What is a Public Benefit Corporation under ONCA?

In Ontario, determining whether your corporation falls under the category of a public benefit corporation involves understanding specific criteria and implications under the Ontario Not-for-Profit Corporations Act (ONCA). Let's explore what defines a public benefit corporation, what obligations it entails, and how it differs from other types of corporations.

What is a Public Benefit Corporation?

A public benefit corporation under the ONCA is characterized by its commitment to serving public or charitable purposes. There are two primary criteria that define a corporation as a public benefit entity:

1. Charitable Purposes: The corporation is incorporated with the primary goal of advancing education, relieving poverty, promoting religion, or supporting other charitable causes as defined in the ONCA.
2. Financial Support: Alternatively, even if not primarily charitable, a corporation can qualify as a non-charitable public benefit corporation if it receives substantial financial support from external sources. Specifically, if it receives more than $10,000 in donations, gifts, or grants from non-members, directors, officers, employees, or governmental agencies within a financial year.

Determining Status

The determination of whether a corporation qualifies as a public benefit corporation is typically made at its first annual meeting in the subsequent financial year. This determination is crucial as it dictates the regulatory requirements and obligations the corporation must adhere to under the ONCA.

Additional Requirements for Public Benefit Corporations

Once identified as a public benefit corporation, certain specific rules and obligations apply:

1. Director Composition: A public benefit corporation must ensure that no more than one-third of its directors are employees of the corporation or any of its affiliates. This rule aims to maintain independence and prevent conflicts of interest within the board.
2. Financial Reporting: Public benefit corporations are subject to more stringent financial reporting requirements compared to other types of corporations. These requirements are designed to ensure transparency and accountability in financial management.
3. Winding Up and Distributions: Public benefit corporations face different procedures and restrictions when winding up operations or distributing assets. These regulations are intended to safeguard the corporation's assets and ensure they are used in accordance with their charitable or public benefit purposes.

Flexibility and Changes

It's important to note that, except for charitable corporations, corporations in Ontario can switch between being public benefit and not-for-public benefit based on changing circumstances and compliance with the criteria set forth in the ONCA. This flexibility allows corporations to adapt their status as their operations and support structures evolve over time.

Understanding whether your corporation qualifies as a public benefit corporation is crucial for compliance with Ontario's regulatory framework. By meeting the criteria laid out in the ONCA, your corporation can uphold its commitment to public service or charitable endeavors while navigating the additional responsibilities and obligations that come with this designation. Whether you're starting a new corporation or considering a change in status, clarity on these distinctions ensures you operate within the legal framework that best suits your organizational goals and societal contributions.

Key Differences from Other Not-for-Profit Corporations

Public benefit corporations must follow stricter governance requirements than standard not-for-profit corporations.

The most significant difference involves board composition rules that limit employee representation.

Director Composition Rules:

• Maximum one-third of directors can be employees
• Applies to the corporation and its affiliates
• Designed to prevent conflicts of interest
• Maintains board independence

Financial reporting requirements are more stringent for public benefit corporations.

They must undergo enhanced financial reviews and maintain higher transparency standards than other not-for-profit entities.

Dissolution procedures also differ significantly.

When winding up operations, public benefit corporations face specific restrictions on asset distribution to ensure resources continue serving public purposes.

Criteria and Thresholds to Qualify

We determine public benefit corporation status using clear financial and purpose-based criteria.

Charitable corporations automatically qualify regardless of their funding sources or revenue levels.

Non-Charitable Corporation Thresholds:

• Must receive more than $10,000 annually
• Funding from non-members, non-directors, non-officers, or non-employees
• Includes donations, gifts, and grants
• Government funding also counts toward threshold

The $10,000 threshold applies to each financial year.

Corporations meeting this criteria in their first qualifying year make the determination at their next annual meeting.

Qualifying Revenue Sources:

• Public donations and gifts
• Foundation grants
• Government funding and subsidies
• Corporate sponsorships from external entities

Status can change based on annual funding levels.

