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Soliciting Corporation
Practical Law Canada Glossary w-009-4862 (Approx. 3 pages)
Glossary
Soliciting Corporation
Under the Canada Not-for-profit Corporations Act, S.C. 2009, c. 23 (CNCA), a corporation is a soliciting corporation if its receipts from public sources during a financial period are more than $10,000. If the corporation's receipts from public sources exceed $10,000 in its financial period (FY1), it would be a soliciting corporation commencing at its next ensuing annual meeting (which would be held within the first six months of FY2). It would remain a soliciting corporation by virtue of its receipts in FY1 until the annual meeting held three years later (that is in FY4) unless extended by its revenues in FY2, FY3 or FY4.
The funding sources that determine whether a corporation is soliciting are:
- Public donors: donors who are not members, directors, officers or employees of the corporation at the time of the funding request or persons who are not related by blood, marriage or cohabitation arrangement to those persons.
- Governments or government agencies: irrespective of whether they are federal, provincial, territorial, or municipal.
- Conduit entities: other soliciting corporations or other entities that have received funds of more than $10,000 in its previous financial period from the above sources.
The CNCA empowers the Director appointed under CNCA, section 281, to determine that a specific applicant corporation is not or was not a soliciting corporation if the Director is satisfied that the determination would not be prejudicial to the public interest.
The differences between soliciting corporations and non-soliciting corporations under the CNCA are as follows:
- Distribution of residual assets on liquidation or dissolution. A soliciting corporation must distribute its residual assets to a qualified donee within the meaning of the Income Tax Act. A non-soliciting corporation is at liberty to provide in its articles for the distribution of residual property to anyone (including, but not limited to, qualified donees).
- Board composition. A soliciting corporation must have at least three directors and at least two directors who are not officers or employees of the corporation or any affiliate of the corporation. A non-soliciting corporation can have only one director and there is no statutory prohibition against having a board consisting entirely or mainly of management personnel.
- Unanimous member agreement. A non-soliciting corporation with two or more members may have a unanimous member agreement (UMA), and a non-soliciting corporation with only one member may have unanimous member declaration (UMD) that, in either case, transfers some or all board authorities, powers and liabilities to members. A soliciting corporation cannot enter into a UMA or UMD.
- Appointing a public accountant to perform an audit or review engagement report. The rules are that a:
- non-soliciting corporation is only required to have an auditor if its annual revenues in the previous fiscal year are more than $1 million. If its annual revenues in the previous fiscal year are $1 million or less, it has a review engagement, unless all members entitled to vote at an annual meeting waive the appointment of a public accountant or the members pass an ordinary resolution to have an audit; and
- soliciting corporation must have an audit if its annual revenues in its previous fiscal year are more than $250,000. If the soliciting corporation's annual revenues in the previous fiscal year are more than $50,000 but not more than $250,000, the members may by special resolution opt to have a review engagement rather than an audit. If the soliciting corporation's annual revenues in the previous year are $50,000 or less, all members entitled to vote at an annual meeting can waive the appointment of a public accountant.
- Filing financial statements. A soliciting corporation must file its annual financial statements with Corporations Canada where they are available for inspection and copying by any member of the public. Generally, a non-soliciting corporation is exempt from filing its financial statements with Corporations Canada unless the Director requires them. Even so, the filed financial statements of the non-soliciting corporation are not open to public inspection. Soliciting and non-soliciting corporations are both required to distribute their annual financial statements to members.