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
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
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
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
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
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
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.
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
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.