Can an Ontario not-for-profit corporation borrow money or give a guarantee?
Yes. Like a business corporation, an ONCA not-for-profit corporation generally has the powers of a natural person, which includes the power to borrow money, issue debt, grant security over its property, and give guarantees, unless its own articles or by-laws restrict that power. In most organizations, the directors can exercise borrowing powers as part of their general management authority without needing a separate members' vote for every transaction.
Where this gets more complicated is when a corporation's articles or by-laws restrict the board's authority to borrow above a certain amount without member approval, or when the organization is a registered charity, where lenders and boards both need to be careful that granting security over charitable property does not conflict with restrictions tied to how particular donated funds must be used.
Before a not-for-profit corporation takes on debt or signs a guarantee, it is worth confirming that the by-laws actually authorize the directors to do so and that minutes properly record the board's approval, since a lender relying on a corporate guarantee will typically want to see clear evidence the corporation had the power and the internal approval to give it.
Key takeaways
- ONCA gives not-for-profit corporations the general power to borrow and give guarantees, like a natural person.
- Directors can usually exercise this power without a member vote, unless the by-laws say otherwise.
- Charitable property tied to donor restrictions needs extra care before it's used as security.
- Lenders will want clear board approval on record before relying on a corporate guarantee.