Your Club as a Business - Incorporation Comparision

In the article "Your Club as a Business – Legal Status", incorporation options were outlined for incorporating your club as a formal organization complete with articles of incorporation, by-laws, and officers. In general, for clubs there are two avenues recognized by the Internal Revenue Service as legal structures: 501(c)(3) non-profit organization and 501(c)(7) recreational club organization. The choice depends on the underlying reason you have formed your club; each has advantages and disadvantages.
The below table outlines the general requirements for 501(c)(3), 501(c)(4), 501(c)(6), and 501(c)(7) incorporation options.
501(c)(3) |
501(c)(4) |
501(c)(6) |
501(c)(7) |
Organizational requirement |
No requirement (or less stringent) |
No requirement (or less stringent) |
No requirement (or less stringent) |
Social activities must be insubstantial |
Social activity may be anything less than "primary" |
Social activity may be anything less than "primary" |
Social activity must be primary; other activities must be less than primary |
Legislative activity must be insubstantial, or <20% if election made |
No limit on legislative activity as long as it furthers the exempt purpose |
No limit on legislative activity as long as it furthers the exempt purpose; legislative expenditures may limit the deductibility of dues |
No limit on legislative activity as long as it furthers the exempt purpose |
Absolute prohibition against political activity |
Political activity permitted, but taxed |
Political activity permitted, but taxed |
Political activity permitted, but taxed |
Must serve public purposes |
Can serve community purposes, can be somewhat narrower than (c)(3) |
Can serve the business purposes of the members |
Serves the social and recreation purposes of members |
Donations are deductible as charitable contributions by donors on their tax returns |
Donations not deductible as charitable contributions - businesses sometimes deduct as advertising |
Donations not deductible as charitable contributions - businesses sometimes deduct as advertising; dues may be deductible as business expense |
Donations not deductible as charitable contributions |
Eligible for low cost non-profit bulk mailing permit |
Not eligible for lowest bulk mail rates |
Not eligible for lowest bulk mail rates |
Not eligible for lowest bulk mail rates |
Must take care to generate enough public support to avoid classification as a private foundation |
Not an issue under (c)(4) |
Not an issue under (c)(6) |
Not an issue under (c)(7) |
Exempt from Federal income tax unless the organization has unrelated business income |
Exempt from Federal income tax unless the organization has unrelated business income |
Exempt from Federal income tax unless the organization has unrelated business income |
Exempt from Federal income tax on income derived from members; other income taxed |
Related Articles
- Your Club as a Business – a 7 Step Guide
- Your Club as a Business – Start with a Plan
- Your Club as a Business – Strategic Planning
- Your Club as a Business – Legal Status
- Your Club as a Business - 501(c)(3) Incorporation
- Your Club as a Business - 501(c)(7) Incorporation
- Your Club as a Business - Other Incorporation Options