The definition of association is a flexible one. Many associations exist for all sorts of purposes and goals–some are simply for fans of the same hobby to get together and share their passion, while others exist to provide support for disadvantaged people. Regardless of the type of association, at a certain point, it becomes larger than its founders anticipated.
Frequently, this increase in size means that more money will start being spent, and tracking who has control of that money and where it goes is imperative if the organization wants to be seen as legitimate. At this level, it’s time for the association to seek legal standing.
Household names, such as Habitat for Humanity and the YMCA, are perfect examples of community-based coalitions that went on to become fully-fledged associations with legal standing. Today, organizations both large and small can exist at the national level, and keeping their members active in choosing leadership can be made easier with online association voting systems.
In a way, once an association has legal standing, it organizes itself like a corporation. Typically, board members are elected, people are assigned to roles within the association, and bank accounts can be opened in the name of the association.
However, there is no single box within which all associations fit. Associations can exist for many purposes, and they can form themselves into different structures depending on their goals.
This is the most common type of legal structure for associations with a charitable goal, whether it’s lawyers fighting for human rights or a community that wants to open a food bank for its most vulnerable people.
By forming a nonprofit organization, members pledge to not profit from their endeavors, and any money the organization makes must be reinvested in its core mission. This type of legal structure provides numerous tax benefits.
A co-op is an association in which members pool their resources to obtain better pricing. Examples would be a group of restaurants banding together to get cheaper prices from their supplier because they are purchasing in bulk, or a credit union owned by its members instead of external shareholders.
Co-ops exist as a legal entity separate from its members, and have the authority to negotiate deals on behalf of their members. A co-op’s board of directors is chosen through mutual association elections, and if the co-op has money left over or makes a profit at the end of a tax year, that money is typically returned to members as a dividend.
Even hobbyist associations can become for-profit entities, and an LLC is a great structure to use. As an example, let's say you have a group of drone racing enthusiasts, and more people start attending the events as spectators, when finally, the hobbyist association decides to form a corporation.
Now, the association can start selling tickets for their events and merchandise related to it. How the organization decides to distribute the profits they earn is up to the company’s laws, but forming the corporation moves the tax burden of those profits from the individuals to the corporation.
Associations can take many different forms. If you’re planning to organize one yourself, explore associations that have come before and determine what legal structure will work best for your goals!
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