Unincorporated Organizations
An unincorporated organization is an organization that exists for some purpose, but which has not been established under the laws of a state or a nation. Unincorporated organizations are generally considered to be less formal than their counterparts, corporations, and are most common in the small business realm. In many cases, unincorporated organizations rely on the legal structures of corporations in order to operate.
Unincorporated organizations may be formed for any number of reasons. For example, some business owners may opt to form an unincorporated organization in order to avoid the burden of the formalities associated with incorporating an organization. Similarly, some of these organizations may be formed with the purpose of providing limited liability to their owners or members. An unincorporated organization may also be formed in order to have a more flexible structure or to pursue specific business activities that cannot be placed within the parameters of a corporation.
Unincorporated organizations can range from informal partnerships and joint ventures to much more formal associations. Informal partnerships are generally composed of two or more individuals that enter into a business agreement for some purpose. The partners in these arrangements generally agree on decision-making and ownership responsibilities and typically are not required to register their partnership with the state. Joint ventures are more complex in that they involve the temporary collaboration of two or more entities in order to pursue a specific business objective. Like informal partnerships, joint ventures do not require registration with the state.
More formal associations are often required to register with the state and can include labor unions, trade groups, political organizations, or other entities. These entities generally have some form of governance or code of ethics that governs the behavior of their members. In order to register an organization of this type, certain paperwork must usually be filed with the state and certain fees may need to be paid.
In general, operating an unincorporated organization can be riskier than operating a corporation because unincorporated organizations do not receive the benefit of limited liability protection. As a result, any debts or claims arising against the organization are generally the personal responsibility of the individuals that comprise the organization. Additionally, unincorporated organizations are often not eligible for certain types of financing since creditors may not want to extend credit to an organization that does not provide the same level of certainty as a corporation would.
In order to operate successfully as an unincorporated organization, effective management and adherence to laws and regulations are essential. Unincorporated organizations should maintain a written set of policies and procedures that govern their operations and should ensure that laws and regulations are followed. Additionally, unincorporated organizations should maintain accurate records and should ensure that the business is adequately insured.
Overall, the use of unincorporated organizations can provide businesses the flexibility of adapting their structure to meet their operational needs. However, before pursuing this type of entity, it is important to weigh the risks and benefits associated with this choice as well as research relevant laws and regulations as they may vary from state to state.
