In this article, I would like to address two common questions I get (typically from sports organizations or festivals) about whether sponsorships or in-kind contributions make your organization a public benefit corporation (PBC) under Ontario's Not-for-Profit Corporations Act (ONCA).
But before we get to the issues, let's clarify why this question is even worth your time (if you already know feel free to skip down).
Why does it matter if we're a PBC or not?
If your nonprofit qualifies as a PBC it means:
- only up to 1/3 of your directors can be employees;
- if you dissolve within three years of qualifying as a PBC, you are only allowed to distribute your assets to government or other registered charities with similar purposes (or, if you're not a charity, other PBCs with similar purposes); and
- you do not have the same flexibility as non-PBCs when it comes to waiving an audit or review engagement (for specifics see this page).
Typically rules 1 and 2 are not such a big deal because you have a primarily or entirely volunteer board and you have no plans of closing any time soon. But if you have annual revenue above $100,000, figuring out you're not a PBC could mean you could waive an audit or review engagement. This could mean thousands of dollars in savings every year. (Note though, you still need membership approval. Just because your members can waive an audit doesn't mean they will or that doing so is a good idea.)
Common Issues in Determining if you are a PBC
A nonprofit corporation governed by ONCA could qualify as a PBC if either:
- It is a charity.
- Last fiscal year, it received more than $10,000 (cumulatively) in grants or financial assistance from any level of government or gifts or donations from any person who is not a director, officer, employee, or member of the nonprofit.
If your organization is a charity, this is a straightforward question for you. But here are two common questions I get from organizations that are not charities wondering if certain types of support they receive counts towards the $10,000 threshold.
Does $10,000+ in "sponsorship" make us a PBC?
It depends.
Sponsorship is not a legally defined term. It typically refers to one of two arrangements:
- Someone makes a donation to you and at some point you acknowledge them by calling them a "sponsor" to show you're grateful.
- You offer to share someone's name and/or logo, typically in precise ways (e.g. size, mediums, timing, etc. are all set ahead of time and agreed on) in exchange for financial support.
The first kind of sponsorship is really a gift at law and counts towards your status as a PBC. The second kind of sponsorship is really the sale of advertising services and does not count towards your status as a PBC.
You may do something in the middle. The key question to ask yourself to figure out which side of the line your sponsorship falls on is: "Are we receiving this money in exchange for something of value that we are then legally obligated to provide?" If the answer to that question is yes, then very likely that's a fee-for-service that doesn't count towards your PBC status.
Do In-kind contributions (such as the free use of space or equipment) count towards our PBC status?
This is a much trickier question. In answering this question, it's important to understand that ONCA and its federal equivalent the Canada Not-for-Profit Corporations Act (which has similar language) are both fairly new pieces of legislation. I know of no case law that has ruled on the definition of a PBC (or its federal equivalent, the "soliciting corporation"). So when you get into questions of whether "more than $10,000" means literally money or any grants, financial assistance, gifts, or donations that have a valueof more than $10,000, you're really entering a grey area.
That means, in practice, there is some (however small) risk involved. The safest approach is to conduct yourself like a PBC. But the remote risk that you will be legally challenged (and perhaps that simply means someone trying to force you to get an audit at which point you can get one anyway, but with some embarrassment) may not be worth the thousands of dollars in accounting fees.
So to help you and your legal advisors weigh how likely it is that a court may conclude in-kind contributions count towards your status as a PBC, here are some observations (not a replacement for a full legal opinion):
- The purpose of the provision justifies including in-kind support: Fundamentally, the goal the legislation is trying to achieve is to make organizations that receive public forms of support more accountable for the use of those resources. With that objective in mind, it does not make sense to distinguish between financial and other forms of support.
- The wording of the provision may suggest in-kind support was not meant to be included: The provision states specifically "receives more than $10,000 or other prescribed amount..." only focusing on the amount rather than the value. Furthermore, the precise wording of what kinds of support from government count towards PBC status is "grants or similar financial assistance." The use of the word "similar" seems to imply that the grants being discussed here are also financial in nature. While the term "financial" is not used to describe the gifts or donations from non-government sources, it could be argued that the provisions are intended to be parallel and so only financial gifts and donations are being discussed here.
Lastly, whatever argument you find more compelling, it's important to remember that, as with sponsorship, the specific structure of the contribution matters. A municipality that just lets you use its space may be making a clearly in-kind contribution, but a municipality that requires you to enter into a lease with them and applies some special grassroots association discount to its standard pricing may well be providing a form of financial assistance. The devil as always is in the details.
Conclusion
With all this being said, I wouldn't get too caught up in the weeds of this question. Chances are if there are serious debates about this it's because there's some kind of serious difference of opinion around financial accountability. That's the real conversation you should be having and there is no replacement for fostering good relationships that ensure the trust is there to make any financial system work.
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