How to Form an Association

golubovy/iStock/GettyImages

While the word "association" simply means a gathering of people — a group, a club, a team — it can mean something more formal in the business world. A business association is an organization that brings together business owners from a specific area, demographic or market in ways that allow these business owners to work together and benefit. Business associations can be any scale, from local to national, and the matters with which they deal can range from small-scale networking to large political activism committees.

Benefits of Associations

A business association can offer benefits even at a local level. One of the obvious advantages to a business association is networking opportunities. Business owners can gather with like-minded people and discuss their interests and concerns. Even in cases where business owners may be each other’s competition, the association is a place to share resources and information.

In cases where business owners aren’t in competition, owners can collaborate and share news, contractor recommendations, and a wealth of other knowledge and opportunities as they come across them. This can also provide social outlets that allow business owners to connect.

For local associations, business owners can band together and make arrangements that will make it easier for them to operate. For example, individual owners can combine and share services, utilities or purchases, working off economies of scale to lower their costs overall. The association can plan events to advertise or can share advertisements among their locales that benefit all members. The collaboration benefits the community as a whole since local owners learn to work with each other.

Choosing to Form Associations

A business association will consist of three central factors:

  1. The association is formed and founded by more than one member.

  2. The association’s assets need to be legally separate from the private assets of its members.

  3. The association needs a formal management structure.

Having multiple members allows the association to exist as an entity separate from individual businesses. The separation of assets is to confirm that this entity is kept separate from personal business interests. The management structure helps solidify and construct the association’s policies and ensures there are no conflicts of interest.

Management of a business association can consist of members and nonmembers. In small associations, most if not all members may be considered management, while in more complex associations, a management team is often elected by members instead.

How to Form an Association

Starting a business association can be a good idea for business owners looking to network. Before initiating, consider the type of association that makes sense and other target members who could benefit from associating. Check locally and nationally to see whether an association already exists that could meet the existing needs. Gather information that will help spell out the details the developing idea will need.

Begin with a mission statement, writing out the visions and goals for the organization. Develop a description of the association and what it will be able to do for its members. Then, bring the draft to the potential target members to discuss whether they would be interested. Note their suggestions and their interest and any changes they might make.

Keep in mind that potential members don’t have to be business owners. Other members of the community may also be interested or have good advice. Allow the idea to evolve over time and become something that is appealing to the general consensus.

Business Association vs. Nonprofit

Business associations can be nonprofit or for-profit associations. Nonprofit associations have benefits like tax exemptions and grant eligibility and are often charitable entities whose members focus on improving or alleviating a specific concern.

Associations that do not file as nonprofit end up being more focused on membership and use their collective power to provide goods and services for a targeted group. Each path has its advantages, and the choice will depend entirely on the association’s purpose, vision and goals. It’s recommended to obtain an attorney to help with this process as the association is incorporated.

An important part of the business charter will be fundraising, and it can have legal implications depending on the actions of the association. The budget will need to incorporate membership fees for both individual members and for institutions that may be asked to join. Fundraisers can help supplement dues as well as attract new members who may be interested in the association’s actions.

Registering With the State

Proper business associations will need to be registered with the state. Articles of association need to be completed for the association. The information submitted will include the name and members of the organization as well as a description of the association’s goals.

Each state has a different process, so be sure to check the appropriate websites to make sure the proper paperwork and fees have been submitted. Once the articles of association have been approved and returned, the association may begin meeting.

Organizational Structure of an Association

A business association will need an organizational structure so it doesn’t flounder early. While all associations have different needs, the general organizational structure will be the same. Each business association needs a board of directors, the key executive team at the top who will make all of the important decisions regarding the directions, actions and activities of the business association. This is usually led by an executive director, the individual who is responsible for the vision of the association.

The board of directors usually includes any founding members who wish to continue to contribute. Often prominent or dedicated members may be invited to join the board of directors as well as external individuals whose advice and experience might be helpful for the association. Once the executive director has been chosen, the rest of the board’s chairpeople and positions can be filled. Most of the seats on the board are limited term, which provides some turnover of the board.

