by
members does not prevent directors and members from being the same
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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