If you belong to, are associated with, or perhaps are leader of an association, many issues and concerns must be faced, including coordination of efforts, membership issues and maintaining the group's direction and focus, just to name a few. Unfortunately, there are also organizational, financial and legal concerns that may seriously affect the success of the association. Incorporating the association can often address many of these concerns.
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Many different types of associations exist. For example, you may belong to a homeowners association, charitable group, political organisation, other non-profit or your local church. No matter what kind of association you belong to, all associations have in common the concept of "communal liability," which refers to the duty of every member of the association to share the responsibilities and obligations of the association. In addition, each member may be held liable for the actions of another member (or members) acting on behalf of the association. In the increasingly litigious world we live in, that could cause a good deal of concern.
Incorporation is the legal formation of a corporate entity, or corporation. In the simplest terms, a corporation is a business or other organisation that has the legal rights of an individual dealing in trade or commerce. This last statement might lead you to think that incorporation might not apply to your association because most corporate entities are businesses. However, non-profit organisations are formed to trade public benefit (the good they do for the community) for public support (donations, government grants or volunteers/membership).
As with any business, an association must draft and file articles of incorporation in the state's office of the Secretary of State, elect officers, draft bylaws, and schedule and hold executive meetings where minutes will be recorded. Incorporation can be simple or complex, depending on the level of complexity of the organisation. The incorporation of a neighbourhood association will likely be easier than a national charitable organisation. It may be useful to seek the assistance of a legal professional familiar with incorporation if your goal is to incorporate a larger entity.
Because an incorporated association has a separate legal status from that of its membership, liability to any third party rests on the organizational entity and not the individuals who belong to the organisation. In addition, a corporation has the power to contract in its own name, giving the association a greater ability to transact, contract and build credit apart from its members or elected leaders. An incorporated association can also take legal action against a third party if necessary.
The effort involved in the formation and legal maintenance of a corporation can involve a great deal of paperwork, fees and legal formalities that many associations would not normally encounter. Failure by the association leadership to adhere to government regulations concerning the corporation may lead to fines and/or operational restrictions as penalties on the corporation. Though incorporated associations may shield members from legal liability, elected officials may share some legal responsibility as the directing agents of the organisation.
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