2 BULLETIN 530, U. S. DEPARTMENT OF AGRICULTURE. 



step of incorporation should not be taken until as large a percentage 

 as possible of the substantial farmers in the community have been 

 interested in the undertaking. Twenty-five States now provide in a 

 separate chapter or division of their insurance laws for the incorpora- 

 tion of farmers' mutual fire insurance companies. In most of the 

 other States it is possible to incorporate such companies under the 

 insurance laws referring to fire insurance mutuals in general. 



In any case the organizers are required to set forth in a formal 

 paper, usually called articles of incorporation, the name of the pro- 

 posed company, the location of its home office, the purpose of the 

 organization, the business territory, the conditions of membership, 

 a brief outline of the form of management proposed, and the condi- 

 tions under which the various provisions outlined in the articles of 

 incorporation may be altered or amended. 



As soon as incorporation has been accomplished, a set of by-laws 

 should be drawn up. If the articles of incorporation have described 

 the nature and purpose of the organization in outline only, these 

 same topics should be taken up fully in the by-laws. The machinery 

 of management should be provided for and the conditions of insur- 

 ance should be carefully stipulated. Detailed provisions regarding 

 the routine of the business should be avoided, however, and consider- 

 able discretion in these matters should be left to the directors. 



PURPOSE OF THE COMPANY. 



The purpose of the organization should be stated clearly in the 

 by-laws. It should be made evident that the object of the company is 

 to safeguard its members against the burdens of disastrous losses, 

 and that this is to be accomplished in the way that best serves the 

 interests of the membership as a whole. This means that the com- 

 pany must promote energetically the elimination of preventable 

 losses and distribute on an equitable basis the burden from those 

 losses that it can not prevent. 



The fact that a company of this kind is organized to prevent disas- 

 trous loss burdens does not mean that it should remove all burdens 

 from the individuals who suffer losses of property. In all cases a 

 reasonable part of the loss should be borne by the owner. It should 

 be to his interest, above all others, to have his property remain in 

 existence. If the entire loss is assumed by the company, it becomes 

 a matter of no economic consequence to the owner whether his prop- 

 erty is destroyed or not. and his strongest incentive to safeguard his 

 property has been removed. There is also danger that a slight change 

 of economic conditions may make it directly to his pecuniary advan- 

 tage to have his property destroyed. 



