One does not require a lawyer to set up a charity in Canada but many people find it helpful to navigate the process and obtain strategic and other advice about the process.  It costs money to hire a charity lawyer to help set up a non-profit or charity but in this FAQ, I will argue that it is a worthwhile expense.  The views that I am expressing in this note are obviously not impartial – lawyers benefit from their clients paying legal fees.  However, it is true that lawyers also benefit probably more from fixing mistakes made by others in the setup and application process.

With most organizations, the vast majority of legal fees during their first five years of existence are spent in the first year.  This is a onetime capital expense.  It is part of the cost of setting up a charity properly and obtaining registered charity status, which makes fundraising easier and is part of establishing the identity and reputation of the organization.  If an organization is not prepared to spend say $5,000-$15,000.00 over 6 months to a year to pay for legal fees properly set up a charity properly (it depends on the type of charity) they may have to spend a lot more to fix the mistakes they have made.  CRA currently rejects most charity applications – it is not because the people running them are bad or the idea they wish to implement is bad – but unless a charity is set up properly according to all the requirements CRA cannot accept the application.  (see article Top 68 CRA Reasons for Denying your Canadian Registered Charity Application)

Documents prepared will be reviewed by numerous entities who each are concerned about their own issues.  In the example of a federally incorporated charity – Corporations Canada, the Charities Directorate of CRA, your bank, partners, prospective donors or funders – will all review one or more of the documents you create in the first few months.  It is very easy to produce a document or fill in an application, but more difficult to produce one that is reflective of what you are trying to accomplish, satisfactory to a regulator or stakeholder and not appearing amateurish to a funder.

Also keep in mind that to properly run a legally compliant, transparent and accountable charity is expensive and the legal expenses are the least of it.  You need audited financial statements in most cases – and that is every year.  Such audited financial statements can cost thousands of dollars per year.  You need computers and equipment. Websites cost money.  You can try to do everything with volunteers but eventually if successful be looking at hiring staff and contractors.  Staff and contractors cost money.

The cost of setting up a charity can be born by a number of people – it does not have to be one person paying the whole cost.  The charity that is being set up can also pay its legal fees.  Many of my clients have a sponsor, whether individual or business, who is prepared to take the leap to promote the project and to be one of the founders.  If you do not have anyone who is prepared to help raise a few thousand dollars to get things up and running you should question how successful your fundraising is going to be in the future.  If a person lends money to the charity to pay for set up costs and forgives the loans after the charity has received charitable status then the charity may be able to issue an official donation receipt for the value of the loan – this reduces the after-tax cost of the loan/contribution.

“We have a wonderful cause and can you help us set up the non-profit for free?”  No.  Lawyers have to pay for their overheads including salaries of associates and support staff, memberships in professional organizations, etc.  Just like you would not ask a taxi driver for a ride without paying or expect a life insurance agent to provide you with insurance for free, or a bank to provide a mortgage for free, a charity lawyer who works in the non-profit and charity area charges for their time.

If you are interested in reducing the amount of legal fees you pay you may wish to read my article on How can Canadian charities or Non-profits obtain cost effective and useful legal services from a lawyer.

Furthermore, you might find my article Should We Establish a Canadian Charity and If So Then How? useful reading before ever approaching a lawyer.  We also have certain online courses that may be helpful such as Should We Establish a Canadian Social Enterprise, Non-Profit or Charity and How to Do It?

For many groups, a 1-hour consultation which typically costs about $500 may answer many of the questions that they have.

The charity sector is a very important part of the Canadian economy and delivers vital services.  Establishing a charity should be done with serious thought and proper legal advice. Unfortunately, many charity applications put into the CRA contain errors or issues and it is not surprising that the majority of such applications are not accepted by CRA.