On transition, a society can become a member-funded society
On transition under the Societies Act, a society will be asked whether it wishes to designate itself as a member-funded society. A member-funded society is one that is funded primarily by its members to carry on activities for the benefit of its members. Examples of societies that might meet this designation are private clubs, sports leagues, and professional associations.
Member-funded societies are exempt from several public transparency provisions which apply to other societies:
- they don’t have to provide public access to annual financial statements
- they are not required to disclose director or employee remuneration
As well, member-funded societies have more flexibility in their governance structure and can distribute their assets to their members on dissolution.
|Item||Member-funded society||Other societies|
|Number of directors||1 director is sufficient||At least 3 directors|
|Residency of directors||No residency requirement||1 director must be resident in BC|
|Composition of board of directors||No restrictions on number of directors employed or contracted by society||Majority of directors must not be employed or under contract with society (effective in 2018)|
|Distribution of assets on dissolution||Assets can go to members||Assets can only go to certain types of qualifying societies or registered charities|
|Conversion to a company||Can be converted to a company||Cannot be converted to a company|
To become a member-funded society
To become a member-funded society, a society must meet a qualification test and get the approval of its members in a special resolution.
The test to qualify as a member-funded society has two parts:
- Part 1, excluded societies: The society cannot be from a list of excluded societies. Excluded societies include registered charities, student societies, hospital societies, recipients of sales tax or other government revenue, recipients of loans or grants from BC Housing, community living support service providers, and independent schools. If a society is any one of these, it can’t qualify as a member-funded society.
- Part 2, funding test: The society’s funding from public donations and government sources must be below a certain threshold. In the two-year financial period before the current one, the society must either:
- have received $20,000 or less in public donations and government funding, or
- if the society received more than $20,000 in public donations and government funding, the amount must have been less than 10% of the society’s gross income.
Issues to consider in deciding to become a member-funded society
If a society decides that it meets the two-part qualification test and is eligible to be a member-funded society, it must determine whether or not it wishes to be designated as one.
A significant issue is that a member-funded society cannot be a registered charity.
Use the Charities Listings search to find organizations that are or have been registered as a charity with the Canada Revenue Agency.
Other issues to consider include:
- Funding limitations: The society must stay under the specified threshold for public donations and government funding in order to retain its status as a member-funded society. As well, the society could be disqualified from receiving certain types of government funding. For example, the BC Gaming Policy and Enforcement Branch has indicated that it will not give community gaming grants to member-funded societies.
- Tax-exempt status: The taxable income of a non-profit society is exempt from tax, as long as the society meets certain conditions. One of the conditions is that the society must not distribute any of its income for the personal benefit of a member. Yet one of the potential advantages of becoming a member-funded society is the ability to distribute assets to members on dissolution. Before becoming a member-funded society, it is important to consider how this feature might impact the society’s tax-exempt status.
- Timing of becoming a member-funded society: If a society doesn’t adopt the member-funded society designation on transition, it will need a court order to do so later.
If you have any doubt about whether your society can or should become a member-funded society, you should seek legal advice before transitioning.