The Importance of Incorporation
What is Incorporation?

Incorporation provides protection from liability to the shareholders, members, officers and directors of a corporation.

This means that if a club is incorporated, the shareholders, members, officers and directors of the corporations, when acting in good faith and maintaining corporate formalities, are not usually personally liable for the debts and obligations of the corporation.

If a business, range, association or gun club is not incorporated, then the individual owners or members are held personally liable for the debts. This means that the personal assets of the owner and/or members may be exposed to the claims of creditors of the business, range, association or gun club.

For example, if you are a member of an unincorporated hunting club, your home, personal bank account and any other collateral you own, may be exposed to the claims that someone has against the hunting club. In other words, you as a member may be held liable for such debts.

Incorporation protects the members and/or owners of a business, range, association or gun club from this type of liability.

If there are debts and obligations the business, range, association or gun club cannot meet, then, if incorporated, the corporation would be responsible for such debts and not the members.

However, there are some exceptions. For example, if an injury is caused by a member's negligence, that particular member may be exposed to liability. However, if the club is incorporated, the other members should be shielded from liability.

With certain exceptions, like the one listed above, the corporate shield should generally protect the personal assets of the members and/or owners from the claims of creditors of the corporation.

How do you Incorporate?

Corporate law is governed and determined by each state. Usually, Articles of Incorporation are filed with a state agency along with a filing fee. Once the Articles are approved by that state agency, then the business, range, association or gun club is incorporated.

Most states require that the corporation create and keep certain documents, such as Bylaws, and minutes of annual board and annual membership meetings. These documents will need to be kept by the corporation in its corporate books but do not need to be filed with the state.

An attorney should be retained to incorporate the business, range, association or gun club. Alternatively, you can contact the state agency and request information as to how to incorporate. Basic incorporation costs should be minimal.

What is Tax Status?

If you are a commercial for-profit business, then you will not be able to claim tax-exempt status. A disadvantage for corporations is double taxation. A corporation is taxed when it receives income. When the corporation passes some of its earnings on to the employees or owners in the form of salaries or dividends, that is taxed as well.

Businesses will want to avoid this double taxation by applying forSubchapter Sstatus. Subchapter S status allows for the pass-through of earnings and avoids the problem of double taxation. There are certain restrictions for Subchapter S status, but if you are a small business you should be eligible.

If you are a not-for-profit entity, then you should be able to claim tax-exempt status with the IRS and your state tax agency. All organizations are subject to federal income tax unless they have a specific exemption under the provisions of Section 501 of the Internal Revenue Code. Your organization is not tax-exempt unless the IRS and your state tax agency grant you that status.

You should consult with a tax attorney or a certified public accountant when planning your organization's tax-exempt application, finances, income and tax returns.

What is Liability Law - Negligence?

Negligence law is basically "accident" law. Just because someone has been injured does not necessarily mean that someone has to pay the injured party. In order to find a defendant liable, there must be a finding that the defendant was negligent. Basically, a judge or jury must find that the defendant failed to act reasonably.

Should The Business Obtain Insurance?

The first thing an organization should do is to incorporate. The second thing an organization should do is to obtain liability insurance.It is advisable for an organization to carry a good amount of liability insurance coverage. If your organization produces goods, you should also obtain a product liability policy.

NRA affiliated associations, gun clubs, hunting clubs and ranges may purchase various insurance policies from various insurance companies through the NRA's insurance administrator, Lockton Risk Services, Inc. For more information call (877) 487-5407 or visit www.NRAEndorsedInsurance.com.

What Are Release And Waivers?

Another good way to limit the corporation's liability is to require participants or members to sign a full release and waiver for any liabilities. However, the law on this subject varies from state to state. You should have an attorney draft a release and waiver form that is effective under your state law.

You may want to also post written disclaimers, prominently displayed, which state that a person enters and takes part in the range or hunting activities at their own risk. You may also want to post a disclaimer that states that the corporation will not be held responsible or liable for lost or stolen items or items left behind. Again, some states may not enforce such disclaimers.

THE ABOVE INFORMATION IS PRESENTED WITH THE UNDERSTANDING THAT THE PUBLISHER AND AUTHORS DO NOT RENDER ANY LEGAL, TAX, ACCOUNTING OR OTHER PROFESSIONAL SERVICE OR ADVICE. BECAUSE OF THE DIFFERENT LAWS IN DIFFERENT JURISDICTIONS, AND THE RAPIDLY CHANGING AND COMPLEX NATURE OF THE LAW, THE INFORMATION CONTAINED ABOVE IS NOT INTENDED, AND IS NOT TO BE TAKEN, AS LEGAL ADVICE OR AS A RESTATEMENT OF THE LAW.

USERS OF THIS PUBLICATION ARE STRONGLY URGED TO SEEK THE ADVICE AND COUNSEL OF AN ATTORNEY LICENSED TO PRACTICE LAW IN THEIR STATE. IN NO EVENT, AND UNDER NO CIRCUMSTANCES, SHALL THE PUBLISHER AND/OR AUTHORS BE LIABLE FOR ANY DAMANGES (DIRECT, INDIRECT OR CONSEQUENTIAL) RESULTING FROM THE USE OF THIS PUBLICATION.

For more information, please visit http://www.irs.gov/pub/irs-pdf/p4221nc.pdf.