Charities and non-profit organizations are often faced with the question of whether to incorporate. Some decide that it is not worth the trouble, while others put off the decision until the organization grows in size. There are also those that do not consider the question at all. While members may have the best of intentions, a lack of forethought can have catastrophic outcomes. Any charity or non-profit organization that exists as an unincorporated association is well-advised to consider the benefits of incorporation. Existing as an unincorporated association is a poor choice for most charities and non-profit organizations for two reasons: (1) they lack a separate legal existence apart from their members, exposing their members to personal liability; and (2) with the exception of Quebec, they are not governed by legislation in the Canadian provinces, making good governance next to impossible without a robust written constitution.
To explain the drawbacks of unincorporated associations and the benefits of incorporation, this article will examine their key differences. Next, it will review the Canadian case law that has considered the legal status of unincorporated associations, or lack thereof, to explain how courts have dealt with the absence of governing legislation. Finally, it will advocate for robust legislation governing unincorporated associations, and will *85 provide best practice recommendations for good governance to avoid the pitfalls of this organizational structure.
II. UNINCORPORATED ASSOCIATIONS
It is not unusual for startup organizations to be attracted to the concept of an unincorporated association, since unincorporated associations require little effort to create and are less costly to run than corporations. In fact, it is not uncommon for people to form an unincorporated association without even being aware of it. A group of individuals can establish an unincorporated association simply by coming together and engaging in activities in furtherance of a common goal or for the benefit of an ostensibly defined group. Common forms of unincorporated associations include non-profits, such as golf clubs, social clubs, and neighbourhood associations, but can also include registered charities, comprising of members who seek to further a common charitable mission. An unincorporated association is the default form of a nonprofit organization that is not established as a charitable trust or non-share capital corporation.
There are two main benefits of carrying on business as an unincorporated association: (1) their structure is flexible, as they are not governed by a statute in most provinces; and (2) there are no statutory corporate filing obligations. 1 It is not unusual for small associations with no property to remain unincorporated for many years. However, an association that has a large membership or that wishes to generate revenue and hold property should consider incorporation. Small organizations that anticipate growth are also advised to incorporate sooner rather than later. While incorporating and attending to statutory filings may appear burdensome, the efforts may be well worth their cost.
III. THE DOCTRINE OF SEPARATE LEGAL PERSONALITY
The corporation has long been recognized at common law to be a separate legal entity apart from its members or shareholders. 2 This status, which has allowed corporations to *86 flourish for over a century, bestows on corporations the same rights as a natural person. A corporation, because it is a "person" at law, can own property in its name, sue and be sued, and incur debts and obligations. This doctrine is now statutorily entrenched in modern corporate law. 3
Each Canadian province and territory (as well as the federal jurisdiction) has its own legislation governing non-profit corporations. In Ontario, for instance, non-share capital corporations are incorporated under the Corporations Act (Ontario) 4 ("OCA"). Organizations may also choose to incorporate federally under the Canada Not-for-profit Corporations Act 5 ("CNCA"). Upon incorporation, the corporation is established with a legal personality separate and distinct from its members. The CNCA and the OCA both state explicitly that members are not liable for any liability of the corporation except as provided by the Act. 6 Further, because the corporation is its own "person" at law, directors, officers, and employees are protected from liability, provided they act in good faith and within the purview of their office. 7
Conversely, unincorporated associations are not regulated in most provinces and territories and there is no federal legislation governing unincorporated associations. 8 It follows that in these jurisdictions, the legal status of unincorporated associations is not recognized by statute. Therefore, the individual members of an unincorporated association are exposed to personal liability that may otherwise be limited if the organization was incorporated. An unincorporated association cannot sue or be sued, and instead, its members must sue or be sued personally. Further, an unincorporated association cannot purchase insurance for its members or executive, or enter any other binding agreements because it cannot enter into contracts. Yet, after having canvassed the benefits of separate legal personality, it seems obvious that an organization must be able to contract, sue, and be sued in its own name if it plans to successfully carry on operations. Additionally, as discussed below, where an *87 unincorporated association wants to own real property it must usually find a corporation that will hold legal title to the property as bare trustee for the association, providing the association with beneficial ownership. Unfortunately, this arrangement is not often properly documented and can lead to challenges down the road, especially should the association wish to transfer the property.
IV. THE COMMON LAW RESPONSE (TRADE UNIONS)
Unfortunately, as it stands, Canadian common law has failed to fully fill the legislative gaps, providing an unsatisfactory framework for unincorporated associations. It is now a long-standing principle that unincorporated associations do not have legal status. 9 Instead, an unincorporated association is comprised of a "complex of contracts". Courts have found that unincorporated associations are bound together by the contractual bonds between the members, and that each member contracts with the other members of the association. 10 In Orchard v. Tunney, 11 a decision of the Supreme Court of Canada, a union member sued the union's board for wrongful expulsion. The court considered two seminal decisions of the English House of Lords which recognized the separate legal personality of trade unions. 12 The court explained that the House of Lords interpreted the English Trade Union Act, 1871 13 and 1876 14 as recognizing a trade union to be capable of owning property and of acting by agents. Because there was no similar legislation in Manitoba, the court did not find that trade unions in the province had separate legal personality. The court found against the board of the union, holding them personally liable in tort.
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1 In some cases, the unincorporated association may be required to file a T1044 Non-profit return with the Canada Revenue Agency.
2 Salomon v. Salomon & Co.,  UKHL 1 (U.K. H.L.).
3 See, for example, Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 15(1) and Canada Not-for-profit Corporations Act, S.C. 2009, c. 23, s. 16(1).
4 Corporations Act, R.S.O. 1990, c. C.38.
5 Canada Not-for-profit Corporations Act, S.C. 2009, c. 23.
6 Ibid., s. 36(1); Corporations Act, supra, footnote 4, s. 122.
7 Canada Not-for-profit Corporations Act, supra, footnote 5, s. 149.
8 The Civil Code of Quebec, CQLR c. CCQ-1991 has several provisions governing unincorporated associations (see arts. 2186, 2187, and 2267-2279).
11 Orchard, supra, footnote 10.
12 Taff Vale Railway v. Amalgamated Society of Railway Servants,  A.C. 426 (U.K. H.L.); Bonsor v. Musicians' Union (1955),  A.C. 104,  3 All E.R. 518 (U.K. H.L.).
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.