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Incorporation is the legal process of organizing an enterprise, such as a company or a nonprofit oranization as a legally recognized entity called a "corporation." Like other legal entities (such as a partnership, a limited liability company (LLC), a limited liability partnership (LLP), and others), a corporation has the authority to engage in certain activities in its own name, rather than the name of individuals associated with the organization. For example, a corporation may open a bank account, may enter into contracts (e.g. with hotels and convention centers), and may sue and be sued.

WARNING: It is wise to seek advice from competent legal counsel in determining whether to form a corporation, incorporating, and understanding the requirements for operating the corporation.

Advantages of Incorporation

The most common reason to incorporate is to limit the personal financial liability of the individuals who might otherwise have to transact the business of the organization in their own names, such as the members of the Board of Directors, Convention Committee, or the Executive Committee. Without such protection, these individuals might be responsible for debts and other liabilities of the organization or convention. (Note that some of the other entities mentioned above, such as LLPs and LLCs, offer similar liability protection, although corporations are more common for fannish groups.)

Creating the Corporation (US)

The process of creating the corporation in the United States is governed by state law and will vary from state to state. Different laws typically govern the creation of for-profit corporations and nonprofit corporations (which may be known as not-for-profit corportations or non-stock corporations).

A corporation is created by filing of Articles of Incorporation (also called a Charter, Certificate of Incorporation, or Letters Patent) with a state's corporate filing office (usually either the Secretary of State or Corporations Commissioner). Most, if not all, states now offer a simplified Articles of Incorporation form that may be completed, and many commercial publishers offer form Articles of Incorporation. Typically Articles list the name of the corporation, its purposes, the name and address of the corporation's "registered agent" (the person charged with receiving all official correspondence on behalf of the corporation), a description of the right of voting members (if any) to govern the corporation, the names of the initial incorporators and/or board members, and other matters.

Note that if the corporation plans to operate as exempt from federal income tax, federal tax law requires that it include certain provisions in its Articles of Incorporation. (This required language differs somewhat depending on the type of tax-exemption the organization plans to seek.)

After incorporation, the board of directors should have its first meeting to organize the corporation. Typically, board at this meeting will vote to elect the corporation's officers, authorize the officers to get a federal Employer Identification Number and open a bank account in the name of the corporation, and generally do what is necessary to begin operations.

However, the most important thing the board does at this early stage is adopting Bylaws for the corporation. Bylaws provide the rules for operating the corporation, such as when meetings (of the members and the board) will be held, who can vote, etc.

Operating the Corporation

To maintain the legal protection offered by corporate status, it is important that the officers and managers of the corporation's operations observe the rules that govern corporate activities ("observe the corporate form") and comply with legal obligations. For example, corporations are generally required to file regular reports with the governments of states (and sometimes localities) in which they operate, they are required to keep the corporate funds separate from the personal funds of people associated with the corporation, they are required to operate for the purposes for which the corporation was created, and they must operate according the both the corporation statute under which they were created and their governing documents (their Articles of Incorporation and Bylaws). Failure to observe the corporate form (e.g. failure to hold meetings to conduct the business of the corporation or keep adequate record) could lead to liability for the people operating the corporation ("piercing the corporate veil").

(Because the corporate form is not an absolute protection from individual liability, corporations that can afford the often significant price should consider purchasing insurance, such as commercial liability insurance, Directors & Officers ("D&O") insurance, and special policies or riders covering activities such as conventions, publishing, etc.)