Unincorporated Association
Detailed Definition
An unincorporated association is an organization formed by a group of people united for a common purpose that has not pursued formal legal incorporation. Members of the association collectively agree on rules or bylaws governing activities. However, unlike a corporation, an unincorporated association lacks a distinct legal identity independent of its members. This means members may be personally liable for activities conducted under the association’s name, and the organization may not benefit from limited liability protection.
If an unincorporated association exhibits certain features akin to a corporation, such as formal management structures or continuity beyond its members, it might be treated similarly to a corporation for income tax purposes.
Examples
- Condominium Associations: These groups manage common areas and services for condo communities and can sometimes operate as unincorporated associations.
- Limited Partnerships (LPs): These involve one or more general partners managing the business and liable to the extent of their assets, with one or more limited partners liable up to the amount of their investments. Some LPs function as unincorporated associations.
- Real Estate Investment Trusts (REITs): Certain REITs, though typically registered and adhering to specific regulations, may initially operate without formal incorporation.
Frequently Asked Questions (FAQs)
Q1: What distinguishes an unincorporated association from a corporation?
A1: An unincorporated association lacks a separate legal identity from its members and does not provide limited liability protection. A corporation, on the other hand, is an independent legal entity offering liability protection to its shareholders.
Q2: Can members of an unincorporated association be held personally liable?
A2: Yes, because the association does not function as a separate legal entity, members may be held personally responsible for obligations and debts arising from the association’s activities.
Q3: Are unincorporated associations required to file taxes as corporations?
A3: Not typically. However, if an unincorporated association exhibits characteristics akin to a corporation, it may be treated as such for tax purposes, subjecting it to corporate tax regulations.
Q4: How can an unincorporated association protect its members from liability?
A4: Changing the structure to a corporation or another legal entity, such as a limited liability company (LLC), can provide liability protection for its members.
- Corporation: A legal entity separate from its owners, providing limited liability and continuity of life.
- Limited Partnership (LP): A partnership with at least one general partner with unlimited liability and one or more limited partners with liability limited to their investment.
- Real Estate Investment Trust (REIT): A company owning, operating, or financing income-producing real estate.
- Limited Liability Company (LLC): A flexible business structure offering liability protection to its owners (members).
Online Resources
- IRS - Tax Information for Corporations
- U.S. Small Business Administration - Choose a Business Structure
References
- Internal Revenue Service. “Tax Information for Corporations.” Accessed [date].
- U.S. Small Business Administration. “Choose a Business Structure.” Accessed [date].
Suggested Books for Further Studies
- “The Law of Unincorporated Associations and Similar Relations,” by Sydney R. Wrightington.
- “The Legal Guide for Starting & Running a Small Business,” by Fred S. Steingold.
- “Real Estate Investment Trusts: Law, Business, and Taxation,” by Richard T. Garrigan and John F. C. Parsons.
Real Estate Basics: Unincorporated Association Fundamentals Quiz
### What is an unincorporated association?
- [x] A group of individuals who come together for a common purpose without forming a legal entity.
- [ ] A corporation that provides liability protection to its shareholders.
- [ ] A government-registered company with trading rights.
- [ ] A joint venture between two distinct business entities.
> **Explanation:** An unincorporated association is formed by individuals coming together for a common goal without creating a separate legal entity.
### What distinguishes an unincorporated association from a corporation?
- [ ] An unincorporated association can be publicly traded.
- [x] An unincorporated association does not provide limited liability protection.
- [ ] There are no by-laws in a corporation.
- [ ] A corporation cannot own property.
> **Explanation:** Unlike corporations, unincorporated associations don't provide limited liability protection and do not exist as separate legal entities from their members.
### Can an unincorporated association be subject to corporate tax regulations?
- [x] Yes, if it has characteristics similar to a corporation.
- [ ] No, it can never be taxed as a corporation.
- [ ] Only if it has more than 50 members.
- [ ] Only when it earns significant revenue.
> **Explanation:** If an unincorporated association displays corporate-like features, it may be subjected to corporate tax regulations by the IRS.
### What type of associations can be examples of unincorporated associations?
- [x] Condominium associations, Limited Partnerships, and certain REITs.
- [ ] Only multinational corporations.
- [ ] State-owned bodies.
- [ ] Municipal governments.
> **Explanation:** Examples of unincorporated associations include condominium associations, limited partnerships, and certain real estate investment trusts (REITs).
### Who is liable for the actions of an unincorporated association?
- [ ] Only the general public.
- [ ] Only the association's president.
- [x] Its members.
- [ ] No one is liable.
> **Explanation:** Since an unincorporated association is not a separate legal entity, its members can be held personally liable.
### What legal protection can members of an unincorporated association seek?
- [ ] Apply for state immunity.
- [x] Restructure into a limited liability company (LLC) or corporation.
- [ ] Disband the association.
- [ ] File for bankruptcy.
> **Explanation:** Members can restructure the association into an LLC or corporation to obtain legal protection and limit personal liability.
### Why might a real estate investment trust (REIT) consider operating as an unincorporated association initially?
- [x] To simplify its initial formation process.
- [ ] To evade all legal responsibilities.
- [ ] Because it provides significant tax advantages.
- [ ] To avoid dealing with real estate brokers.
> **Explanation:** Operating as an unincorporated association might simplify the initial formation process and reduce legal and administrative complexities.
### How do members of an unincorporated association typically govern their activities?
- [ ] Through formal corporate governance structures.
- [x] Via agreed rules or bylaws.
- [ ] Through state mandates.
- [ ] On a daily random basis.
> **Explanation:** Members usually govern their activities by creating and agreeing to a set of rules or bylaws.
### What does the lack of a separate legal identity mean for an unincorporated association?
- [ ] It can issue public shares.
- [ ] It is considered a section of the government.
- [x] It does not provide personal liability protection to its members.
- [ ] It is exempt from all taxes.
> **Explanation:** The lack of separate legal identity means that an unincorporated association doesn't offer personal liability protections to its members.
### What is a vital consideration for an unincorporated association regarding tax regulations?
- [ ] Revenue limits.
- [ ] Number of members.
- [x] Characteristics that resemble a corporation.
- [ ] Number of bylaws.
> **Explanation:** If an unincorporated association shows characteristics resembling those of a corporation, it may be treated as one for tax purposes, subjecting it to corporate taxation.
