Non-Profit Finances and Borrowing (Societies Act FAQs)
|This information applies to British Columbia, Canada. Last reviewed for legal accuracy by Pacific Legal Education and Outreach Society (PLEO) in May 2021.|
Can a non-profit society operate a business or own a for-profit corporation?
A non-profit can own a for-profit business if operating the business supports the non-profit’s purposes. This may be a situation, however where the non-profit wants to make sure that it has legal and accounting advice.
What are debentures?
A debenture is a debt instrument used to raise capital. Debentures are typically used to raise short term capital for specific purposes (for instance an upcoming expansion). Debentures are unsecured by collateral or assets, and are generally backed up by the creditworthiness of the borrower. The term is found in many non-profit bylaws because the old Society Act did not permit the issuing of debentures without a special resolution. Under the Societies Act, non-profits can borrow funds and issue debentures whenever the directors determine, unless it is prohibited by the bylaws. A non-profit that wishes to can limit the borrowing powers of the board in its bylaws.
Non-Profit Financial Statements
What is the difference between accounting records and financial statements?
Financial statements and accounting records are not the same thing.
Financial statements are a broad overview of the non-profit’s financial position, presented for member approval at each AGM. Financial statements generally include four documents: Income Statement, Balance Sheet (Statement of Financial Position), Statement of Cash Flows, and Equity Statement (Statement of Retained Earnings).
Accounting records is a broad category which includes details on individual financial transactions such as the date and amount of deposits or withdrawals, cheque numbers, bank account numbers, daily balances, etc. Normally it is called the general ledger. Since there is much more detailed and sensitive information in accounting records, it may be in the non-profit’s best interest to restrict access to such records.
Non-profits may restrict access to records listed under s. 20(2) of the Societies Act, which includes accounting records. Non-profits may not restrict access to records listed under s. 20(1), which includes financial statements. For more on recordkeeping, see Non-Profit Recordkeeping and Privacy.
Do we need to submit financial statements to the Registrar?
No. This is not a requirement of the Societies Act. The Registry does not accept any financial statements or accounting records of a non-profit. However, every non-profit is obligated to produce financial statements on an annual basis and provide them to its members.
Do the non-profit society’s financial statements need to be prepared by an accountant or bookkeeper?
The Societies Act requires that a non-profit keep sufficient accounting records and are able to produce a set of financial statements for its members. The Societies Act does not require that the non-profit get professional help, nor does the CRA. Thus, a non-profit’s treasurer could provide financial statements.
Note that if a non-profit becomes complicated enough financially, it may be a good idea to get a bookkeeper then an accountant to prepare and approve annual financial statements. Some funders require audited financial statements. The Societies Act sets out the qualifications of an auditor but does not require an audit. For more information, see the CRA’s guide to filing the Annual Information return.
Non-Profit Accounting Records
What are accounting records?
Accounting records are the general ledger of the non-profit and all related documentation such as bank statements and donation receipts. They include a great deal of personal information. Access to accounting records should be excluded in your bylaws.
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