Let $V$ be a vector space and let $\{ e_1,\hdots,e_r \}$ be a basis of $V$. An algebra structure on $V$ is given by $r^3$ structure constants $c_{ij}^h$ where $e_i\cdot e_j = \sum_h c_{ij}^h e_h$. We require this algebra structure to be associative with unit element $e_1$. This limits the sets of structure constants $(c_{ij}^h)$ to a subvariety of $k^{r^3}$, which we denote by $\mbox{Alg}_r$. Base changes in $V$ (leaving $e_1$ fixed) give rise to the natural transport of structure action on $\mbox{Alg}_r$; isomorphism classes of $r$-dimensional algebras are in one-to-one correspondence with the orbits under this action.

In this paper we classify the smooth closed subvarieties of $\mbox{Alg}_r$ which are invariant under the transport of structure action and study the singularities which may occur. In particular, we show that if $r=n^2$ then the closure of the locus corresponding to the matrix algebra $M_n(k)$ is not smooth for $n \geq 3$. This gives a negative answer to a question of Seshadri on the desingularization of moduli spaces of vector bundles over curves.