Writing
Other: Bi-Weekly Event Notes: Mark Blumberg (Legal)
Tuesday September 12th
Mark Blumberg
Non-Profit and Charity Law
Bio: Mark Blumberg is a partner at the law firm Blumberg Segal LLP (Blumbergs) in Toronto and works almost exclusively advising non-profits and registered charities on their work in Canada and abroad. Mark has written numerous articles, is a frequent speaker on legal issues involving charity and not-for-profit law and is the editor of www.CanadianCharityLaw.ca and www.globalphilanthropy.ca™ – Canadian websites dedicated to news about the Canadian charitable sector as well as legal and ethical issues for Canadian charities operating in Canada or overseas.
Presentation Notes
- Casual conversation on Unity - example of an organization that does good work
- Unity uses art to try to engage people (young people)
- Targets alienated, economically disadvantaged youth
- This model has been successful in many different areas
- May be interesting to see what they are doing
- In nonprofits and charities, there is not a lot that is totally new, you want to learn from what others are doing and this sounds like something that some people can look into
- Question: There is a form that is being filled out and there are three provincial acts that he needs to choose from and he can’t figure out which one he needs to choose
- The company is called the BAR Institute - to have Institute in the name, he needs to fill out this form but has no idea how to choose which provincial acts
- Recommends: not going through Ontario - don’t register as an Ontario business
- He is setting up his business federally but doesn’t know which one to choose - if he is setting up a for-profit it would be a CBCA; if it is a nonprofit it would be a CBNCA (?)
- Corporations Canada to set up the corporation and they have a concern with the name - he was able to open his bank account but then they put it on pause
- Anyone who sets up an Ontario non-profit right now will need to do more work because changes are coming in the next year or two. Better to go Federal at this point (business/non-profit)
- Question: His brother is a CA. He was initially going to go as a sole proprietorship - he needed it to go cash cheques. Not sure if this is the best route to take.
- If he is going to set up a corporation, he needs to unwind the sole proprietorship - want to make sure that no one is confused about this
- Should he wait to incorporate? Concerned about being able to afford his taxes (incorporated taxes)
- In reality, the beginning the cost of incorporating are large, but the accounting is the ongoing cost you will have
- In a small charity it can be a few grand for accounting - it costs money ($2,000 - $5,000 in fees)
- Under 50 grand, no audit needed (for non-profits only)
- If you hire a bookkeeper (best expenditure to have, ~ $1,000 a year ) - I think it is very important to get the financial management stuff set up from the beginning. Make sure you know from the get go what you are doing (ex. Use Quickbooks). For example, if you forget to do HST or take certain money from employees, you’ll get whacked with this later. Either you learn this all yourself or the best money you can spend is on a bookkeeper. It’s a cost of doing business. You have to make enough money that you can pay for all the things. Such as your domain name. You don’t want to lose this because you don’t want to lose this. It can screw up your whole system.
- Auditing is expensive, in the non-profit area, under 50 grand you can do it yourself.
- Between 50 and 250 - there is a lesser type of audit you need to do (review engagement)
- Over 250 - need to do an audit
- In sole proprietorship you are solely personally liable but it allows you to use the business name
- Question: Apparently there are a lot of tax changes coming that will affect small businesses. What is your opinion on that?
- The government is wanting the change the rules, that if you’re not really running a business you don’t get the small business deduction. This is to stop doctors or other single consultants from calling themselves small business owners when they aren’t really
- Accountants think about taxes & numbers
- Lawyers think about liability (if you are a corporate entity - this gets sued and not you personally)
- *an option if you are not a corporate entity is to get insurance -> ~ $2,000 a year (doesn’t cover everything - corporation helps with these gaps)
- All it takes is one lawsuit to wish you had a corporate entity
- For the cost of incorporating, you can really save yourself
- Getting good insurance does not cover a lot of things which is why it is better to have a corporate entity
- His focus is on how to avoid issues with liability - not a big believer in sole proprietorships or anything where you are solely liable. It can get messy
- Having an incorporated entity is a better approach in the long-run - especially when thinking of an ambitious program. Even a small breakfast program at a school has a lot of potential liability (what if a kid gets sick?)
