Association vs. Incorporation

Attribute	Association	Incorporation
Legal Status	Unincorporated entity	Incorporated entity
Formation	Can be formed informally	Requires formal registration
Liability	Members have personal liability	Limited liability for members
Perpetuity	May have limited duration	Can exist indefinitely
Management	Managed by members or board	Managed by directors and officers

Definition

Association and incorporation are two legal structures that allow groups of individuals to come together for a common purpose. An association is a group of individuals who come together for a specific purpose, such as a club or organization. Incorporation, on the other hand, involves forming a separate legal entity that is distinct from its members.

Legal Status

One of the key differences between association and incorporation is the legal status of the entity. An association is not a separate legal entity from its members, which means that the members are personally liable for the debts and obligations of the association. On the other hand, an incorporated entity is considered a separate legal entity, which means that the members are generally not personally liable for the debts and obligations of the corporation.

Liability

Liability is a major consideration when deciding between association and incorporation. In an association, the members are personally liable for the debts and obligations of the group. This means that if the association is sued or goes bankrupt, the members may have to use their personal assets to cover the debts. In contrast, in a corporation, the liability of the members is limited to their investment in the corporation. This limited liability protection is one of the main reasons why many groups choose to incorporate rather than form an association.

Taxation

Another important factor to consider when choosing between association and incorporation is taxation. Associations are generally not taxed as separate entities, and the income of the association is usually taxed at the individual level. On the other hand, corporations are taxed as separate entities, and the income of the corporation is subject to corporate tax rates. However, there are certain tax advantages to incorporating, such as the ability to deduct certain expenses and access to certain tax credits.

Perpetual Existence

One of the advantages of incorporation is that it offers perpetual existence. This means that a corporation can continue to exist even if the original members leave or pass away. In contrast, an association may dissolve if the members decide to disband or if certain conditions are not met. This perpetual existence can be a significant advantage for organizations that want to ensure their longevity and stability.

Formalities

Forming an association is generally less formal and less expensive than incorporating. Associations typically do not require as much paperwork or formalities as corporations, which can make them a more attractive option for smaller groups or organizations. On the other hand, incorporating involves more paperwork, fees, and formalities, such as filing articles of incorporation and holding regular meetings. While the formalities of incorporation can be more burdensome, they also offer certain legal protections and benefits that may outweigh the additional requirements.

Governance

The governance structure of associations and corporations also differs. Associations are typically governed by a board of directors or officers who are elected by the members. The decision-making process in an association is often more democratic, with members having a greater say in the operations and direction of the group. In contrast, corporations are governed by a board of directors who are elected by the shareholders. The decision-making process in a corporation is often more hierarchical, with the board of directors making key decisions on behalf of the shareholders.

Conclusion

In conclusion, association and incorporation are two legal structures that offer different benefits and drawbacks. Associations are less formal and less expensive to form, but they offer less liability protection and do not have perpetual existence. On the other hand, incorporation offers limited liability protection, perpetual existence, and certain tax advantages, but it involves more formalities and costs. When deciding between association and incorporation, it is important to consider the specific needs and goals of the group in order to choose the structure that best suits its purposes.