golf4two

What are the advantages and disadvantages of incorporating a small club (or where might I find the answers)?
I know little on the subject except there are some implications on liability of the club officers and, if incorporated, possible tax issues as well as being able to execute legal documents such as leases. I've no idea where to start my search so any info or pointers would be most welocome.

Tks, G42

pkoury

My Feedback: (7)

Did you check out the AMA document? http://www.modelaircraft.org/files/500-i.pdf

golf4two

pkoury: Thanks very much for pointing out that document. After reading it two or three times though, it kind of seems like an ad for AMA insurance and very general in nature. What I am trying to say is that it generates more questions in my mind than it answers. Granted that AMA insurance should suffice in the greatest number of cases there is always that chance. No substitute for flying safe; however, stuff happens!

jester_s1

In a nutshell, incorporation is lawsuit protection for club members, especially club officers, and it allows some extra freedom for handling money. On the lawsuit protection side, let's say the club had a work day and the club president asked everyone to pitch in. And the club president brings out his rickety old tractor that's missing some safety guards and a club member gets his hand chewed up in the PTO shaft when the owner asked him to fix something. I know that's a far fetched scenario, but goofy accidents do happen. The club president would be liable for the person's injuries, and in an unincorporated club, he could be personally sued by the injured party. But if the club is incorporated, that's not legally possible no matter how negligent the president was. Only the club can be sued. And even in a scenario where the injury wasn't in any way the club president's fault, let's say a drainage ditch was deeper than it looked and someone messed up the front of their truck trying to cross it, the club officers are all open to lawsuits if the club isn't incorporated. So how many among us would want to serve as officers in a club where our homes and bank accounts are all up for grabs every time an idiot hurts himself?
On the finance side of things, being registered as a non-profit corporation allows you to offer tax deductible status to donations of money or equipment, encouraging people to give. You won't pay taxes on any of it unless it can be shown that the club is actually making money instead of putting any profit it turns back into its mission of providing an RC flying field to its members. It also helps keep everyone honest since the non-profit status requires a bureaucracy of checks and balances with respect to finances. With a full set of officers including a treasurer who is required to submit a finance report to both the club and the IRS every year, it's a lot harder to mishandle money or steal from the club if it's registered as a corporation.
Then there is the future concern that any decent club has. If there is property to be owned, and there always will be, incorporating settles the matter of who owns it and what the club's rights are to it. If a club member is allowing use of his personal property, a corporation will be required to formalize a lease. That keeps that individual from being able to hold the loss of the flying site over the club's head if things don't go his way. It also prevents a disgruntled land owner from being able to shut the club down at a moment's notice. Donations of equipment become true donations because the property will be owned by the club instead of still legally the possessions of the donator so they can't be taken back.

jester_s1

Oh and for disadvantages, it does cost some money to file the paperwork for incorporation, it takes time to set it all up, and being a corporation requires that the club always have the required set of officers and have regular business meetings lest it risk losing it's non profit status. It's also much more complicated to disband the club if it's a corporation.

golf4two

jester_s1: Thank you very much for the explanation. That makes things a lot clearer. We will have to look at the costs and process of incorporation. We are still a very small club but fly in an area that carries some risks. Granted that incorporation is not the best option for many but, I think, is something that should at least be considered.
Thanks again.
G42

golf4two

After more research it seems that incorporation is a larger expense than I originally thought: Nonprofit incorp(: $99, Ga filing fee: $ 140, fed tax ID: $79, Reg agent fee $169(annually),501(3)(c) application $495. Cost prohibitive for such a small club as ours. YMMV.

golf4two

After more research it seems that incorporation is a larger expense than I originally thought: Nonprofit incorp(: $99, Ga filing fee: $ 140, fed tax ID: $79, Reg agent fee $169(annually),501(3)(c) application $495. Cost prohibitive for such a small club as ours. YMMV.

