Beneficial Association(redirected from Organization and Incorporation)
An incorporated or voluntary nonprofit organization that has been created primarily to protect and aid its members and their dependents.
Beneficial association is an all-inclusive term that refers to an organization that exists for the mutual assistance of its members or its members' families, relatives, or designated beneficiaries, during times of hardship, such as illness or financial need. The assistance provided by a beneficial association can take the form of life, accident, health, or burial insurance. Beneficial associations may also be called benevolent associations, fraternal societies, fraternal orders, or friendly associations or societies.
Early beneficial associations were similar to the English friendly societies, which first appeared in the 1500s. Working people organized these clubs to provide sickness and death benefits for members. Several fraternal societies established branches in the United States and Canada in the early 1800s.
The Ancient Order of United Workmen, founded in 1868, was the first beneficial association to pay substantial death benefits. Other groups that followed its model were soon created. These early associations and societies furnished life insurance to members whose income was so low they could not have otherwise obtained insurance benefits. In addition, many of these associations provided companionship and social activities for their members.
The National Fraternal Congress was formed in 1886 to provide state regulation and uniform legislation for beneficial associations. In 1901, a group of associations and societies formed the Associated Fraternities of America. In 1913, the two groups merged to form the National Fraternal Congress of America.
Beneficial associations include the Police Benevolent Association, Loyal Order of the Moose, Knights of Columbus, Independent Order of Odd Fellows, and Benevolent and Protective Order of Elks. Many of these associations are secret lodges, with passwords, ceremonies, and initiation rites.
Organization and Incorporation
The common-law right of contract authorizes the formation of a beneficial association through the voluntary association of its members. Incorporation of a beneficial association may occur either by a specific legislative act or under general statutes that expressly authorize such incorporation. Some states codify laws pertaining to the formation and incorporation of beneficial associations in their nonprofit corporation law; they do so because beneficial associations may not be formed with the purpose of bringing a financial benefit to their founders.
A beneficial association is organized through its charter, constitution, and bylaws.
Charter The charter of a benevolent association is the basis of its legal existence and the source of its power to carry out the objects of its creation. A charter is analogous to articles of incorporation and becomes part of the contract of membership when one joins the beneficial association. For beneficial associations that elect to incorporate, the charter will be embodied in the articles of incorporation. Regardless of whether the association is incorporated, the charter incorporates by reference the general laws of the state in which the association is formed.
Constitution and Bylaws The constitution of a benevolent association defines the fundamental principles that will govern the duties of the association and its officers and the regulation of its membership. Unless the constitution is expressly embodied in the charter, it is regarded as a code of laws similar in effect to bylaws. A constitutional provision will prevail over a provision of a conflicting bylaw because it is viewed as a fundamental rule for the government of the association.
Beneficial associations may adopt bylaws that will determine all questions of discipline, doctrine, and internal policy and will regulate the association's general business activities. The enactment of a bylaw is governed by provisions contained in either the charter or the constitution. Bylaws must be in accordance with the law and public policy, must be reasonable, and must apply to all members uniformly. The constitution and the bylaws form a binding contract between and upon all the organization's members. Finally, bylaws also provide for the dissolution of a beneficial association.
Rights, Powers, and Liabilities
The authority and powers of beneficial associations are subject to the statutes under which the associations are formed and organized. An incorporated association may not enlarge the powers granted to it by the statute under which it was created. Certain powers, such as the power to enter into contractual relations, may be implied when they are essential to the accomplishment of the association's objectives. Contracts are binding upon the association when they have been executed by the appropriate officers of the association. Through its proper committees or officers, a beneficial association may enter into a lease.
Generally, a beneficial association has no power to borrow money. However, some states permit proper officers or committees to execute bonds and mortgages in order to secure building loans.
Ordinarily, beneficial associations can transact business in places other than the state within which they have been organized.
Because beneficial associations are founded on the principle of mutuality, in which each member shares all the benefits as well as all the burdens, they do not have capital stock, nor do all associations maintain a fund for paying benefits. If a fund is not maintained, each member promises to contribute an equal share with every other member as the association's need for funds arises.
Unless a statute makes a distinction, courts generally recognize a beneficial association certificate containing insurance features to be the same as any other similar insurance contract. If the certificate indemnifies a member in case of disability or death, the association will be regarded as a mutual insurance company. However, beneficial associations are not the same as insurance companies. First, beneficial associations do not have as a purpose the goal of indemnifying or securing against loss; rather, they create a trust fund with their members' dues, from which they may provide relief to their members. Second, beneficial associations are not created for profit. Third, these associations do not advertise for business but limit their clientele to their members. Finally, whereas an insurance company fixes a beneficiary's rights with the terms of the insurance policy, a beneficial association member's rights to receive benefits depend on both the certificate and the constitution and bylaws of the association.
Power to Acquire Funds and Property A beneficial association may acquire and dispose of property in a proper manner and for proper purposes, whether by sale, deed, lease, mortgage, or other document. A valid bequest of property for charitable purposes may be made to an association that has been incorporated and authorized by its charter to hold property for such purposes.
The funds of a beneficial association should be spent according to the association's purpose as defined by its charter, articles of incorporation, constitution, or bylaws.Benefits A beneficial association's bylaws and controlling statutes specifically designate which benefits are payable to its members, and the types of benefits provided are restricted to those specified.
Beneficial associations may make payments in two ways. The first is based on the contractual agreement between the association and its members. As with an insurance policy, the members' dues are a contribution to a fund from which specified benefits are paid upon a proper claim. Disputes arising from this contractual relationship may ultimately be resolved in a court of law.
The second way a beneficial association confers payments is through an act of benevolence. The term benevolence means the doing of a kind or helpful action towards another, under no obligation except possibly an ethical one. A beneficial association may appoint a board to review applications for benefits not based on the contractual relationship. This board could, for example, extend additional financial benefits to a disabled member who has exhausted the benefits specified in the bylaws. If such a benefit is given as a matter of benevolence, it may not be claimed as a right, and it is not enforceable in court. Likewise, a beneficial association could donate money to a civic activity as an act of benevolence.
An association may set forth certain conditions precedent to the receipt of benefits by its members. Such conditions must be met before the right to receive benefits may be enforced.
If a member of a beneficial association defaults on the payment of dues, the member might lose the right to receive benefits.
In general, one claiming benefits from an association must exhaust all remedies within the organization before seeking judicial relief.
Liabilities A beneficial association may not ordinarily be held liable in tort or contract for unauthorized acts of its members or agents. A voluntary unincorporated beneficial association is considered to be a joint enterprise, and no liability for tort exists between those engaged therein. An unincorporated association, may, however, be held responsible for damages resulting from the Negligence of its employees in work of a noncharitable character.
"Fraternal Orders and Benefit Societies." American Jurisprudence 36, no. 2.
Owens, Bill. 1975. Our Kind of People: American Groups and Rituals. San Francisco, Calif.: Straight Arrow Books.
Whalen, William J. 1967. Handbook of Secret Organizations. Milwaukee, WI: Bruce.