What Requirements Must Soliciting Corporations Meet in Canada?

In Canada, soliciting corporations are organizations that seek public donations or receive substantial funding from public sources. They must follow specific regulations to ensure transparency and proper governance. Here's a comprehensive overview of the requirements for soliciting corporations and how they compare to non-soliciting corporations.

Key Requirements for Soliciting Corporations

These requirements apply only if the corporation receives over $10,000 from public sources during a financial year. The corporation must determine this amount at the end of its financial year. If it surpasses $10,000, the requirements will be applicable starting from the corporation’s next annual meeting. This allows time for adjustments to meet compliance standards.

1. Board Composition: The corporation must have at least three directors. Out of these, a minimum of two directors must not hold any officer or employee position within the corporation or its affiliates. This rule is meant to ensure that the board remains independent and free from internal conflicts of interest.
2. Financial Oversight: The corporation is required to comply with specific rules related to financial reviews and accounting practices. This includes submitting its financial statements and the public accountant’s report, if applicable, to the Director of Corporations Canada. The level of review or audit required depends on the corporation's annual revenue.
3. Asset Distribution Upon Liquidation: The corporation’s articles of incorporation must specify that any remaining assets, upon liquidation, must be given to a "qualified donee" as defined by the Income Tax Act. This ensures that the corporation’s assets benefit other charitable organizations or causes rather than being distributed to private individuals.
4. Unanimous Members Agreement: Soliciting corporations cannot have a unanimous members agreement. This restriction helps to ensure decisions are made with broader input and transparency, avoiding potential conflicts or concentration of power.

These requirements remain applicable until the corporation does not meet the soliciting corporation criteria for three consecutive financial years. After this period, the corporation may no longer need to follow these specific rules.

Comparing Soliciting and Non-Soliciting Corporations

Here’s how soliciting corporations differ from non-soliciting corporations:

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These regulations are crucial for maintaining transparency and accountability within soliciting corporations. By ensuring an independent board, adhering to financial review standards, and directing assets to qualified donees, these requirements help build public trust and ensure responsible management of public funds.

Real-Life Example: From Non-Soliciting to Soliciting Status

Consider the "Riverside Community Garden Society" (a fictional but realistic example), which started in 2020 as a small neighborhood initiative in Toronto. For their first three years, the organization operated with:

• $3,000 in annual membership fees from 30 local gardeners ($100 each)
• $2,500 in donations from the founding board members and their families
• $1,500 from a plant sale fundraiser among members
• Total annual revenue: $7,000

As a non-soliciting corporation, Riverside operated with minimal regulatory oversight. They had a simple two-person board (the married couple who founded the organization), kept basic financial records, and focused entirely on maintaining their small community garden plots.

However, in 2023, the society's success attracted broader community attention. They received:

• $8,000 from the city's Community Development Grant program
• $4,500 from a local foundation's environmental initiatives fund
• $3,200 in public donations through an online crowdfunding campaign
• $2,800 in their traditional member fees and board donations
• Total 2023 revenue: $18,500

This $12,500 in public funding (government grant + foundation grant + public donations) suddenly pushed Riverside over the $10,000 threshold, making them a soliciting corporation effective at their 2024 annual meeting.

The transition required significant changes:

Board Restructuring: The founding couple had to recruit a third independent director who wasn't related to them or employed by the organization. They found a local retired teacher who was passionate about community gardening.

Financial Oversight: With revenue now approaching $20,000 annually, they needed to implement proper accounting practices and potentially require a financial review, depending on their provincial requirements.

Governance Changes: They had to abandon their informal decision-making process and establish proper meeting procedures, voting protocols, and documentation practices.

Legal Documentation: Their articles of incorporation needed amendments to specify that upon dissolution, any remaining assets would go to another qualified environmental charity rather than being distributed among members.

This real-world progression illustrates how quickly and unexpectedly an organization can transition from non-soliciting to soliciting status, and why understanding these requirements is crucial for any growing charitable organization.

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