A Case Study on Legal Structures of Non-Profit Organizations

This case study critically evaluates the legal structures of non-profit organizations, focusing on trusts, unincorporated associations, corporations without share capital, and co-operative corporations without share capital. It examines the legal frameworks within which these organizations operate, highlighting the advantages and disadvantages of each structure. The analysis includes a discussion of charitable trusts, memorandum of association for unincorporated associations, and the incorporation process for corporations. The study concludes that unincorporated associations offer flexibility due to fewer government restrictions, while trust helps to create a legal structure for non-profit organizations to obtain fund isolation. Desklib offers a wealth of similar solved assignments and past papers for students.

Running Head: NON- PROFIT ORGANIZATIONS 1
Legal Structure of a Non-profit Organization
Name:
Institution:

Legal Structure of a Non-profit Organization 2
Introduction
According to Tury (2016), non- profit organizations can get identified as charitable trust
or society that got prohibited from operating for purposes of making a profit. Furthermore, the
NFP organizations are formed to further educational, cultural, professional or cultural objectives
with no aim of making any profit from their activities. Moreover, the funds used to startup an
NFP organization gets often provided by trustees, members present in the organization or other
partners who do not expect any repay of the funds they invested in the NFP organization. Also,
the members any other funder who helped in the startup of the NFP organization are not entitled
to any profit or loss that the non-profit organization may incur. Hence, all registered NFP
organizations get exempted from taxes, and most of the contributions that got made to the
organizations are not taxed. The purpose of this study is to evaluate the legal structure of a non-
profit organization and creating an understanding of its relation to current practice.
Legal Structure of Non-profit Organizations
1. Trusts
Trust is essential in the legal structure of an NFP organization, and a trust document establishes
it. The trust must contain three significant components that are recognized by the court which
are; the intention certainties of the trust, subject matter of the trust an object of the trust. The
purpose of trust as a legal structure for non-profit organizations may be due to charitable
purposes or to obtain fund isolation that is being held by an individual. The aim of this is to
benefit some else from the assets of the individual that is holding the funds. Moreover, trust gets
created when one individual or more hold legal property titles through another group (NFP
organization) has the constitutional rights to the benefits of that property. Hence, the trust may
arise from the common law that imposes constructive trust which gets based on the equalities of

Legal Structure of a Non-profit Organization 3
the situation. Therefore, there is the importance of creating certainty with the intention of trust
creation either through actions or words. Also, the property that is subjected to trust must be, and
the objective of the trust must get identified. Furthermore, the trust beneficiary which is the NFP
organization must be readily ascertainable either by class description or name. It should get
noted that the court is playing an important role in accommodating charitable activities by
modifying the certainty of the object. It is made possible by the charitable trust including in its
object the purpose of the trust instead of mentioning the beneficiaries (NFP organization) by
class or name description. Thus, the charitable trust purpose should be specific which enables the
trustees to understand and determine how the charitable activities are getting carried out.
However, the charitable trust purpose should not be ambiguous instead it must be determinable
and satisfied to the specific fact situations. Moreover, the charitable trust may get applied on the
court which may change the terms set during the making of the trust and redirect the funds to
other court-approved charitable purposes. The approved charitable purposes must have a close
relation to the original goal set in the trust document.
2. Unincorporated Associations
It is a memorandum of association document that identifies the purpose of the NFP organization
and how it can operate and how it gets managed. The memorandum of association is naturally
contractual thus it does not mostly create a situation on a legal person. However, it creates a legal
relationship among the members who have contributed to the startup of the NFP organization
(Community Southwark, 2016). Hence, the memorandum of association is meant to create an
agreement among the members who have the common purpose of establishing the NFP
organization. It helps the members to achieve the common objective that they set out to make
through the establishment of the NFP organization. Most of the times the members of the NFP

Legal Structure of a Non-profit Organization 4
organization are intended to receive some benefit from agreeing to be members. Thus, this intent
to benefit the members may distinguish an unincorporated association from a trust which means
the NFP organization is not set to help other individuals in case of any charitable trusts arising
(Fishman, 2013). Therefore, the Memorandum of Association (MOA) is not limited to the intent
of NFP organizations objects provided that the other objectives set by the NFP organizations are
lawfully abiding. Thus, the charitable trust must only have objects that are naturally charitable
and corporations that do not require any share capital. Hence, the NFP organization has the most
flexible structure because there are no restrictions that govern its objects provided that all are
objects are lawfully abiding. According to Community Southwark (2016), the non-profit
organization may be set up informally or formally depending on the needs of the members.
Moreover, the MOA may evolve from the relationship among few individuals, and over time the
link may take a formal characteristic of association. Thus, at the informal level of the MOA, the
connection may be based on the understanding of the individuals then later it evolves on a
written constitution. The MOA has some characteristics that a partnership may have such they
may be used to discuss commercial matters; though the association in the NPF organization is
not to carry out business activities with an intent to make a profit.
3. Corporations Without Share Capital
A corporation without share capital has an object of incorporating the Ontario Corporations Act
which allows a corporation to be incorporated thus the NPF organizations operate within this
jurisdiction. There are several basic types of non-profit corporations (NPF Organizations) under
the Act, for instance, Neighborhood associations, community associations, trade associations and
business associations. Moreover, there are sporting and athletic NPF organizations which means
that if the organization gets involved in the use of firearms, there are registrations requirements