Non-charitable corporations may move in and out of public benefit corporation classification as their external support fluctuates above or below the threshold.

Types of Public Benefit Corporations

Under ONCA, there are two distinct types of public benefit corporations.

One type includes organizations with charitable purposes, while the other covers non-charitable groups that receive significant external funding.

Charitable Public Benefit Corporations

Any corporation that operates for charitable purposes automatically qualifies as a public benefit corporation under ONCA.

We don't need to meet any additional financial thresholds or requirements.

Charitable purposes include:

• Advancing education
• Relieving poverty
• Promoting religion
• Other causes recognized as charitable under Canadian law

Registered charities fall into this category by default.

These organizations receive their charitable status through Canada Revenue Agency registration and must follow both federal charity rules and ONCA requirements.

The charitable designation means we're automatically subject to public benefit corporation rules.

This includes restrictions on director composition and enhanced financial reporting requirements.

We cannot change our status from charitable to non-charitable public benefit corporation.

Once we're established with charitable purposes, we remain in this category throughout our existence.

Non-Charitable Public Benefit Corporations

Non-charitable corporations can become public benefit corporations based on their funding sources.

We qualify if we receive more than $10,000 in external support during a financial year.

Qualifying funding includes:

• Donations from non-members
• Gifts from external sources
• Grants from government agencies
• Financial support from foundations

We determine our status at the first annual meeting following each financial year.

If our external funding drops below $10,000, we may no longer qualify as a public benefit corporation.

This flexibility allows us to move between public benefit and regular not-for-profit status.

Our classification depends on our actual funding patterns rather than our original incorporation purposes.

We must track our funding sources carefully to determine our correct status each year.

Requirements and Compliance Obligations

Public benefit corporations must follow stricter rules than regular nonprofits.

These include specific board composition requirements and enhanced financial reporting standards.

Corporate Governance and By-Laws

PBCs face strict limits on employee representation on their boards.

Non-charitable PBCs cannot have more than one-third of directors who are employees or ex-officio directors.

Charitable PBCs have even tighter restrictions.

They cannot have any employee directors except in very limited situations that require court approval and consent from the Office of the Public Guardian and Trustee.

Our by-laws must reflect these governance requirements under ONCA.

We need to ensure our articles clearly state asset distribution rules upon dissolution.

Asset Distribution Requirements:

• Charitable PBCs: Must distribute assets to registered charities with similar purposes, governments, or government agencies
• Non-charitable PBCs: Must distribute assets to other PBCs with similar goals, governments, government agencies, or municipalities

We cannot distribute assets to members upon dissolution.

This restriction applies even if we were a PBC in any of the three previous financial years before closing.

Disclosure and Transparency

PBCs must maintain higher transparency standards than regular nonprofits.

We need to track our funding sources carefully to determine our PBC status each year.

Public funding includes grants, subsidies, and loans from federal, provincial, or municipal governments.

It also covers donations from non-members, non-directors, non-officers, and non-employees.

We must document these funding sources annually.

The $10,000 threshold applies to our previous financial year's receipts from public sources.

Our status can change yearly if we're not a charity.

We become a PBC at the next annual members' meeting after crossing the threshold.

Filing and Reporting Responsibilities

PBCs must follow enhanced financial reporting requirements under ONCA.

We need to conduct financial audits or reviews when crossing the $10,000 threshold.

Our financial statements require more rigorous preparation and review processes.

These standards ensure proper accountability to the public and government funders.

We must file updated articles and by-laws that comply with PBC requirements.

Organizations incorporated before October 19, 2021 had until October 18, 2024 to update their governing documents.

Annual filings must reflect our current PBC status.

We need to report changes in funding levels that affect our classification as a public benefit corporation.

Financial Reporting and Records

Public benefit corporations face stricter financial reporting requirements than other non-profit corporations.

They must prepare comprehensive financial statements and provide broader access to corporate records.

