Author: Chad W Graham

When people hear the term not-for-profit, they often assume it simply means “an organization that doesn’t make money.” In reality, a not-for-profit is a specific legal structure, with distinct benefits, responsibilities, and limitations under Canadian law.

Understanding what a not-for-profit is—and how it differs from a traditional for-profit corporation—can help founders, boards, and community groups choose the right structure from the outset.

A Not-for-Profit Is a Corporation

At its core, a not-for-profit organization (often abbreviated as “NFP”) is a corporation. In Alberta, not-for-profits are commonly incorporated under the Societies Act or, at the federal level, under the Canada Not-for-profit Corporations Act.

Like any corporation, a not-for-profit:

• Is a separate legal entity from its members or directors
• Can enter into contracts
• Can own property
• Can sue and be sued
• Provides limited liability protection for its directors and members (subject to statutory duties and exceptions)

This corporate structure allows a not-for-profit to operate with continuity, credibility, and legal protection—features that are often essential for organizations engaging with donors, governments, and the public.

How Not-for-Profits Differ from For-Profit Corporations

While not-for-profits and for-profit corporations share the same foundational concept of incorporation, they differ in purpose, profit distribution, and governance.

1. Purpose

A for-profit corporation exists primarily to generate profit for its shareholders. A not-for-profit, by contrast, is organized for a non-commercial purpose, such as:

• Charitable or philanthropic activities
• Social, cultural, or community objectives
• Professional, recreational, or trade associations
• Advocacy or public-interest work

In Canada, the law requires that a not-for-profit’s activities align with its stated non-profit purposes.

2. Profit and Distribution

A not-for-profit can earn revenue and even generate a surplus. What it cannot do is distribute profits to members, directors, or officers.

Any surplus must be reinvested into the organization’s purposes. This is one of the defining legal features separating not-for-profits from for-profit corporations, where dividends and shareholder distributions are central.

3. Ownership and Control

For-profit corporations are owned by shareholders. Not-for-profits do not (usually) have shareholders. Instead, they may have members, who typically elect the board of directors and help oversee the organization’s mission. Control is mission-driven rather than equity-driven.

4. Tax Treatment

Not-for-profits may be eligible for certain tax advantages under Canadian tax law, such as income tax exemptions, depending on their activities and structure. Some not-for-profits may also qualify for registered charity status, which brings additional benefits—and additional compliance obligations.

Not all not-for-profits are charities, and not all tax exemptions are automatic. Careful structuring and ongoing compliance are essential.

Why Choose a Not-for-Profit Structure?

A not-for-profit structure may be appropriate where:

• The primary goal is mission-driven, not profit-driven
• Funding will come from grants, donations, membership fees, or public sources
• Public trust, transparency, and accountability are important
• The organization needs legal continuity beyond its founders
• Profit distribution would undermine credibility or legal eligibility for funding

In Alberta and across Canada, many community organizations, industry associations, sports clubs, and advocacy groups rely on the not-for-profit model to operate effectively while maintaining public confidence.

Not the Right Fit for Every Organization

A not-for-profit is not simply a “better” or “cheaper” alternative to a for-profit corporation. It comes with:

• Governance obligations
• Restrictions on how money can be used
• Reporting and compliance requirements
• Limitations on restructuring or winding up assets

For organizations intending to generate profits for founders or investors, a traditional for-profit corporation is usually the more appropriate choice.

Choosing the Right Structure

The decision between a not-for-profit and a for-profit corporation should be made early—and deliberately. The structure you choose affects governance, taxation, fundraising, liability, and long-term flexibility.

Legal advice at the incorporation stage can help ensure that your organization’s structure aligns with its goals, funding model, and legal obligations under Alberta and Canadian law.

As a business owner in Alberta, you’ve likely poured countless hours into building your venture. But have you considered taking the next step and incorporating it? Incorporation isn’t just for big corporations—it’s a strategic move that can protect your personal assets, optimize your taxes, and set your business up for long-term success. At Chad Graham Law, we help entrepreneurs like you navigate these decisions.

In this post, we’ll explore the key reasons to incorporate your business under Alberta’s legal framework, drawing from the province’s Business Corporations Act and broader Canadian business laws.

Whether you’re running a startup in Edmonton’s tech scene or a family-owned operation in rural Alberta, understanding these benefits can help you make an informed choice. Let’s break it down.

What Is a Corporation? Understanding It as a Legal Person

At its core, a corporation is a separate legal entity—essentially, a “person” in the eyes of the law. Under Alberta’s Business Corporations Act, when you incorporate, your business becomes its own entity, distinct from you as the owner or shareholder. This means the corporation can own property, enter contracts, sue or be sued, and even incur debts independently.

What does this really mean for you? It shifts the business’s identity away from being tied solely to you as an individual. For instance, if you’re operating as a sole proprietorship or partnership, your personal name is often intertwined with the business. Incorporation allows you to brand it separately (e.g., “ABC Ventures Inc.”) and operate with a professional structure. This separation isn’t just cosmetic—it’s the foundation for the protections and advantages we’ll discuss next. In Alberta, you can choose provincial incorporation for local focus or federal for broader operations, but either way, it grants your business perpetual existence, even if ownership changes.

