BENEFITS OF INCORPORATION

Associations may be incorporated or unincorporated. Civil Code 1363(a). By statute, unincorporated associations may exercise all of the powers of incorporated associations (Civil Code 1363(c)), including the power to initiate and defend litigation. Civil Code 1368.3

Although unincorporated associations have all of the management powers of an incorporated association, they still lack certain benefits and protections given to incorporated associations. Corporations are well-recognized and understood. They have the Corporations Code and case law, both of which provide procedural guidelines and protections not afforded unincorporated associations.

Incorporation appears to offer clearer protections against the membership's vicarious personal liability in contract and tort actions against the association. Because the cost of incorporation is minimal and protections can be significant, incorporation is preferable for all but the smallest associations. Tiny associations of less than 10 units may operate so informally that they fail to maintain corporate formalities and lose the benefits of incorporation.

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Updated 6/22/2008