Association

Association Business Structure Taxable Entity Corporate Taxation Common Enterprise
An association is a body of persons united without a charter, but upon the methods and forms used by incorporated bodies, for the prosecution of some common enterprise. Some entities may be associations taxable as a corporation.
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Definition

An association is a body of individuals who unite without a formal charter but function using the methods and structures typical of incorporated entities. The primary purpose of an association is the pursuit of a common enterprise or interest. Associations can range from professional organizations, trade groups, to social clubs and may sometimes be treated for tax purposes similarly to corporations if they meet certain criteria.

Examples

  1. Professional Associations: These include organizations like the American Medical Association (AMA) and the American Bar Association (ABA), which support professionals through networking, policy advocacy, and continuing education.
  2. Trade Associations: Groups such as the National Association of Realtors (NAR) provide resources and representation for occupations and industries.
  3. Social Clubs: Informal groups such as local book clubs or sports teams that primarily aim to gather people with shared recreational interests.

FAQs

Q1: What legal form does an association take?

A1: While an association itself is not formally incorporated, it operates under similar methods and rules as formal corporate entities, with a structure that includes officers, members, and bylaws.

Q2: Can an association be taxed like a corporation?

A2: Yes, in some situations, associations may be taxable like corporations. If the operation and organization of an association resemble a for-profit corporation, it may be subject to similar tax regulations.

Q3: Do associations require a formal charter to operate?

A3: No, associations typically unite and function without a formal charter, but they adopt methods and governance structures similar to those of incorporated bodies.

Q4: What common purposes do associations serve?

A4: Associations are typically formed for a variety of common purposes, including advancing a profession, trade advocacy, social interaction, community service, or lobbying for specific policy outcomes.

Q5: How are associations governed?

A5: Associations are usually governed by a set of bylaws and a board or group of officers elected by the members. This governance structure helps to ensure that the association’s activities align with its stated mission and goals.

  1. Incorporated Entity: A business entity that has been formed as a legal corporation under the jurisdiction of a state’s corporate law.
  2. Nonprofit Organization: An organization that operates for a social, educational, charitable, or religious purpose rather than to provide income for owners or shareholders.
  3. Bylaws: Rules and guidelines established by an association, corporation, or other organization to regulate itself as allowed by law.
  4. Charter: A legal document that provides for the creation of a corporate entity, stating its structure, purpose, and governance.

Online References

Suggested Books for Further Studies

  1. “The Handbook of Nonprofit Governance” by BoardSource
  2. “Managing Associations: A History of Association Management in the United States” by James J. Donnelly
  3. “Association Law Handbook: A Practical Guide for Associations, Societies, and Charities” by Jerald A. Jacobs

Fundamentals of Associations: Business Law Basics Quiz

### What defines an association? - [x] A body of persons united without a charter for a common enterprise. - [ ] A formally incorporated business entity. - [ ] A governmental agency. - [ ] An individual entrepreneurship. > **Explanation:** An association is defined as a group of individuals who come together without a formal charter but conduct themselves similarly to incorporated bodies to pursue a common enterprise or interest. ### Can an association be considered taxable like a corporation? - [x] Yes, if it operates similarly to a for-profit corporation. - [ ] No, associations are never taxable. - [ ] Only if it has more than 100 members. - [ ] Only if registered with the IRS. > **Explanation:** Associations can be taxable like corporations if their operations and structure are akin to those of for-profit corporations, regardless of membership size or IRS registration. ### What is NOT a common purpose of an association? - [ ] Advancing a profession - [ ] Trade advocacy - [x] Generating profit for shareholders - [ ] Social interaction > **Explanation:** Associations generally do not aim to generate profit for shareholders; their typical purposes include professional advancement, trade advocacy, or social interaction. ### What document often governs the functioning of an association? - [x] Bylaws - [ ] Articles of Incorporation - [ ] Deed - [ ] Lease Agreement > **Explanation:** Associations are often governed by bylaws, which stipulate rules and procedures for how the organization should operate. ### Is a formal charter required for an association to operate? - [ ] Yes, always - [x] No, not typically - [ ] Only for tax purposes - [ ] Only if involving financial transactions > **Explanation:** Associations typically operate without a formal charter, though they may adopt similar governance structures as incorporated entities. ### Who manages the daily operations of an association? - [ ] Individual shareholders - [x] Elected officers or board - [ ] Government officials - [ ] Independent contractors > **Explanation:** An association's daily operations are typically managed by elected officers or a board, who ensure activities align with the organization's mission. ### What distinguishes an association from an incorporated entity? - [ ] The presence of shareholders - [x] Lack of formal charter - [ ] The size of the organization - [ ] The type of activities conducted > **Explanation:** The lack of a formal charter distinguishes an association from an incorporated entity, even though both may operate under similar structures and rules. ### Why might an association's governance include a set of bylaws? - [ ] To generate profit - [ ] To avoid taxation - [x] To regulate its operations - [ ] To secure a charter > **Explanation:** Bylaws help regulate the operations of an association, setting out rules and procedures for the governance and management of the entity. ### Which of the following is a potential tax-related condition for an association to be taxed like a corporation? - [ ] Must be formed before 1980 - [x] Resemble a for-profit corporation in its operations - [ ] Have over 500 members - [ ] File a specific form annually with the IRS > **Explanation:** An association may be taxed like a corporation if its structure and operations resemble those of a for-profit corporation, regardless of its formation date or membership size. ### What type of organization is likely to organize as an association? - [ ] A retail store - [ ] A manufacturing plant - [x] A professional trade group - [ ] An individual consultancy > **Explanation:** Professional trade groups, among other types of organizations that pursue common interests or goals, are likely to organize as associations.

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