Perhaps your association is comprised of five people. Maybe it’s 50 people. Maybe it’s 500. Regardless of size, your association should consider incorporating.
Incorporation serves a number of purposes. It may help protect your members from liability for certain lawsuits brought against the association. It also may afford your officials organization certain tax breaks and other financial benefits.
A corporation is a legal entity created under the laws of a specific state. Each state has its own slightly different rules on the composition, requirements and permitted and prohibited actions of a corporation. However, a number of central themes run through corporations in each state.
A corporation is made up of shareholders who own a piece of the corporation. Small corporations may have as few as one shareholder while large corporations such as Coca-Cola or the Walt Disney Company may have hundreds of thousands of individual shareholders.
It is vital to understand that a corporation (as distinct from the shareholders of the corporation, or anyone else associated with the corporation, such as employees or independent contractors) has a life of its own, separate from all other individuals. Understanding that, it is easy to understand that a corporation may enter into contracts with other organizations or individuals, may be sued or may file lawsuits, and is required to file and pay its own taxes. When a corporation loses a lawsuit, the corporation, not necessarily the shareholders, pays the damages. When a corporation pays its taxes, the corporation itself, not the shareholders, sends in the check.
While a corporation may have a life of its own, it cannot speak for itself. Therefore, corporate officers are put into place to speak for the corporation and to sign contracts and checks on behalf of the entity. Understand that officers such as a president, vice president, treasurer and secretary are only acting on behalf of the corporation. When Joe Smith, president of Anywhere County Umpires Association, Inc., signs a check on behalf of the corporation, the money comes out of the corporation’s account, not Joe Smith’s account.
Each corporation also is required to create and file with the state articles of incorporation and corporation bylaws. Both documents serve the vital legal purposes of outlining, with rather extensive specificity, every aspect of the corporation’s existence, from the function of the corporation to the means by which officers may be removed from office.
So how does your officials association become a corporation? Recall from earlier in this article that corporations are legal entities organized under the laws of each state. Therefore, if your organization wishes to incorporate, you will need to contact the office of the secretary of state in your capital city. That office will usually be able to provide you with whatever filing forms you need, let you know what documents must be filed and what fees will be associated with the filing.
You will usually want to incorporate in your home state. However, because you may be incorporated in one state does no prevent you from doing business in other states; every state in the country recognizes incorporation by every other state.
If you follow the stock market, you may notice that many major corporations are incorporated in Delaware even though their corporate headquarters may be located in another state. Many large companies choose to incorporate in Delaware for tax advantages that state affords large companies filing their corporate papers there. That strategy may be a good idea for the big companies, but going all the way to another state to incorporate may be a bit unnecessary and inconvenient for you.
Finally, understand that the process of incorporation is much more complex than outlined here. For example, articles of incorporation and corporation bylaws are complex documents and their perfect drafting is supremely vital to your corporation’s success. Therefore, you may be well advised to consult an attorney in your area before proceeding with incorporation of your officials association. |
