Awakening the Investment Dragon: The Investment Paradigm for Charities in Canada

1 Adam Aptowitzer

N/aA - Faculty of Common Law - University of Ottawa

Abstract

In much of the developed world the not-for-profit sector forms the third sector of the economy. Not only does the third sector have trillions of dollars under management, but many of the largest engage in active investment in the fulfillment of their charitable aims in healthcare, education, agriculture and applied science. Moreover, many of the largest have massive endowments that are invested by managers according to the dictates of the charity and the specific laws that apply to charities engaging in such investments. The importance of such investments is recognized through the legislation implemented by specific governments and the judge made law that has grown up to balance the need to encourage investment by these entities with the special status granted to such organizations. The value of investments by these sectors is recognized around the world, even Saudi Arabia has recently sought to encourage additional investment in, and by, the not for profit sector. These investments everywhere share a number of legal dimensions including preferred tax treatment, protection of charitable property, director liability, and unfair competition. All of these are part of the legal construct applied to encouraging investment by entities which are, by design, unique. This paper evaluates the laws, regulations and policies applied in Canada to investment in, and by, charities. Canada is an ideal case study because it is a Federal country and so can relate to international issues of constitutional division of powers; it deals with both the Common Law and Civil Code systems so lessons can be drawn of international value; and it is a mature, developed, country with a large and vibrant not for profit sector holding many billions of dollars under management. My study finds that there is much Canada could do to stimulate investment by charities. Clearly, this policy goal was taken for granted and so much of the Canadian hodgepodge system of rules variously stimulates and retards investment. With small, but powerful tweaks to the system of charity governance – with a specific eye to encouraging investment - market forces could be unleashed to stimulate not for profit organizations around the world to invest in Canadian markets.

Keywords

not for profit, not for profits, not-for-profit, not-for-profits, charity, charities, investment, assets, Canada,