jester_s1

Most of my adult life has been spent in church work. Churches have to make this same decision, and the process is exactly the same as for an RC club. The standard advice pastors of small churches are given on when to incorporate is that it's time to do it when your organization is a big enough target to be worth suing. When there are enough people around that something could happen (not the 1 in a million freak occurrences but rather realistic possibilities) then it's time to consider it. If you're talking about a dozen guys who've made an informal agreement to some basic safety and etiquette regulations in order to fly together on an unimproved field, incorporation probably isn't needed. But when the group expands and especially when you start thinking about hosting contests, you have to consider the worst case scenarios and prepare for them. Me personally, I wouldn't want to be a member of a club that wasn't incorporated and certainly not one that didn't carry any kind of liability insurance. And I would never serve as a club officer when it would put my own personal assets on the line when something goes wrong. I had the same policy when I was a pastor; I wouldn't even consider a church that wasn't incorporated or wasn't at least willing to get incorporated as a first order of business once I was there.

golf4two

jester: Very well covered and stated. I'm sure a lot of clubs will be interested in your reply. Thank you again. We currently fall into the "dozen guys" category so will have to see if we grow any.

MajorTomski

My AMA chartered club has been in existence since the 60's. The original founding individuals actually went through the steps to register as a club with the state. That data hasn't been updated since the early 70's but the state still lists us as out there. But since that time the succeeding administrations haven't bothered with that 'stuff'.

Fortunately, no one has been seriously hurt on our field in all those years. What few cars that have been smacked by planes have been handled by the AMA umbrella coverage.

Couple of things to keep in mind:

Not-for-profit (NFP). A LOT of people have the odd notion that the 'club' can't have a 'profit' at the end of the year. They think the bank balance a the end of the year has to be zero. And they'll get in your face serious about that. As you've found out, it is an IRS term and an IRS term only. It is difficult to qualify and maintain the paperwork as an educational NFP, the end purpose it to not have to pay taxes on sizable income, and make sure that when the club folds up, any money in the treasury and real property are given to another qualified NFP (i.e. the AMA) If you divide the remaining funds of the club back to the remaining members then you have just 'profited' from the club and are now responsible for all the taxes you haven't been paying as an NFP.

Money: Have a set of double checks and balances on your club's funds. We had a treasurer who read our by laws that the 'officers' could spend up to $500.00 per month without a vote of the membership. So he'd use his landscaping companies equipment, haul in a load of gravel to the parking lot or dirt into some holes in the field and pay HIMSELF $500.00 out of the treasury. When he got called on it he, thankfully, left. Get co signed checks, or a written vote of your board on ANY expenditures of ANY amount.

Do have a written set of bylaws as to the responsibility of the club members and officers and do have a written set to club safety standards that apply at your field. When I first joined my club in the 90's there was continual wailing and gnashing of teeth with members constantly bashing one another with club 'rules' violations. At my second or third meeting I asked what were these 'rules'. I got a "Everyone in this club knows the rules!" shout-down from one of the oldest members and biggest basher. I replied with I'm a member, and I don't know the rules and if you can't show me them in writing, then they don't exist. Guess what? 90% of what this guy was using to spoil the fun of the entire club were things he'd made up in his head and they changed from month to month. A one-page written set of field operations rules that's maintained, and everyone gets a copy when they renew their membership keeps this kind of nastiness to an absolute minimum. My club's been a pretty nice place since we put everything in writing. I'll pm you copies if you'd like.

Best of luck.

golf4two

PM sent. Many thanks. Will take all the help we can get.

jester_s1

That's great advice from MajorTomski. When it comes to the club situation, there's no such thing as friendships. Everything that matters needs to be in writing and agreed upon. My club, like most others, has the safety and field etiquette rules posted permanently in the pit area. That way there is no question from anybody if something is a rule or not. Breaking of the posted rules when it's clear the violator understands what's expected and doesn't want to do it is grounds for dismissal from the club. And it never happens, because everybody is clear on what's required to fly there. So if you guys will go ahead and nail down what the requirements are for people who fly at your location and get a good sign made for them, it will do wonders for the harmony of your group.

Michaelj2k

My SIG (Special Interest Group) has been considering going the 501(c)(7) route for social clubs. Does anyone have experience with that?

Hossfly

Start with spending time with the Internal Revenue Service web site. Find out the IRS Regulations concerning Corporations and TRY to find the information concerning the type of corporation that will somewhat fit your plan/s. It ain't going to be easy, especially since you are not planning a business, or that is what I think you wish to for your "corporation".
You also state that the expense is beyond what you are willing to pay. I think you can do better that your figures, especially if you know some C.P.A.s or legal attorneys.
Way back in the '70s I knew a couple and I owned a Hobby Shop in IL. plus over some years 3 Sub-Chapter S businesses for my kids in college. Since then I have done all my personal business ventures which now mostly are IRAs that own Real Estate. It ain't easy and I use J.K. Lasser's books. So far, so Good.

