What Is the Role of a Board of Directors in a Nonprofit in Canada?
Understanding the roles and responsibilities of a board of directors for a nonprofit in Canada is essential if you’re involved in a charity or not-for-profit (NFP) organization, whether you’re a member, staff, volunteer, or prospective director. This article will explain the duties, qualifications, and processes involved in directing and overseeing a nonprofit corporation under the Canada Not-for-profit Corporations Act (NFP Act) in a clear and simple way.
What Is the Role of a Board of Directors in a Nonprofit in Canada?
The board of directors of a nonprofit in Canada is legally responsible for managing or supervising the management of the organization’s activities and affairs (NFP Act, Section 124). This means the board has the ultimate authority and responsibility for ensuring the charity or nonprofit operates in line with its purpose, budget, and legal obligations.
Key Duties Include:
- Setting strategic direction
- Approving budgets and overseeing financial matters
- Hiring and supervising the executive director or CEO
- Ensuring compliance with federal or provincial regulations
- Protecting the organization’s mission and charitable assets
These responsibilities are often described as fiduciary duties, which include the duty of care, duty of loyalty, and duty of obedience.
How Many Directors Must a Nonprofit Have?
Under Section 125 of the NFP Act:
- A federal nonprofit must have at least one director, though in practice and in many provinces (like Ontario), a minimum of three directors is required.
- If the organization is a soliciting corporation—meaning it receives more than $10,000 annually from public sources (like donations or government grants)—it must have at least three directors, and at least two of them must not be officers or employees of the organization. This promotes independent oversight.
What Are the Qualifications to Become a Director?
The qualifications for nonprofit directors in Canada are outlined in Section 126 of the NFP Act. A person must:
- Be at least 18 years old
- Be mentally competent
- Be an individual (not a corporation or partnership)
- Not be bankrupt
Unless the organization’s bylaws say otherwise, directors don’t have to be members of the corporation. Also, someone cannot act as an alternate for a director who is absent from a meeting.
What Happens After Incorporation?
Once the nonprofit is incorporated, an organizational meeting of the directors must be held (Section 127). This first meeting is vital and sets the foundation for governance.
At the first board meeting, directors can:
- Approve bylaws
- Issue memberships
- Appoint officers
- Select a public accountant
- Authorize debt obligations
- Arrange banking
- Handle any other necessary business
Appointing and Notifying Directors
Initial Notice
When incorporation forms are filed, a Notice of Directors must be submitted to Corporations Canada using the appropriate form. The directors listed in this notice begin their duties immediately upon incorporation and serve until the first members’ meeting (Section 128).
Board Elections
At each annual members’ meeting, the board is elected or re-elected, and the length of each director’s term can vary. This allows flexibility in board structure and succession planning.
Handling Resignations, Removals, and Vacancies
Director Resignation and Removal
A director may resign by giving written notice, which becomes effective either upon receipt or at a later date specified in the notice. Directors can also be removed by members at a special meeting, and a new director can be elected at the same meeting or later.
Vacancies
If too few directors are elected at a meeting, the remaining board members may continue to run the nonprofit—as long as they still form a quorum. If all directors resign or are removed, any person managing the organization’s activities could be considered a director in law, unless exempt under specific rules (e.g., lawyers or accountants acting under contract).
Are Nonprofit Directors Paid in Canada?
A common question is whether nonprofit board of directors’ compensation in Canada is allowed. The answer depends on the organization’s structure and governing documents.
- Most federally incorporated charities prohibit director compensation, except for reimbursement of expenses. Check your provincial laws or consult with an experienced charity lawyer to determine whether director compensation is allowed in your specific case.
- Non-charitable nonprofits (e.g., clubs or associations) may allow payment for work done not in their director role if their Articles of Incorporation and bylaws permit it and the payment is reasonable.
- Directors must avoid conflicts of interest and follow the organization’s conflict of interest policy.
The roles and responsibilities of nonprofit board members in Canada are defined clearly under federal law and play a vital part in the success of any charity or NFP organization. Directors are expected to act in good faith, prioritize the mission of the organization, and comply with both legal requirements and governance best practices.
Key Takeaways:
- The board oversees and governs the nonprofit, not just advises.
- At least 3 directors are required for most charities (especially if soliciting).
- Directors must be independent and meet specific legal qualifications.
- Nonprofit board members are typically unpaid but may be reimbursed for expenses.
- Director elections and replacements must follow procedures under the NFP Act.
By understanding these core elements, your nonprofit can ensure strong leadership, legal compliance, and public trust.
Conclusion
Running a nonprofit board in Canada comes with important legal responsibilities. Your board members must understand their roles in governance, financial oversight, and staying compliant with Canadian charity laws. Getting expert legal guidance helps protect your organization and ensures you’re meeting all requirements.
At Northfield & Associates specializes in helping Canadian nonprofits navigate board governance and compliance issues. Our experienced team provides clear, practical legal solutions tailored to your organization’s needs.
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Frequently Asked Questions
Here are answers to common questions about nonprofit boards in Canada. These quick explanations will help you understand what board members do and why their roles matter for your organization’s success.
What are the roles and responsibilities of a board of directors?
Board members must attend meetings, review financial reports, and make informed decisions about the organization’s future. They develop policies, approve major expenses, and ensure proper fundraising and community outreach. Directors also need to avoid conflicts of interest, act in the nonprofit’s best interest, and stay informed about the organization’s programs and challenges.
What is the most important responsibility of a nonprofit board?
The most important responsibility is fiduciary duty—managing the organization’s money and resources wisely. Board members must ensure funds are used properly, financial records are accurate, and the nonprofit remains financially stable. This duty protects donors, beneficiaries, and the public who trust the organization.
What are the four main functions of the board?
The four main functions are governance (setting direction and policies), fiduciary oversight (managing finances responsibly), strategic planning (deciding long-term goals), and accountability (ensuring legal compliance and ethical practices). These functions work together to keep the nonprofit strong, effective, and trustworthy.
What is considered the most useful role of the board of directors?
The most useful role is providing strategic leadership and oversight. Board members bring diverse skills and perspectives that guide the organization through challenges and opportunities. They connect the nonprofit to the community, open doors for partnerships, and ensure the organization stays focused on its mission while adapting to change.
What are the three duties of a board of directors?
The three legal duties are the duty of care (making informed, thoughtful decisions), duty of loyalty (putting the organization’s interests first), and duty of obedience (following the organization’s mission and applicable laws). These duties form the foundation of responsible board governance in Canada and protect both the organization and its directors.
Disclaimer: The information contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. Readers should seek tailored legal advice in relation to their personal circumstances.
At Northfield & Associates our expert teams guidance on compliance requirements. Our team understands Canadian law and can help ensure your organization follows proper procedures.
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