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What Is an Unincorporated Organization?

Organization Meeting

An unincorporated organization can also be called an unincorporated association. It may consist of an individual or a group of people that have come together for a common purpose to start a business, a nonprofit, set out on a joint venture, or for some other lawful purpose. An unincorporated organization has not filed articles of association with the secretary of state.

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Key Takeaways

  • Unincorporated associations have an informal structure.
  • General partnerships, sole proprietorships, and nonprofit associations are common types of unincorporated organizations.
  • If a business remains an unincorporated organization, there may be liability risks for the owner.

How Are Unincorporated Organizations Structured?

Unincorporated organizations or associations are informal. Incorporation happens when a business files the paperwork required by state law to form a corporation with the secretary of state. But an unincorporated organization has not filed any documents with the secretary of state.

An unincorporated organization is also skeletal. The only requirement is that people come together to accomplish a common purpose. Although the business does not have anything formally filed with the secretary of state, an unincorporated association may use bylaws to make day-to-day decisions.

Bylaws usually include:

  • The association's name,
  • The association's purposes
  • Officers and terms of each officer
  • Decisions regarding association funds

Types of Unincorporated Organizations

One common type of unincorporated association is a general partnership. A general partnership is formed when two or more people come together to carry on a business for profit. General partnerships also have no formal paperwork requirements.

Another common unincorporated association is a sole proprietorship. A sole proprietorship is what people typically think of when they think of someone owning their own business. A sole proprietorship also does not require formalities.

Additionally, onprofit organizations may operate as unincorporated associations. As its name suggests, a nonprofit organization has a noncommercial purpose. Examples of nonprofits include churches, social organizations, or educational foundations.

Neither a general partnership nor a sole proprietorship offer liability protection. These and other types of unincorporated organizations are not separate legal entities from the owners.

Remember, since incorporation has not occurred, the unincorporated organization or association has no legal existence separate from its owners. Therefore suing the business is essentially the same as suing the business owner personally.

What Are the Risks of Remaining Unincorporated?

An unincorporated association is not a separate legal entity from its members. That means the members of the association have personal liability for business debts and loans.

If you take out a loan for your unincorporated association or , you are essentially taking out a loan in your own name, and you will be responsible for repaying the loan.

Incorporating eliminates the risk of personal liability. After incorporation, the business is a separate legal entity.

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