How to Start a Business Association with 501(c)(6) Status - Lawyers for Nonprofit + Tax Exempt Organizations | Cullinane Law Group (2024)

Our law firm helps professional associations succeed. We help professional societies, trade groups, chambers of commerce, real estate boards, and business leagues with their day-to-day legal issues, from corporate governance to 501(c)(6) tax matters. We do all the work to start new business associations – and ensure that association leadership and members can thrive.

But first, what is a business league?

Business leagues include trade associations and professional associations. They can be trade groups or chambers of commerce. These groups are associations of persons having some common business interest. They gather to promote their common interest.

Like all nonprofits, they are organized around a cause or mission, or community need. But different from other types of nonprofits, associations are focused on serving their members.

Here is a summary of steps to set up a new 501(c)(6) trade group or membership-based business association.

1. Make a Plan for Membersand Activities

As you’re making plans for your association, it’s important to clearly define who the association will serve, what it will do, where it will operate, when it will conduct services, and how it will fill a community need. Decide if you really need to start another association. Ask:

Who will theassociation serve?

• When starting a new association, it is important to be able to clearly define who your organization will serve.
• Who are members?

What programs will the association provide to members?

• What will you do to help your members?
• How will you promote members’ common business interests?
• Who will perform the work?
• How will clients learn of your service?
• Where will the work occur?
• When will you perform this work?
• What will be the nonprofit’s core activities?

Some common functions of associations:

• conferences and seminars
• trade shows
• publications, such as journals, newsletters, and books
• award programs
• scholarship and fellowship programs
• maintenance of a conventional library and/or a Web site
• certification programs
• research
• community outreach programs
• attempts to influence legislation
• operation of a political action committee
• 0ther member activities

2. Select a Name

Pick a name that describes the association’s mission, that the public is likely to remember, and one that isn’t being used by another business or group as a trademark or domain name.

The legal name of your nonprofit corporation may not conflict with any other registered name. Check availability of your desired name by conducting a name search with your secretary of state.

3. Recruit a Board of Directors

Remember thatno one owns a nonprofit— not the board or members.

Most IRS 501(c)(6) membership-based professional associations select a board of directors to manage the organization. This governing board of directors are usually accountable to the public, to supporters, and to members. Each state has different requirements on the number of directors; check with the secretary of state

Note:

• You will need to set out who manages the organization very clearly in your formation documents – the articles of incorporation (sometimes called certificate or formation) and in your bylaws.
• Some nonprofits are member-managed; those members may have certain rights, such as voting on a board. Other organizations may be director-managed. Some have a combination of member and director management.

4. Select a Business Structure & File Corporate Formation Documents

Business structures are state law concepts. The most common business structure is a nonprofit corporation. Other options in some states include a B-corporation, nonprofit LLC, unincorporated nonprofit association, and a trust.

Draft and filedocuments to become a state nonprofit corporation (or other appropriate state entity). Check with your state’s secretary of state on business options.

Note:If you file as nonprofit corporation, you probably will include in that filing document:

• • Purpose of organization
  • Name of initial directors
  • Registered agent’s name and address (a registered agent is the person responsible for accepting lawsuits, certain government notices, and legal notices for the organization)
  • Statement on membership
  • Statement that the organization is organized for certain IRS tax-exempt purposes

5. Prepare Association Bylaws

Bylawsare your organization’s operating manual.They set outthe rules that govern the internal management of an organization.

The initial board of directors (and/or members) should prepare and adopt bylaws for the corporation simultaneously with the preparation of the articles of incorporation or soon thereafter. A copy of the bylaws, signed by a corporate officer, are submitted when applying for the federal tax-exemption.

6. Hold an Organizational Meeting

Your new association will hold an organizational meeting to complete the formation of the entity.At this meeting, the organization should approve the bylaws, elect directors, appoint officers, and approve initial resolutions such as opening a company bank account. Remember that it is important to keep minutes of this meeting.

7. Apply for a Federal Employer Identification Number – EIN

Your 501(c)(6) association will obtain an EIN regardless of whether it will hire employees. You will use this EIN number on federal tax returns and receipts. Additionally, your organization needs an EIN to open a bank account. To obtain an EIN, your organization should complete IRS Form SS-4, available on the IRS website.

8. Apply for 501(c)(6) Tax-Exempt Status with the IRS

Tax-exempt status means that an organization is exempt from paying certain taxes.

Internal Revenue Code Section 501(c)(6) provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues, which are not organized for profit.

To apply for federal 501(c)(6) tax-exempt status, a business association applies to the IRS using Form 1024.

In 2023, the IRS filing fee for Form 1024 is $600. This is an online application.

This is often the most complex step in the process of stating a new association. We’d love to share our experience with you.

9. Apply for State Exemptions and Permits – State Tax Exemption

The state comptroller oversees collection of state and local taxes, fees, and assessments. Many state laws allow certain organizations to be exempt from paying sales tax, hotel occupancy tax, and franchise tax. You must apply for these state exemptions; it is not automatic.

Your organization may also need to obtain applicable licenses and permits.

Some may include:

• State tax-exemption applications – sales tax, franchise tax
• State or local business licenses

Get assurance that your business association is set up the right way, the first time

Cullinane Law Group provides a quick, straightforward solution to set up a business league with 501(c)(6) status. From drafting your governing corporate documents and obtaining federal tax exemption, to counseling on compliance and reporting requirements, we offer complete flat-rate packages to get you off the ground.

We successfully have formed hundreds of tax-exempt organizations, including all types of 501(c)(6) business leagues. Have the assurance that your membership-based association isset up the right way, the first time.

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