Your little munch group has been growing. You have added a few other types of activities and there is talk of collecting dues to enable the group to do more things, or to perhaps even host a BDSM conference.

Should this trigger thoughts of incorporating?  And if so, why should the group consider that?

The biggest reason to incorporate is protecting individual members from lots of potential legal problems. The group can get a business license. It gives your group legal status that would allow the group to report a theft to the police and to file a lawsuit against the former member who steals your money. Most of all it can, if done properly, keep your group and your Weekend Kink Conference Committee members from being liable if an attendee gets drunk, trips in the dungeon, and breaks their neck.

Some other practicalities include: If you try to open a bank account for the dues in the group’s name, the bank will ask to see paperwork showing that the group officially exists and asking for the Tax ID Number. Yes, you can work around that if Fred, your treasurer is willing to have the account in his name, but that can raise other problems. You cannot put the money in an interest bearing account that way unless Fred is willing to have the interest reported under his Social Security number. If the money is in Fred’s name and his bank account is garnished, you have probably kissed your money goodbye. Also, if Fred steals the money and disappears, are you going to call the police when all the paperwork says its his money, and when your group legally, officially does not exist? Or are you going to pick that day to out yourself to law enforcement? Neither of those are appealing choices. Incorporation can solve those problems.

If you have decided to incorporate, you need to decide what kind of corporation to be. A non-profit (also called not-for-profit) may have less paperwork to file with your state or the IRS. A non-profit can make money and not have to pay taxes on that money if the correct guidelines are followed.

If you file with the IRS for this, take a good look at the forms to become a 501(C) 3 (educational organization) or a 501(C) 7 social club. Those are the two sections your group is likely to fit into. There are slightly different dos and don’ts for each of those.

Your state probably has specific laws in place concerning for-profit and non-profit corporations and you need to read those to see if there are potential pitfalls for how your group does business now. New York and Missouri, among others, have some specific laws that you need to work carefully around to maintain the privacy of your membership records.  You are going to want a lawyer for that, but it can be done.

Incorporation creates a distinct line between what belongs to the corporation and the individual members in financial matters; you must keep that line in place and abide by it. If it was your group for several years you might have felt ok loaning yourself $50 to shop for personal groceries and repaying the group funds the next day. When you have incorporated that group, that type of informal money handling needs to stop completely.

There can be some minuses depending on how you have done business in the past. Your group will have to obey the record keeping rules all the time. Your officers may have to be listed on annual reports filed with the state or the IRS, and your group cannot hope it is “below the radar” in the future.

Yes, these are only major bullet points on this subject. Thorough coverage of all issues in this would run many pages, but hopefully this can help you get started if you are considering incorporation.

If your group has a member who is an attorney or an accountant, they may be able to handle the paperwork for you, although there can be advantages to dealing with a professional who has no other role on behalf of your group.

Most of the large, long-lasting groups, such as TES, BR, Janus, and others have been incorporated for years and they found it was their best way to go.

For things to read if you are considering this, see IRS forms 1023 [pdf] and 1024, [pdf] IRS publication # 557 and your states laws about for profit and non-profit corporations.