1. Types of Organizations
2. Distinguishing Features of a Mutual Benefit Corporation
3. Examples of Mutual Benefit Organizations
4. How to Form a Mutual Benefit Organization
5. Taxes for Mutual Benefit Organizations

A mutual benefit organization example is an entity that benefits a select group of people. It shares some of the same underlying features as a public benefit corporation, but its mission is more narrowly focused, with a select class of beneficiaries. Mutual benefit organizations benefit their members, providing services and insurance solely for those members.

It's not a rule that every nonprofit must benefit the general public. In fact, not every nonprofit is a charity. In a mutual benefit nonprofit organization, all the generated revenue goes to a select class of members. Also, the revenue in these types of organizations tends to come from the members, not the public.

Types of Organizations

Organizations are classified based on their nature and purpose. In 1964, Blau and Scott created a classification system for organizations. They called it a "who benefits" typology. There are four classifications:

  1. Business organizations.
  2. Nonprofit organizations.
  3. Mutual benefit organizations.
  4. Commonwealth organizations.

Each of these types of organizations has a different set of beneficiaries. Blau and Scott assert that each type also has its own set of problems that need to be handled through specific organizational strategies.

Distinguishing Features of a Mutual Benefit Corporation

There are two distinguishing features that make nonprofit mutual benefit corporations stand out from other nonprofits and for-profits. They are:

  • The only way members can receive assets is upon the dissolution of the corporation. They cannot receive assets while the corporation is operating.
  • Mutual benefit corporations may be set up for any lawful purpose, not limited to public or charitable causes alone.

A for-profit corporation, for example, may distribute its assets to the shareholders throughout the course of its operation. This may be done through dividends. But you won't see this happen in a mutual benefit corporation.

Examples of Mutual Benefit Organizations

Some examples of mutual benefit organizations include:

  • Chambers of commerce.
  • Labor unions.
  • Business leagues.
  • Teacher associations.
  • Homeschool support groups.
  • Associations.
  • Community clubs.
  • Veterans groups.

Typically, people join mutual benefit organizations to fulfill their need for affiliation or association, and membership is intended to strengthen the organization.

History shows that mutual benefit organizations are prone to conflict. Dissatisfaction among the members can become a major cause for concern. If members feel that their needs are not being met, they will quit their membership. This makes the failure rate for mutual benefit entities higher than for the other types.

How to Form a Mutual Benefit Organization

Forming a mutual benefit organization is much like forming a charitable nonprofit. The main difference between the two is that you don't need to obtain a charitable registration or 501(c)(3) tax exemption for mutual benefit organizations.

To form a mutual benefit nonprofit, you'll need to complete the following steps:

  1. Select a name that follows state requirements.
  2. Assemble a team of people to manage the nonprofit as board members and directors.
  3. Create bylaws to govern the nonprofit. Outline how assets will be disseminated if the mutual benefit organization should dissolve.
  4. Nominate and select a registered agent who will accept official documents on behalf of the nonprofit.
  5. File articles of incorporation with the secretary of state.
  6. Set a date for your first meeting. In this meeting, you will adopt bylaws, elect directors, and nominate a treasurer, president, and other essential officers.
  7. File an initial or annual report, whichever your state requires.
  8. Apply for an EIN with the IRS.
  9. Draft a corporate resolution, and select one member of the board who will have the authority to open a bank account. You will need the corporate resolution in order to open the bank account.
  10. Collect dues from all members, and start funding the mutual benefit organization.

Taxes for Mutual Benefit Organizations

Because mutual benefit organizations do not operate to benefit the general public, they are not looked upon as charities. This makes them ineligible for 501(c)(3) tax exemption. Public benefit and religious nonprofits, on the other hand, must apply for 501(c)(3) tax exemption with the IRS.

Mutual benefit organizations are generally formed as C-corporations or for-profit organizations. This is why mutual benefit organizations tend to charge members only a nominal amount of money in order to fund their operations.

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