- An accountant might see advantages of being a sole proprietor and from a tax point of view, it might be good, maybe it’s better in terms of offsetting costs but you are personally on the line
- If you are making less than 150,000 - the tax changes won’t affect small businesses
- Who would benefit the most from the current system?
- If you make a ton of money 300,000/yr + then you can get taxed at a lower rate (by playing games with where the money is) and the Ontario government is trying to make changes to prevent this
- Accountants are very concerned about this but it won’t affect legitimate businesses
- Question: Should I wait to incorporate until I have a certain amount of capital?
- She is currently set up as a sole proprietorship
Pathways:
- Sole Proprietor
- You using a business name (ex. Joe’s repair shop)
- This is a For Profit (You are not a nonprofit or charity)
- Incorporation (Ltd., Inc.) *Mark recommends this one
- You can get sued and you would love your business
- Can be all 3: For Profit, Non-Profit, Registered Charity
- Has: Articles & bylaws
- Not on the hook personally (the members or shareholders) if someone sues
- Can search a corporate registry to find organizations
- Unincorporated Association
- Non Profit OR Charity
- Has: constitution - combines incorporation & bylaws together
- Liability: all members are responsible (can get sued)
- About 80% of charities are incorporated
- For Profit tends to be the easiest way to go (default)
- Accountants know how to deal with for Profits - it’s very flexible and very good
- Can easily sell this off (personally better for you)
- About you & shareholders
- Most flexible and easiest to do
- Non-profit
- In the public mindset, it is very different if you are a nonprofit or charity vs for profit
- Registered charity is relatively constrained, takes longer to do (can take multiple years)
- Takes 3 months (simple)
- For a complicated month, probably 12 months (because currently backlogged)
- But there are many restrictions: political limits (ex. only so much can be spent on advocacy), so many other things
- Start off with a For Profit as a default and then move to another but not saying one is best
- There is another type of charity: nascent charities
- Many are doing good work before they are even established
- Liability issues
- How to ease the concerns of being sued
- How many charities have been sued? (typical won’t deal with lawsuits)
- The number one reason that charities get sued is for wrongful dismissal - it’s the most common thing. This can be avoided by not screwing people over. The answer is: a typical charity will not deal with a lawsuit. Mos of the issues are very avoidable
- When you pay a paycheck, you take some money and give it to CRA. Get a good bookkeeper and make sure you take the right amount off and give the right amount to CRA. You are on the hook for it.
- 1 = bookkeep
- 2 = taking right amount of
- 3 = give to CRA
- To set up a for profit corporation costs about $1000
- Even if you only have a 1% chance of being sued, it is still worth it
- At least you can feel protected (can help you sleep at night)
- Question: Copyright issue. Fellow has an image that uses part of the Raptors logo (and has changed it). Instead of We the North, they are using We the Niche (sp?)
- Answer: definitely be incorporated because it is a potentially risky thing since he wants to put it on merch
- He originally used the Blue Jays logo and did it in the traditional style and it relates to traditional storytelling. Worried about being sued. It is an Intellectual Property issue.
- If you think someone might want to protect their brand, copyright, trademark or name of business - the closer you are, the closer they can say that you are appropriating something that is theirs. Think about your end goal and whether it is worth it. It could raise a lot of publicity but it could raise a lot of trouble.
- Could you do something else that meets your objective without infringing on them?
- If you go to them and get their permission then it’s fine
- The minute it goes on merchandise, that is when the risk goes up especially if there is no protection (such as being incorporated)
- Even being an artist and putting an image on social media can be risky
- Either you protect your Intellectual Property or you lose it so they will either stop others from doing stuff that is similar to their images or their empire collapses
- Ex. Greenpeace cannot be a charity in Canada because they do things that are illegal. It may not be wrong but you need to ask yourself if this is the best way to achieve your objectives
- Question: now that we have talked about ways to avoid risk, if I want to use real people and model them as figurines, to get their permission - that would be the case but what are the legalities involved?
