The purpose of this article is to describe the differences between:
Private Membership Associations
Private Membership Clubs
Public Membership Associations
Public Membership Clubs
What is a private membership association?
Private membership associations are defined in the law as nonprofit or not-for-profit entities that have been established and operate for benevolent, charitable, civic, educational, health, philanthropic, religious or spiritual purposes. Places of worship, temples, spiritual shrines and religious retreats can be included in the definition of private membership associations.
Properly formed private membership associations guarantee freedom of assembly and speech under the First and Fourteenth Amendments to the US Constitution. They also guarantee freedom of assembly and speech under Section Two of the Canadian Charter of Rights and Freedoms.
Properly formed and operated private membership associations can be granted tax exempt organization status by the United States Department of Revenue under Section 501(c)(4). Such an organization must file form 990 annually.
Contact the US Internal Revenue Service at 877-829-5500 to discuss how your organization may qualify for 501(c)(4) status. For more information download Form 1020 from their website at http://www.irs.gov/formspubs/index.html
Contact the Canada Revenue Agency by filing Form T3011 to ascertain if your organization qualifies for Associated Charity status. For more information download RC4082 from their website at http://www.cra-arc.gc.ca/
What is a private membership club?
Private clubs are defined in the law as nonprofit or not-for-profit entities established and operated for athletic, benevolent, charitable, educational, philanthropic, recreational, religious and social purposes. The Elks, Legion, Lions, Masons, Moose, Optimists, Rotary, Toastmasters, Veterans of Foreign Wars, athletic, golf and sports clubs and similar organizations are included in the definition of private clubs. So are sex, partner swapping, drug, alcohol, sex and alcohol, sex and drug, drug and alcohol, sex, alcohol and drug clubs.
Most private clubs must pay taxes. A few may be granted tax exempt status by the US Department of Revenue. Contact the IRS at 877-829-5500 to find out what forms you need to file, if any, to attain tax exempt status.
The Canada Revenue Agency rarely grants tax exempt status to private membership clubs. File Canada Revenue Agency Form T3011 to ascertain if your organization qualifies.
What is a public association?
Public associations are a corporation or organization formed in the USA and/or Canada. Public associations are open to the public. As far as the IRS is concerned, most public associations must pay taxes as a for profit organization or corporation. Canada Revenue Agency rarely allows a private association to be classified as an Associated Charity.
What is a public club?
Private clubs are a corporation or organization formed in the USA or Canada. The majority of private clubs are not tax exempt.
When is a private membership association considered to be a public club?
The public is invited (e.g. advertisements, signs, invitations) to attend an event (e.g. bingo in a church or private club)
The enclosed indoor space is occupied by a non-member that is not a guest;
The enclosed indoor space is rented to the public for a fee, tickets are sold, or for any other form of compensation; and
If a temporary, contract employee, or independent contractor is hired to perform an employed service in the enclosed indoor space (e.g. bartender, disc jockey, nutritionist, massage therapist).
If you're foolish enough to do any of these things inside your private membership association, you deserve to be a club.
If you want somebody to experience your private membership association before they make a decision, make them a "Guest of the Association." You can establish a Guest Membership classification in your Bylaws. We'll actually help you do that.
Conclusion
A Private Membership Association gives you the best protection under the law. A Private Membership Education Association dedicated to education gives you the best change for avoiding taxable events.
If you want to avoid taxes your best approach is to form a nonprofit education association whose primary mission is educating members. A second mission can be educating the public. But public education may not be protected under the United States Constitution or Canadian Charter of Rights and Freedoms.
If your secondary mission is educating the public, we will assist you with the proper terminology to use so you may legally accomplish this mission.
What you say and how you say it makes all the difference.
