Forming a Professional Association
Forming a professional association is done within an industry to help partner organizations reach educational, social, or legislative goals.3 min read
Forming a professional association is done within an industry to help partner organizations reach educational, social, or legislative goals. This strategy creates a larger coalition so business owners can have a voice on issues that affect their livelihoods. All individuals who participate in professional organizations must be licensed to provide the service in question, such as medicine or law. Professional associations are governed by state and federal law.
Choose Your Mandate
First, you'll need to consider the answers to several questions about your fledgling organization.
- Who will act as the initial board members? Ideally, this should be an odd number of individuals who are recognized in diverse areas of your industry. They should also have plenty of money and time to offer the association.
- What is the name of the association and what purpose will it serve? This can be the first decision of the new board.
- What is your mission statement? This should incorporate both the purpose and the benefits you'll offer your members. It should have a vision for items the association will accomplish, but be broad enough to last for years. Aim for a mission statement that is just one or two sentences long.
- Who are your target members? How many members do you want to have?
- What other industry associations exist? Research the satisfaction of their members, the benefits they offer, and the amount they charge for dues.
- Should we incorporate? Most associations choose to do so, which requires them to submit annual meeting minutes and follow other administrative guidelines. To incorporate, your association must register with the office of the secretary of state.
- Should we seek tax-exempt status? Business leagues are exempt from federal income tax under 501(c)(6) and can engage in legislative activities such as lobbying. Scientific and educational groups cannot conduct political activities, but are exempt from federal and most state and local taxes under 501(c)(3). Donations are tax-deductible for the donors.
- What is the budget? This should include the total income from membership dues, the amount and structure of dues, non-dues income such as donations, and annual expenses.
- What services and benefits will the association provide? This should include all items covered by member dues, including group insurance, discount meeting registration, publications, lobbying efforts, and product discounts. It should also cover benefits members must pay extra for, such as meals, meetings, and registration fees.
- What are the association's bylaws? This legally binding document defines the group's structure and administration and provides a guideline for processes and procedures. You may need to submit bylaws when applying for tax-exempt status, so look to the bylaws of similar organizations and/or consult an attorney for assistance in drafting them. This document should include membership categories, qualifications for membership, board members and their roles, terms of board members, election procedures, and benefits and services.
- What is the association's management structure? Some professional associations are completely run by a volunteer board, sometimes with the help of one or two full-time employees. Stand-alone associations are administered by a large staff. Some hire a management company to take care of payroll expenses and other administrative details.
Professional Association Benefits
A professional association can retain advantageous pass-through taxation while avoiding the liability and self-employment tax of a partnership or sole proprietorship. It can also deduct many operational expenses.
For example, while the latter business entities can only deduct part of their sizable health insurance costs, professional organizations can deduct the full cost of health and accident insurance for their employees and families. This will offset the cost of the policy.
In some cases, professional associations can deduct their expenses for disability and life insurance for employees.
Professional associations can also deduct up to 80 percent of dividends it receives from domestic corporations. Sole proprietors and partners must include all dividends on their income tax statement.
Members of the professional association have limited liability for business activities and malpractice of other members, partners, and employees. Each professional is responsible only for his or her own business actions.
This type of business allows professionals to take advantage of all these benefits and others at a minimal startup cost.
If you need help with forming a professional association, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.