- The person has the right to their likeness - it cannot be appropriated (may not apply to politicians and certain famous people)
- Ex. Albert Einstein donated his likeness to the Museum in Jerusalem so a licence from them is required to create a figurine that looks like him
- Need to get the consent of the person to do it, would want to get some sort of licence to use the person’s likeness
- For the licensing - the people are youth from the community but they still need to consent
- It’s an IP issue
- Need a consent form - have them sign that. Can create something quite basic in this case since it is small scale
- Question: When you are registering a non-profit, you have to create the articles. When you are amending the articles, it is another $200. Do you have any advice for how to create these documents to minimize changes in the future?
- When you create an incorporated, need to start with articles of incorporation
- Start with example of federal non-profit, there is a lot of good advice from corporation canada on their website
- Think ahead of time, what do you need? If you objective is to help children in the city of Toronto, but if you think it might involve other children, think ahead and add children around the world
- Think about flexibility
- Don’t be worried about thinking of everything in the future. You can’t predict everything that will happen and sometimes you’ll need to pay for the change in the future
- Think carefully for For Profit, but for Non-Profit it can have more stuff in there
- For Profit - you can get a law clerk to just prepare (or a paralegal)
- Question: With non-profits, when you file your annual return, you need to give a summary of your activities. What are the consequence if you don't have any activities that directly impact the community? - ex. what if you didn't hold a book drive you hoped to hold.
- Depends on the type of non-profit
- You can have plans and then not do it
- Think about your objectives
- Some charities don’t start operating right away
- So it doesn’t make a huge difference
- There are nonprofits that are not charities and they file a form and it’s not a big deal
- Don’t worry if you hope to do something, and don’t do it, that’s pretty normal
- Question: Would you recommend waiting to figure out the logistical things and paying all these fees? Or should we just go ahead of it?
- This is the nascent non-profit? How long do you want to wait until you do something? This is a decision you have to make. Some people will spend a month or two and then do it while others wait years
- Think about how fast you want to get it done. Think about your stakeholders
- Don’t approach people until you are ready to go so that when someone donates, you are ready to go
- There are simpler things than setting up a charity - you can have a donor advised fund (tricky when getting the money out?)
- What are the costs of setting up a federal incorporation - $300
- If you set up a federal corporation, it can easily be changed (Ontario corps are more difficult to change)
- You don’t want to be operating as an individual if you will be acting as a business
- What is the worst thing that happens? You set up a corporation and then a few months later you decide you are not going to use it
- Problem with doing a sole proprietorship
- You will have to transfer your assets into the corporation but if you start as a corporation from the beginning, you will not need to worry about this. It can be an expensive issue to do down the road
- He doesn’t see the advantage of the sole proprietorship
- Example: say you rent some space, and a year later you get incorporated - the landlord is going to say that they have a lease with you personally. You set the expectation that you are personally going to be on the hook for that. It’s hard for people dealing with you to want to change over how they are dealing with you. The best thing is to incorporate from the beginning. That is the most common way that businesses are now being run.
- Question: What do I need to do to incorporate?
- Go to industry Canada’s website and look at the forms that you need and there are documents (articles and all that), they give certain recommendations on this
- It is worth talking to a paralegal (may not need a law firm) there are guys that can do incorporations pretty cheap - it’s very competitive
- Can also do it yourself
- Need to file articles and pay (around $200)
- Need to say who are the members, shareholders, officers, etc
- You can be everything
- It might be complicated with multiple people (may need a shareholder agreement)
- Keep in mind, you don’t avoid 100% liability. Example, if you don’t pay taxes or do major environmental damage, then they can go after you personally.
- Note: There is a category (similar to registered charity but not) - about 300 bands in Canada are part of what is called Municipality and Public Bands forming a function of Government
- Not municipalities, more like a sovereign nation but treating them like municipalities
- If a band is on this list, they get to issue tax receipts - which can save them a lot of taxes