Re: Re: Membership sale agreement questions
From: Rob Sandelin (
Date: Mon, 18 Apr 94 18:37 CDT
Martin Schafer wrote:

>Until you incorporate, your group is legally a partnership.  This
>is a recognized form and people should be willing to take you
>seriously as long as you seem organized and seem like you know
>what you are talking about.

Please take note: If you have no legal agreement at all, you are 
considered by the courts (and there is a lot of legal precedent for 
this) to be a limited partnership.  What this means is that each 
individual has an equal liability and share in any judgements against 
you.  For example, a lawsuit against the partnership, which resulted in 
a million dollar judgement  would mean each member would have to pay an 
equal share. Ten members would owe 100 grand each. If you didn't have 
that money a lien could be placed on your salary, assets could be 
taken, etc.  This is not a very common scenario but it is why many 
groups incorporate early on.  There was an intentional community in 
Tennessee in the late 70's which got into tax trouble. They found out 
by surprise that they were a partnership and each individual ended up 
under the IRS tax confiscation proceedings.  A bunch of poor hippies 
who were peacefully living together in Tipis on some land, who were 
anarchists and had no agreements of any kind,  lost everything they had 
-Tipis, buses, etc.  Big brother closed them down hard. This is an 
extreme case but incorporating doesn't really cost much and it doesn't 
hurt you in any way that I know of....

If you are developing cohousing for 20 or so units at $100,000 or so 
each that is a 2 million dollar project, even if there are only 5 of 
you so far it pays to
1. Hire an attorney to draw up incorporation paperwork for you.
2. Keep accurate records of all funds spent and collected.  When you 
incorporate you can get a tax id number and get a corporate bank 
account and you also will need to understand taxes. (Money assessed for 
expenses is not federally taxable, but states have varying and pecular 
tax laws and some of them do tax such money)

Figure an attorney will cost $4-500 and you can do it cheaper by 
getting some sample articles of incorporation from groups in your area 
and using them as samples to draw up your own. Then all the attorney 
does is review your work and advise, a hour or so charge.  In many 
states you can put in a clause in your articles of incorporation which 
allows you to change the purpose of the organization by some sort of 
majority vote.  Having such a clause allows you flexibility later on if 
you want to become a 501 c  type organization or for other reasons want 
to change your purpose.

Some groups collect a small assessment per member $10-20 per month to 
raise funds for such expenses. This is good idea and can also serve as 
a membership criteria.  If someone can't invest a little each month, 
will they really ever commit to the blood, sweat and tears of a major 
development project?

Of course, once you incorporate you have presidents, treasurers and 
such and then you'll need some bylaws to define what they do, how 
meetings are run, how funds are to be used, etc......And of course that 
will take 400 hours of meetings to wrangle out and then there will be 
board meetings, and reports and committees....Maybe it would be easier 
just to raise dental floss in Montana? :-}

Rob Sandelin
Puget Sound Cohousing Network

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