My main RC Club is Jetero RC Club INC. www.jetero.com Go to that web and check with the club Treasurer. He is a pretty good fellow, and if you are nice I think he will assist you to get your program started for a Sub-Chapter S or better. Right now I forget those various Sub-Chapters such as he knows. He is a Treasurer of some sort.
Good luck!

KaP2011

My Feedback: (17)

I'm not sure where you got your numbers but I don't think it costs that much. I set up my sister's company last year and I don't think it was over $300. (for an LLC) Yes I'm talking about Georgia. It's not near as difficult as you might think. Annual registration after the initial filing for a non-profit corp. in GA is $30. Check out the PDF I attached, it may provide you with some answers.

Luckily, to my knowledge, our club has never needed the protection from law suits that incorporation provides in over 25 years.

rcmiket

Any club seriously considering incorporation or applying for a 501 needs to find a good accountant who specializes in this type of thing. We the Horizon City Flyers let one of our members " a self proclaimed expert" file paperwork for us. Needless to say it turned into a nightmare as he had no clue what he was doing. We found a very good inexpensive accountant who not only straighten the mess out but worked with us and the IRS to help us obtain our 501 (c) 3. It did cost us a few bucks but it was well worth it. Being a club officer I appreciate just what the club did investment wise to help protect it's officers and the club.

Mike

jester_s1

Agreed, rcmiket. This isn't something to let an amateur do. Tax law is complicated, so it pays to get it right the first time.

beepee

I question whether it protects the club officers from liability, and to be clear, I am no lawyer. If only the club is sued, yes, I expect they are protected. If the suit names the club AND officers separately, I don't believe it does. A suit claiming there is lack of safety management pervasive to the club's operations not acted upon by the officers, could happen. Only have to sell it to a jury.

Bedford

rcmiket

Bottom line if something happens EVERYONE'S getting sued I feel a lot better knowing being incorporated protects me to some extent. Anything is better than nothing at all. We had a attorney as a club member and based on his recommendation we pursued it. "I don't believe it does" you stated your not a lawyer so how can you claim that?

Mike

beepee

I did not say, "I know it doesn't." That would have implied knowledge of the law. "I don't believe ..." expresses my layman's opinion. If EVERYONE is getting sued (by name), I don't see the protection. This weighs heavy on my mind in consideration of taking a officer's position with a club.

Bedford

ira d

I am not a lawyer but it would seem nothing would stop a individual from being named in a suit however I believe the AMA provides insurance for club officers. As I understand it
if a unincorporated club loses a lawsuit all members can be made to pay and can have their personal assets attached but not so in a incorporated club.

beepee

Ira, you bring up good points. My concern about the insurance backing of the AMA is if the claim includes a lack of following club and AMA safety standards, will the AMA stay in the fight. My experience with a number of clubs has been that their safety rules written into their by-laws have not been strictly enforced. An individual in the club might be named in a suit as a direct participant in the damages. So be it. That is a risk mostly within my control. An officer might be names as one in 'control' of the operating culture at the field. A much broader brush. Your point regarding financial exposure of all members falls into the same scenario where AMA backs out due to lack of safety adherence. I agree with you here.

Bedford

ira d

Bedford, As with most things insurance companies and or organizations that handle insurance tend to look for ways out of paying or limiting the payout and for that you have a genuine concern. But
I don't think a incorporated clubs members can be held liable even if the AMA does not pay. Of course as a officer I guess you could still be liable.

I think the key is don't do or say anything that would seem like you approved of something unsafe or against the AMA safety code.

rcmiket

" This weighs heavy on my mind in consideration of taking a officer's position with a club."

Then don't. Sit back and watch others who are willing do the work then complain about it and how it's done. It;s the same old story 5% of the people willing and the other 95% looking for reasons why they can't.
My understanding is that incorporated club officers are protected from personal asset liability. That is one of the reasons we (our Board of Directors ) are willing to serve.
Mike