Up The Creek Without A Paddle: The Law Relating To Unincorporated Associations

• Published date: 12 January 2021
• Subject Matter: Corporate/Commercial Law, Charities & Non-Profits , Contracts and Commercial Law
• Law Firm: Miller Thomson LLP
• Author: Ms Natasha Smith and Katrina Kairys

I. INTRODUCTION

Charities and non-profit organizations are often faced with the question of whether to incorporate. Some decide that it is not worth the trouble, while others put off the decision until the organization grows in size. There are also those that do not consider the question at all. While members may have the best of intentions, a lack of forethought can have catastrophic outcomes. Any charity or non-profit organization that exists as an unincorporated association is well-advised to consider the benefits of incorporation. Existing as an unincorporated association is a poor choice for most charities and non-profit organizations for two reasons: (1) they lack a separate legal existence apart from their members, exposing their members to personal liability; and (2) with the exception of Quebec, they are not governed by legislation in the Canadian provinces, making good governance next to impossible without a robust written constitution.

To explain the drawbacks of unincorporated associations and the benefits of incorporation, this article will examine their key differences. Next, it will review the Canadian case law that has considered the legal status of unincorporated associations, or lack thereof, to explain how courts have dealt with the absence of governing legislation. Finally, it will advocate for robust legislation governing unincorporated associations, and will *85 provide best practice recommendations for good governance to avoid the pitfalls of this organizational structure.

II. UNINCORPORATED ASSOCIATIONS

It is not unusual for startup organizations to be attracted to the concept of an unincorporated association, since unincorporated associations require little effort to create and are less costly to run than corporations. In fact, it is not uncommon for people to form an unincorporated association without even being aware of it. A group of individuals can establish an unincorporated association simply by coming together and engaging in activities in furtherance of a common goal or for the benefit of an ostensibly defined group. Common forms of unincorporated associations include non-profits, such as golf clubs, social clubs, and neighbourhood associations, but can also include registered charities, comprising of members who seek to further a common charitable mission. An unincorporated association is the default form of a nonprofit organization that is not established as a charitable trust or non-share capital corporation.

There are...