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Should
You Incorporate?
The act of
incorporation offers certain advantages to the incorporators and their successors
but at the same time it also places certain responsibilities upon them. Accordingly,
before proceeding with incorporation, the members of an unincorporated organization
should give the matter serious consideration. In this regard you may wish to consult
a lawyer who has experience in corporate matters and who, given all the facts, can
advise you whether it would be to your advantage to incorporate.
It is not mandatory for a not-for-profit organization to incorporate.
There are in existence hundreds, possibly even thousands, of unincorporated
organizations in Saskatchewan that are carrying on their activities without
any hindrance. Unincorporated organizations do not have a legal separate
existence apart from their members.
Advantages of Incorporation
As the corporation is a separate legal entity distinct from its members
and has the capacity to own property, to sue and be sued, it affords limited
liability protection to its members.
- Individual
members are not personally liable in certain instances, for the corporation’s
debts and obligations.
- Continuity
of the organization is assured while the membership changes.
- A corporation
can own property in its name regardless of membership change
- The ability
to bring a legal action in its own name (an unincorporated body cannot)
- Better
chance of receiving government grants, because of the stability the
organization appears to have.
The corporation
is not affected by changes in its members, be it due to death or any other
reason. Therefore, it is easier to enter into a number of transactions
in the name of the corporation such as, banking, owning real estate or
signing a lease or contract. A majority of the members of the corporation
have the power to bind the others by their acts.
Disadvantages
of Incorporation
As the corporation is a creature of statute, it is subject to some supervision
by the Government of Saskatchewan and it must conduct its affairs in accordance
with the applicable statutes. For example, the constitution or by-laws
of the corporation, the election of directors and the calling of meetings
of members are all governed by the Corporations Act. In addition, a corporation
is required to report certain information on a regular basis to certain
departments of the Government. Failure to comply with reporting or disclosure
requirements could render the corporation and its directors and officers
liable to certain penalties, the ultimate penalty being the cancellation
of the charter and dissolution of the corporation.
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