Mandatory Financial Statements

Public benefit corporations must prepare audited financial statements annually.

These statements require review by an independent auditor licensed in Ontario.

The required financial statements include:

• Statement of financial position
• Statement of operations
• Statement of changes in net assets
• Statement of cash flows
• Notes to the financial statements

We must file these audited statements with our annual return to the government.

The deadline is within 60 days of our annual meeting.

Smaller public benefit corporations may qualify for a review engagement instead of a full audit.

This applies when annual revenues are less than $500,000 and we meet other ONCA criteria.

The financial statements must follow Canadian accounting standards.

Most public benefit corporations use Accounting Standards for Not-for-Profit Organizations (ASNPO).

Access to Corporate Records

Members have enhanced rights to access corporate records compared to regular non-profit corporations.

We must make certain documents available for inspection during business hours.

Always accessible records include:

• Articles and bylaws
• Minutes of member meetings
• Audited financial statements from the past six years
• List of directors and officers

Members can examine these records at our registered office.

We cannot charge fees for basic inspection rights.

Additional records may be requested in writing.

These include accounting records, board meeting minutes, and member registers.

We have 21 days to respond to written requests.

We can refuse access if the request is not made in good faith or could harm the corporation's interests.

Relationship with Registered Charities

All registered charities in Ontario automatically become public benefit corporations under ONCA, regardless of their funding levels.

These organizations face the strictest rules, including severe limits on employee directors and specific asset distribution requirements when dissolving.

Special Rules for Registered Charities

Registered charities face the most restrictive rules under ONCA as public benefit corporations.

We cannot have directors who are also employees except in very limited situations.

If we want an employee to serve as a director, we need a court order allowing this arrangement.

The Office of the Public Guardian and Trustee must also approve this court order.

This rule exists to prevent conflicts of interest.

It ensures that people who benefit financially from the charity don't control its direction.

Asset distribution rules are also strict for charitable PBCs.

When we dissolve, we must distribute our assets to:

• A registered charity with similar goals
• A government
• A government agency

We cannot distribute assets to our members under any circumstances.

This protects charitable assets for public benefit.

Transition and Compliance for Charities

Registered charities that incorporated before October 19, 2021, had until October 18, 2024, to update their governing documents.

We needed to review our bylaws and articles to ensure they follow ONCA rules.

Many existing bylaws may not comply with the new employee director restrictions.

We must update these documents to reflect the stricter standards.

If our current bylaws allow employee directors without court approval, we need to change them.

We also need to update asset distribution clauses if they don't meet the new requirements.

Our charitable status means we're always a PBC.

Unlike non-charitable organizations, we don't move in and out of PBC status based on funding levels.

This provides certainty but requires ongoing compliance with the strictest rules.

Transitioning to ONCA as a Public Benefit Corporation

Organizations moving to ONCA face specific requirements and deadlines.

The transition involves updating key documents and following mandatory steps to maintain compliance.

Steps for Moving Under ONCA

The transition period for ONCA ended on October 18, 2024.

Organizations that missed this deadline must now act quickly to comply with the new regulations.

We need to file transition documents with the government.

These forms include our current by-laws and any required amendments.

This filing process keeps our organization operating legally under ONCA.

Key transition requirements include:

• Filing transition forms within required timeframes
• Paying applicable government fees
• Confirming our public benefit corporation status
• Meeting new director composition rules

Public benefit corporations must ensure no more than one-third of directors are employees.

This rule takes effect immediately upon transition.

We may need to adjust our board structure before filing.

The government decides our public benefit status based on our activities and funding.

Organizations receiving over $10,000 each year from external sources automatically qualify as public benefit corporations.

Updating Governance Documents

We must review our by-laws under ONCA.

The new act introduces different rules for meetings, voting, and director responsibilities.

We need to include these changes in our by-laws.

