Thursday, May 26, 2011

Charity Law and Social Enterprise

I’ve been asking the question: “What can a nonprofit/charity do to start an enterprise that supports their mission?”

The answer I’ve found is, A LOT!

Mark Blumberg says: “On December 15, 2009 the Ontario Government passed the Good Government Act, 2009 which resulted in the repeal of the Charitable Gifts Act (Ontario).  The Charitable Gifts Act had provided that an Ontario charity may not own more than 10 per cent of an interest in any business.  Ontario was the only province to have such a restriction and it applied to all charities. . . As a result of the Ontario changes a charity located in Ontario can now own more than 10% of a business.  Charitable organizations, but not public or private foundations, may own 100% of a “related business”.

With this in mind the road is still grey. The area of charities generating revenue is still a bit fuzzy but that being said, there are numerous initiatives in place that are helping social enterprises move through their start up phases with support. There is a considerable difference between a nonprofit with charitable status vs. one without charitable status. Call me if you would like more information about that.

Our program will support social entrepreneurs by working alongside nonprofits in London, ON and area to make sure they have all the information they need for their boards, funders and stakeholders so that they make the best decision they can. Sometimes the right decision might be to NOT do a social enterprise.

Richard Bridge and Stacey Corriveau, for the BC Centre for Social Enterprise wrote a paper entitled “Legislative Innovations and SocialEnterprise: Structural Lessons for Canada” which argues for the adoption of a corporate act in Canada.  Their paper is well worth reading.  

You can read Tonya Surman’s post which has comments by various individuals involved with social enterprise debating whether a new legal structure is necessary and what the real impediments to social enterprise are.

Mark Blumberg further explains:  “A little bit of background on what charities can do.  Under the Income Tax Act (Canada), charitable organizations and public foundations can carry on “related business” that promotes their charitable objects.  An example would be a hospital cafeteria - providing food to patients and visitors.  They can also carry on other unrelated business activities, if “substantially all” (CRA says at least 90%) of the people involved in these activities are volunteers. Private foundations cannot carry on any business activities whatsoever. So registered charities can carry on “related business” – either one that involves over 90% volunteers or one that is “linked and subordinate” to the charity’s objects.  A charity cannot carry on a business that is unrelated to its objects or becomes a dominant activity unless it is done 90% by volunteers.  Failure to follow these rules can result in penalties and deregistration. CRA has tackled this subject in CRA Policy Statement “What is a Related Business?” CPS-019”

It is important, before making decisions about starting a social enterprise, that you have worked through a detailed business plan and consulted your lawyer. Calling our program would be a great first step for you to begin this thought process.

If you are a nonprofit leader, social entrepreneur or local business and are interested in more information about social enterprise please contact me.