Unincorporated associations

How BC law treats it

An unincorporated association, such as a club, community group, or early stage founders' group, has no legal existence apart from its members. It generally cannot hold land or bank accounts in its own name, so property is usually held by trustees or officers. Contracts are made by individuals, and the people who made or authorized a contract can be personally liable under agency principles. It offers no limited liability. The Partnership Act defines a partnership as the relationship between persons carrying on business in common with a view of profit (s. 2). A group that does this is a general partnership in law, whether or not it registers or intends to be one, and each partner is personally liable for the firm's debts. Founders who start trading before incorporating are often in this position. A person who signs a contract for a company not yet incorporated is personally liable under section 20 of the Business Corporations Act (BCBCA) unless the company later adopts the contract. Groups that want separate legal personality can incorporate as a society under the Societies Act (for non-profit purposes), a cooperative under the Cooperative Association Act, or a company under the BCBCA. Each gives the group its own legal identity, the ability to own property and sue, and limited liability for members.

What it means for your business

Founders often collaborate, sign up customers and spend money before forming a company, without realizing they are already partners with full personal liability. Industry groups and community associations face similar risk when they sign leases or event contracts. Incorporating early, signing contracts only in the name of an existing entity, and documenting how pre-incorporation work and IP will be transferred all reduce personal exposure. Example: Three friends start selling a meal kit product in Vancouver before incorporating, sharing costs and profits. When a supplier sues for an unpaid invoice, all three are personally liable as general partners, even though none of them thought of the arrangement as a partnership.

Risks and common mistakes

Believing an unincorporated group gives its members limited liability. Trading for profit before incorporating without realizing the founders are partners in law. Signing leases or supply contracts in the name of a group or proposed company that does not legally exist. Holding group funds in one member's personal account without written trust terms. Failing to transfer pre-incorporation IP and contracts into the new company after it is formed.