Essential by-law updates include:

• Director qualifications - New independence requirements for public benefit corporations
• Meeting procedures - Updated voting and notice requirements
• Conflict of interest policies - Enhanced disclosure rules
• Membership provisions - Revised member rights and obligations

We must align our by-laws with ONCA's mandatory provisions.

Some previous by-law clauses may no longer be valid under the new act.

Our legal counsel should review all governance documents for compliance.

The Not-for-Profit Corporations Act requires specific language in certain by-law sections.

We cannot simply update existing clauses without ensuring they meet ONCA's requirements.

Filing updated by-laws completes our transition process.

Once approved, we operate fully under ONCA's public benefit corporation framework with all associated rights and responsibilities.

Conclusion

Understanding public benefit corporations under ONCA is essential for non-profit organizations in Ontario.

These corporations face specific rules about director composition, financial reporting, and asset distribution.

Whether your organization qualifies as a public benefit corporation depends on its charitable purposes or receiving more than $10,000 in external funding each year.

This classification brings both opportunities and obligations that require careful navigation.

We recommend consulting with experienced charity law professionals to ensure your organization meets all ONCA requirements.

At B.I.G. Charity Law Group, we help non-profits understand their obligations and maintain compliance.

Contact us at dov.goldberg@charitylawgroup.ca or (416) 488-5888 to discuss your specific situation.

Visit CharityLawGroup.ca to learn more about our services or schedule a free consultation to get started.

Frequently Asked Questions

Public benefit corporations under ONCA have specific rules about donations, directors, and charitable purposes.

Here are common questions about how these organizations work in Ontario.

What is a public benefit corporation in Ontario?

A public benefit corporation under ONCA is a nonprofit organization that serves public or charitable purposes.

These corporations fall into two main categories.

The first type includes charitable corporations.

These organizations focus on advancing education, relieving poverty, promoting religion, or supporting other charitable causes.

The second type covers non-charitable public benefit corporations.

These organizations receive more than $10,000 per year in donations, gifts, or grants from outside sources like non-members or government agencies.

What is the purpose of a public benefit corporation?

Public benefit corporations exist to serve the broader public good rather than private interests.

They work to advance charitable causes or provide services that benefit society.

These organizations must follow stricter rules than regular nonprofit corporations.

They face more requirements for financial reporting and board composition.

The purpose is to ensure transparency and accountability.

This helps protect public funds and donations that support these organizations.

What are PBC company examples?

Public benefit corporations in Ontario include registered charities like food banks and hospitals.

Educational institutions such as private schools and training centres also qualify.

Religious organizations that promote faith and community service fall under this category.

Environmental groups that receive significant donations work as public benefit corporations too.

Community centres and arts organizations often qualify when they receive substantial government grants or public donations.

Youth programs and senior services frequently operate as public benefit corporations.

What is an example of a public corporation?

A public corporation usually refers to government-owned entities or publicly-traded companies.

This differs from public benefit corporations under ONCA.

Examples include Crown corporations like Ontario Power Generation or TTC.

These organizations are owned by the government and serve public functions.

Publicly-traded companies like Canadian banks or telecommunications firms are also public corporations.

Their shares trade on stock exchanges and they report to shareholders.

What is the difference between a GOCC and a public corporation?

GOCC stands for Government-Owned and Controlled Corporation.

These are specific types of public corporations that governments create and control directly.

GOCCs operate under government oversight and serve specific public policy goals.

They often provide essential services like utilities or transportation.

Public corporations can include both GOCCs and publicly-traded companies.

The key difference is that GOCCs remain under government control while publicly-traded corporations have private shareholders.

What is another name for a public corporation?

People in Canada sometimes call public corporations "Crown corporations." This term refers to entities owned by the government.

Publicly-traded companies may be called public companies. They are also known as listed companies.

These names describe corporations that sell shares to the public on stock exchanges.

Internationally, people use names like government enterprises or state-owned enterprises. In Ontario, people may also say public agencies or public bodies for government-controlled organizations.