The association will also need to have teams to oversee fundraising, activities, outreach, membership and whatever else was within the initial vision. Team leaders will need to be appointed within the organizational structure with members who are willing to fill these positions. It’s important to draw from members to ensure these department chairs will be invested in the organization, but don’t limit the pool because pulling talented individuals from outside the association can bring in a fresh point of view.

Electing Association Leadership

There’s one other significant decision to make with regard to organizational structure: how the business association’s leaders will be chosen and what rights the members will have. In a board-driven association, the more typical organization, the board of directors remains the central source of decision making. The board elects replacements as needed when terms are up. Candidates can be nominated by either board members or association members.

In a member-driven association, the members have the right to vote on the board of director positions. In these cases, it’s important to clearly specify the criteria for voting rights — including dues, privileges and nominations — so all members understand what they can contribute to board election. Board members serve their terms, but the membership votes on whether they continue that term or are replaced.

Association Officer Choices

Similarly, the association’s officers (treasurer, secretary and so on) will need to be selected. The association’s charter and bylaws will determine how these roles are to be filled, whether they are rotating roles with set terms and how individuals may be moved or replaced. This is usually the responsibility of the board of directors, but a member vote may be involved at some points of the process.

Candidates for all of these roles usually come from nominations. Members of the association will put someone (or sometimes themselves) up for a certain role, highlighting why the person may be particularly suited to it. Rules around nomination should be spelled out in the bylaws.

Association Fundraising and Finances

For an association, income starts with membership dues and continues with additional donations from members or board members. Many individuals are willing to donate to a business association, especially during the startup phase when a lot of capital is required.

Nonprofit associations can also apply for grants from the government at local, state and national levels. Often, private and public institutions also offer grants to organizations that match a certain set of qualifications. In addition, the collective skill set of the association may be a resource that can be exchanged for income or resources.

For most associations, finances must be closely monitored. For nonprofit entities, it’s important to be able to show an auditor exactly where the funds have been spent in pursuit of the association’s cause. For other associations, it’s equally important that the money trails be transparent. Since these types of associations are usually supporters of a group, auditors must be able to prove that there are no conflicts of interest.

Legal Considerations for Associations

While unincorporated associations are not technically legal entities, they have come to be recognized in certain circumstances. Associations with charters and documentation can be recognized as legal entities, which allows them to hold property and also opens them up to the potential of litigation. Even without official state registration and approval, associations that have taken the time to form bylaws and a structure can in some cases be considered legal entities on their own.

An association registered with the state can be viewed as a legal entity with its approval, and its bylaws have weight as long as they are not immoral, illegal or against public policy. The rules determining the lines can be different from state to state, and it’s important to consult with an attorney to get legal advice on the situation while bylaws are created.

At larger sizes, associations become huge representative bodies with resources to spare. These associations often work with lobbyists, who use the association’s resources to press lawmakers to pay attention to their own particular interests. At this level, transparency is even more important since an association representing a large group can have an incredible amount of influence. Even at the local level, associations can use their collective strength to push for legislation that will favor their business.

Other Types of Associations

While business associations are the most common, not all associations need to be related to business owners and their interests. There are a number of educational and academic associations that provide their paid members with perks like access to literature and special conferences. Local homeowners’ associations use their dues to provide support to the neighborhood.

Even within industry, associations can focus on individual workers who share a profession or dream, providing them with material to help them move into management or succeed in their work. Creating an association is a manageable goal with the right number of interested people.

References

About the Author

Danielle Smyth is a writer and content marketer from upstate New York. She has been writing on business-related topics for nearly 10 years. She owns her own content marketing agency, Wordsmyth Creative Content Marketing (www.wordsmythcontent.com) and she works with a number of small businesses to develop B2B content for their websites, social media accounts, and marketing materials. In addition to this content, she has written business-related articles for sites like Sweet Frivolity, Alliance Worldwide Investigative Group, Bloom Co and Spent.