Legal Structure of a Non-profit Organization 5
needed by the federal government (GOC, n.d). It is essential to ensure that the firearms are kept
safe and used in the safest way possible, and the law enforcing agencies recommend the
consultation. According to Ontario (2018), the NPF organizations that get associated with
sporting and athletic activities may get representatives from the sport to international
associations. Hence, the membership to these NFP organizations is vital to compete effectively
in the sport and athletic activities (Ontario, 2018). The incorporation process if often simple
provided that the members in the NFP organization have an understanding on what they want to
achieve. Moreover, the period taken by the incorporation application to be approved depends
whether any pre-clearance or changes are necessary before the completion of the incorporation
process. Therefore, the incorporation process may include the name search, the intention of the
application and establishment of the corporation. Most of the corporations either engage in
activities that are public safety regulated or are involved in various programs that are carried out
by the government (LSO, 2016). Therefore, in case the NFP organization intends to participate in
regulated activities to benefit from the programs it is essential the NFP organization consults
with the relevant government agencies.
4. Co-operative Corporations Without Share Capital
A co-operative corporation is established by incorporation articles which are under the co-
operative corporation act (Français, 2015). A co-operative with share capital is more of a
business corporation nature while the co-operative without share capital is more in an NFP
organization setting. The co-operative legal structure is set to provide services to members of the
NFP organization (Bourgeois, 2002). For instance, the NFP organizations have established co-
operatives that offer farming supplies in rural areas. Furthermore, the co-operatives have
provided fresh food products from the farms to urban dwellers. Moreover, co-operatives (NFP

Legal Structure of a Non-profit Organization 6
organizations) have helped in setting up non-profit housing which receives substantial benefits
from the government. According to Français, (2015), the middle-stakeholders co-operatives has
it share control among two or more distinct stakeholders with each having different interests in
the NPF organization. It is because each stakeholder may select its directors who must be
involved in any changes that may occur in the incorporation article.
Advantages of Unincorporated Associations
Unincorporated Associations are often easily established because they do not require of
any government agency to operate because they are corporations without share capital (The
Wheel, n.d). Therefore, they are only limited when the NPF organization engages in regulated
activities or unless the unincorporated association intends to be a charitable organization.
Furthermore, unincorporated associations have less reporting requirements; for instance, they do
not need to make any filing of any corporate. Moreover, the court has not extensively get
involved in the reviewing of unincorporated associations and the activities they undertake. Thus,
there is more flexibility in how the operations of the unincorporated associations get done. Also,
the absence of fixed rules enable the unincorporated associations to operate flexibly due to no
limits set for the members to organize their relationships.
Conclusion
The article identifies four critical legal structures that an NFP organization can follow to ensure
that it operates smoothly with minimal interruptions from the federal government. Moreover,
trust has the purpose of creating a legal structure for non-profit organizations which may be due
to charitable purposes or to obtain fund isolation that is being held by an individual. It is also

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evident that unincorporated associations are one of the most effective NPF organizations because
the government less restricts them.

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References
Bourgeois, D. J. (2002). The law of charitable and not-for-profit organizations. Butterworths.
Retrieved from: http://www.carters.ca/pub/book/2002/LCNPOch2.pdf
Community Southwark, (2016). Unincorporated Association. Retrieved from:
https://communitysouthwark.org/sites/default/files/images/Unincorporated
%20Association.pdf
Fishman, S. (2013). What is An Unincorporated Nonprofit Association? Retrieved from:
https://www.nolo.com/legal-encyclopedia/what-an-unincorporated-nonprofit-
association.html
Français, (2015). Co-operative Corporation. Retrieved from:
http://orilliapower.ca/wp-content/uploads/Co-operative-Corporations-Act.pdf
Government of Canada (GOC), (n.d). Background paper-Canada Not-for-Profit Corporations
Act. Retrieved from: https://www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs05170.html
Law Society of Ontario (LSO), (2016). How to Incorporate a Not-For-Profit Corporation.
Retrieved from: https://www.lsuc.on.ca/For-Lawyers/Manage-Your-Practice/Practice-
Area/Business-Law/How-to-Incorporate
Ontario, (2018). Rules For Not- For-profit and Charitable Corporations. Retrieved from:
https://www.ontario.ca/page/rules-not-profit-and-charitable-corporations
The Wheel, (n.d). Unincorporated Bodies. Retrieved from:
https://www.wheel.ie/content/unincorporated-bodies
Tury, K. (2016). Nonprofit Organizations (Definition and Examples). Retrieved from:
https://www.learningtogive.org/resources/nonprofit-organizations-definition-and-
examples