For-profit trade association

September 24, 2008 9:50 AM

We want to form a 'for profit' trade association. Several of us (in my industry) think we should be represented by a trade association, but all the research I've done so far points to associations as 'non-profit' organizations. Is there any reason why a commercial company can't set itself up as an industry association and sell memberships and attempt to represent it's members ? (in marketing and regulation and public education, etc.)

I guess 'membership' might have to be thought about - they'd be more like "subscribers" to a service - but as long as there's a service that is defined and a price for that service, we can't see the problem. Are there special laws or regulations surrounding trade/industry associations that mean they have to be set up and operated in a certain way? I'd love to hear about any profit-making/commercial examples of what we are thinking of doing.

posted by Xhris to law & government (7 comments total)

I imagine it's usually done as a "not-for-profit" enterprise in order to gain favorable tax treatment.
posted by Oktober at 10:25 AM on September 24, 2008

This is hard to do right, and I'll say that personally I implicitly don't trust for-profit trade organizations, but they are becoming more and more common. The most well-known for-profit trade organization is probably the Better Business Bureau.

The trick about all this is, although I have no idea what industry you're thinking about, the line between 'for-profit trade association' and 'marketing company' is a very fine one. Since there usually aren't laws or regulations set up around those kinds of associations beyond the laws which govern the industry itself, it's very hard to create trust in the mind of the public. Your uphill battle will be convincing the consumer that, though you are paid by the industry, you can still be honest about the industry.

Some other notable examples of for-profit trade associations can be found in myriad proportions in the agricultural industry. It seems like another one of these companies that certifies organic beef or something yet, oh wait, just happens to get most of its revenue from large beef producers pops up every day.

Personally, I don't even trust the Better Business Bureau - I can do my own research, thank you. But I think the things I've said give you a good idea of the obstacles you might face and where you could find examples of companies that did it successfully.
posted by koeselitz at 10:25 AM on September 24, 2008

Oktober: I imagine it's usually done as a "not-for-profit" enterprise in order to gain favorable tax treatment.

On the contrary, 'not-for-profit' entities are subject to a higher level of transparency, especially about where they're getting their funding. In short, it's much easier for the public to know that a not-for-profit isn't getting paid off to lie.
posted by koeselitz at 10:27 AM on September 24, 2008

You will run afoul of 501(c) protections that would otherwise give your organization tax exemption were you a non-profit. As mentioned above, the line is fine: there was a famous case (the name of which escapes me at the moment) in which a nominally non-profit dental trade organization lost tax-exempt status because of the degree to which they did commericial work on behalf of members. If you're contemplating for-profit status anyway, this may not bother you.
posted by Inspector.Gadget at 10:35 AM on September 24, 2008

Is there any reason why a commercial company can't set itself up as an industry association and sell memberships and attempt to represent it's members ? (in marketing and regulation and public education, etc.)

Hmm, there's a name for that sort of thing...
posted by Pollomacho at 10:42 AM on September 24, 2008

A not-for-profit trade association serves one master: its members. A for-profit trade association must always have divided loyalties: members and shareholders. Who gets to elect the Board of Directors? Who selects the Executive Director. Very hard to overcome this.

There is one well-established exception: a law firm which acts as an ad hoc or de facto trade association infrastructure for lobbying or litigation purposes. The split-loyalties problem is overcome by the fact that law firms have a fiduciary duty to put client interests ahead of shareholder interests. It's also easy for a law firm to form a steering committee of clients with a common interest, to choose experts and even staff in consultation with clients, etc.
posted by MattD at 11:41 AM on September 24, 2008

Agree- why do you want it to be for-profit? What profit is there for them to make? If they are representing your industry's interests, how will they balance their fiduciary responsibility to generate profit against a probable conflict of interest with membership?
posted by gjc at 8:37 PM on September 24, 2008