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Forewarned is forearmed: Questions you should ask before joining a board of directors

board of directors

The following is a list of questions that every director should ask before joining a non-profit board of directors. The relevancy of some of these questions will depend on the size, type and activities of the organization. However, before joining a board, you should ask such or similar questions. Importantly, for an organization, a fully informed director is more likely to be a fully engaged director.

1. Does the organization have directors and officers liability insurance (“D & O Insurance”)?

This is probably the first question that every individual should ask before joining a board. While maintaining D&O Insurance is not a mandatory requirement of non-profits, it is an important consideration for anyone looking to join a board. Certain statutes impose liability on directors in their personal capacity for acts of the corporation. Although there exists a due diligence defense in some cases, in other cases liability is absolute. D&O Insurance is important to indemnify directors and officers from damages and loss as a result of actions taken in good faith while a director of the organization.

2. Is the organization current with its tax filings?

All registered charities are required to file T-3010 Charity Information Returns with the Canada Revenue Agency (“CRA”) within six months of their financial year end. Registered charities operating in Quebec are also required to file a TP-985.22-V Information Return for Registered Charities and Other Donees with Revenu Québec within the same period. In considering whether a registered charity is in compliance with its filing obligations with CRA, prospective board members can use the search function located on the CRA website to search the CRA’s public listing of charities. The public listing contains a host of information about charities, including details of the most recently filed T-3010 Return. Unfortunately, Revenu Québec does not maintain a web-based public registry; but prospective directors can confirm compliance with Quebec filings by contacting Revenu Québec directly.

NPOs are required to file a T-2 Corporate Information Return annually and, where the organization meets certain criteria, a T-1044 Non-Profit Organization (NPO) Information Return as well. See here for an overview of the tax filing obligations of NPOs.

For those NPOs operating in Quebec, they must also file a CO-17.SP Déclaration de revenus et de renseignements des sociétés sans but lucratif return with Revenu Québec.

3. Has the organization been audited? If yes, has the organization rectified any deficiencies that were identified?

Whether an organization is operating in compliance with the tax law is always important, but it becomes especially important where the organization is a registered charity and a previous audit has already identified areas of non-compliance. Where a non-compliant charity fails to rectify deficiencies, CRA may seek to impose harsher penalties on the charity if similar issues are identified on a subsequent audit. Penalties may include monetary penalties, loss of receipting privileges, or revocation of charitable status. An individual serving as a director of a registered charity that has its charitable status revoked is ineligible to serve on another charity’s board for a period of five years from the date of revocation.

4. As a charity, is the organization in compliance with the receipting rules set out in the Income Tax Act (Canada), the Taxation Act (Quebec) (if applicable) and any guidance issued by the tax authorities?

One of the common areas of non-compliance identified by CRA is incorrect receipting practices. Registered charities are required to comply with the rules around issuing donation receipts set out in the regulations to the Income Tax Act. Those requirements can be found here. At a minimum, prospective board members should inquire whether administrative staff is aware of these requirements and following them with respect to each donation receipt issued.

Notably, Revenu Québec does not generally audit charities. Instead, Revenu Québec relies on the compliance efforts of CRA given the high degree of harmonization between the Income Tax Act (Canada) and the Taxation Act (Quebec).

5. Is the organization in compliance with its record keeping obligations?

Like receipting rules, improperly kept books and records are a common area of non-compliance for registered charities. CRA has set out the record keeping rules applicable to registered charities here. In addition to the record keeping obligations of non-profits under the Income Tax Act, each jurisdiction’s corporate statute mandates a number of items that must be kept up-to-date and available to the directors and members of corporations incorporated in that jurisdiction.

For instance, see here for an overview of the record keeping obligations of charities and NPOs incorporated federally and in British Columbia.

Prospective directors are cautioned against sitting on boards with improper or out-of-date books and records.

6. If the organization is a corporation, is it in compliance with its filing obligations with corporate registries?

Corporate statutes in each jurisdiction generally require corporations to file annual returns as well as certain notices where the directors and/or address of the corporation have changed. Prospective directors should make the proper inquiries to be satisfied that the corporation’s corporate record is up to date.

7. Is the organization in compliance with its governing documents?

The purposes for which an organization has been established to operate are set out in its Articles of Incorporation, Letters Patent and/or any amending document. Prospective directors should understand fully the programs and initiatives of the organization and should compare these programs and initiatives with the governing documents of the organization to determine whether such programs and initiatives are within the scope of the purposes set out therein. This comparison is particularly important for prospective directors of charities, since one of the grounds for sanction under the Income Tax Act is failure by a registered charity to operate in furtherance of its statement of purposes (i.e., by engaging in activities outside of the scope of such purposes).

Prospective directors should also make the relevant inquires to be satisfied that the organization is being governed in accordance with its by-laws (for instance, board meetings should be held regularly with proper notice).

8. If the organization has employees, are withholdings and remittances properly done? Are employment legislation and standards properly met?

Prospective directors should make the relevant inquires to be satisfied that the organization has made the proper withholdings and remittances and paid proper wages since directors can be held personally liable for breaches of the statutes that establish these requirements.

9. If the organization charges for services (i.e. cafeteria at a hospital or a summer camp for children), is the organization in compliance with HST or GST/QST obligations?

Prospective directors should not assume that just because the organization is a charity or NPO that it does not have to charge, collect and remit sales tax. If an organization charges for services, proper inquiries should be made as to whether the organization is (or perhaps is required to be) an HST, GST, or QST registrant.

10. Is the organization in compliance with essential policies and standards such as data protection, health and safety and anti-spam legislation?

Prospective directors should make the proper inquiries to determine whether the organization has policies in place to address these issues.

11. If the organization engages in fundraising, is the organization in compliance with fundraising legislation and following fundraising best practices?

Certain jurisdictions in Canada (namely, Alberta, Saskatchewan and PEI) have specific fundraising legislation that applies to organizations that engage in fundraising activities in those provinces. Prospective directors looking to join the board of an organization that fundraises in one or more of these provinces should make the relevant inquiries necessary to determine whether the organization is required to be registered or otherwise obtain a fundraising license.


Serving as a director of a charity or NPO can be an enriching and exhilarating experience. Many Canadians contribute to the betterment of their community by the hours volunteered when serving on a board of directors. Such service also comes with significant responsibilities. Prospective directors should not be shy about asking the appropriate questions before agreeing to serve on a board. As the old saying goes, forewarned is forearmed!

By Troy McEachren and Natasha Smith, Miller Thomson

Occasional Contributors

In addition to our regular guest bloggers, Inside Internal Controls blog published by First Reference, provides occasional guest post opportunities from various subject matter experts on the topics of risk management and best practices in finance and accounting, information technology, environmental issues, corporate governance, sales/marketing and operations, not-for-profits and business related issues in Canada. If you are a subject matter expert and would like to become an occasional blogger, please contact Yosie Saint-Cyr at If you liked this post and would like to subscribe to Inside Internal Controls blog click here.

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