Many of us out there participate in adult recreational sports leagues – hockey, golf, basketball, softball, etc. and even more of us, as parents, participate in the leagues or sports organization in which our children participate. Involvement in these groups or leagues can go so far as to serving as an officer or member of the governing board of that sports organization/league. However, if you are someone who does go that extra mile and is serving (or will serve) as a board member or officer for your sports organization, you should be aware that if your organization/league is not incorporated, you may be exposed to personal liability. Participants in sports leagues can, and do, file suit against the organizations for a variety of reasons – personal injury, contractual dispute, fraud, financial misconduct, etc. If your league has not created a separate legal entity by incorporating itself, any potential litigant could name you, personally, as a defendant, solely by virtue of the fact that you are a member the governing body. To shield board members and officers from such personal liability, leagues should register their organizations as corporations.
A corporation is a legal entity that has its own existence, separate from the individuals who own it or run it, and is created under state statutory law. A corporation has many of the same legal rights, privileges and responsibilities of a natural person, including the right to own property, enter into contracts and to bring legal suits. Most sports leagues would form under the nonprofit corporation status, which is attainable when corporation members do not receive any pecuniary gain from the corporation. The benefits for a corporation forming under nonprofit status include being eligible for certain state tax exemptions. Additionally, some nonprofit sports organizations may be eligible to file for federal tax exempt status, depending on the nature and purpose of the organization.
The registered corporation would then be the ‘face,’ so to speak, of the organization/league and would be the entity in whose name bank accounts and any personal or real property owned by the league would be put However, one of the most important attributes of a corporation is its ability to shield its members from personal liability. This is done by giving any potential litigant a legal entity against which he/she can file suit, instead of having individual board members named as defendants in the lawsuit. After formation, the corporation would then obtain liability insurance – generally called directors and officers (D&OI) insurance – which, in turn, indemnifies the individuals who make up the governing board of the organization from personal liability,
If you are interested in having our firm handle the incorporation of your organization or want to learn more about the incorporation process and its benefits to you and any of your recreational organizations/groups, please feel free to contact me.
Geraldine M. Linn, Esquire