Legal Liability Protection: Shielding Your Personal Assets

One of the most compelling reasons to incorporate is the limited liability it provides. As a sole proprietor or partner, you’re personally on the hook for all business debts and legal issues. A lawsuit, unpaid supplier, or workplace accident could put your home, savings, or other personal assets at risk.

Incorporation changes that. Shareholders (often just you, if it’s a one-person operation) are generally not personally liable for the corporation’s obligations beyond their investment in shares. In Alberta, this is enshrined in the Business Corporations Act, which limits your exposure to what you’ve put into the company. Of course, there are exceptions—like if you personally guarantee a loan or engage in fraudulent activity—but for everyday risks, this “corporate veil” offers significant peace of mind.

Imagine a scenario: Your Alberta-based construction firm faces a claim for defective work. Without incorporation, creditors could come after your personal property. With it, they target the corporation’s assets first. This protection is especially valuable in high-risk industries common in Alberta, like oil and gas, agriculture, or retail. It’s not foolproof, but it’s a critical layer of defense that sole proprietors simply don’t have.

Tax Planning Flexibility: Optimizing Your Financial Strategy

Taxes can make or break a business, and incorporation opens up a world of flexibility not available to unincorporated entities. In Canada, including Alberta, corporations are taxed separately from individuals, often at lower rates for active business income.

For small businesses, the federal small business deduction can reduce the corporate tax rate to as low as 9% on the first $500,000 of active income (combined federal and provincial rates in Alberta are around 11% for 2023, but always check current rates). This is a stark contrast to personal income tax rates, which can climb over 40% for higher earners. By leaving profits in the corporation, you can defer personal taxes until you withdraw them as dividends or salary, allowing for better cash flow management.

Alberta’s lack of provincial sales tax (beyond GST) and competitive corporate rates make it an attractive place to incorporate. You can also split income among family members as shareholders, use holding companies for investment income, or claim deductions for business expenses more strategically. Tools like the Scientific Research and Experimental Development (SR&ED) tax credits, popular in Alberta’s innovation sectors, are easier to access as a corporation. Work with a tax advisor to tailor this, but incorporation often means paying less tax overall and reinvesting more into growth.

Succession Planning and Sale Advantages: Building for the Future

Thinking about the long game? Incorporation makes it easier to plan for succession, whether passing the business to family or selling it outright. Shares in a corporation can be transferred seamlessly, without disrupting operations—unlike sole proprietorships, where the business essentially dissolves upon the owner’s exit.

In Alberta, this structure supports smooth estate planning. For example, you can issue different classes of shares to control voting rights while distributing ownership. And when it’s time to sell, buyers prefer corporations for their established structure and limited liability.

A standout benefit is the Lifetime Capital Gains Exemption (LCGE), a federal provision that lets you exempt up to $1,016,836 (as of 2024, indexed annually) in capital gains when selling shares of a qualified small business corporation. To qualify, the corporation must meet criteria like being Canadian-controlled and using at least 90% of assets in active business. In Alberta’s entrepreneurial landscape—from Edmonton startups to Fort McMurray energy firms—this can translate to massive tax savings. Imagine selling your business and keeping over a million dollars tax-free—incorporation is key to unlocking this.

Is Incorporation Right for You?

Incorporating in Alberta offers robust protections and opportunities, but it’s not for every business. There are upfront costs (around $300-$500 for registration, plus legal fees), ongoing compliance (annual returns, filings), and potential complexity. If your operation is small and low-risk, a sole proprietorship might suffice. However, for growth-oriented ventures, the advantages often outweigh the drawbacks.

At Chad Graham Law, we’re here to guide you through the process, from deciding on federal vs. provincial incorporation to drafting articles of incorporation. Contact us today for a consultation tailored to your Alberta business needs. Let’s turn your hard work into a protected, thriving legacy.

Disclaimer: This post is for informational purposes only and not legal advice. Consult a qualified lawyer for personalized guidance.

It’s a scenario no one likes to think about—but it happens more often than you’d expect. In Alberta, having a Will isn’t just a good idea; it’s a vital step toward ensuring your loved ones are cared for and your legacy is protected. At its core, a Will offers something invaluable: peace of mind.

Why every Canadian should have a Will: @chadgrahamlaw https://t.co/LKUZ07MzIL

— Chad Graham (@graham_chad) March 12, 2025

If you’re wondering whether you really need a Will or how to get started, you’re not alone. Many Albertans put off estate planning, assuming it’s only for the wealthy or the elderly. The truth? Everyone over 18 in Alberta can—and should—have a Will. Let’s explore why this simple document is so powerful and how a lawyer can help you craft one with confidence.

Continue reading “Why Every Albertan Should Craft a Will: Unlock Peace of Mind with Estate Planning”