Association or Organization: What Is the Difference?

How can you know whether a group that gets together regularly should be called an association or organization? While people commonly use the terms interchangeably, there are distinct differences between them. Despite the differences, the two terms also have a few things in common.

In considering the connection between association vs. organization, the members of both bodies have a common interest or purpose. In either case, by learning the nuances of each term, boards will have a better understanding of their own organizations and those they partner with.

Here, we’ll take a deeper dive into the following:

• Definitions of an organization and an association
• Examples of organizations and associations
• Explain the similarities and differences between them

What Is an Organization?

In a general sense, we define an organization as people who work toward a common purpose. Organizations can be large or small, and they may meet formally or informally.

Generally, organizations have some type of structure. The structure defines the leaders’ duties and describes how to divide the labor. Policies and procedures outline the organization’s rules and the way it functions. Overall, the primary distinctions of an organization are that it has a structure and some type of hierarchy.

Nonprofits and corporations are good examples of organizations. The general purpose of a nonprofit is to serve the community, while a corporation’s purpose is to generate revenue.

The IRS requires nonprofits to have articles of incorporation, corporate bylaws, and meeting minutes. If the government ever questions a nonprofit it must be able to produce these documents. Your board management solution provides an accessible platform where board members can access these documents at all times.

Subgroups within Organizations

Mid-sized and large organizations often have sub-groups. For example, a business may have the following departments:

• Human resources
• Accounting
• Shipping and receiving
• Marketing
• Operations
• IT

There is commonly a hierarchy within each department such as managers, supervisors, and workers.  Nonprofits can also have subgroups which are usually in the form of teams or committees. For example, nonprofit subgroups may include:

• Board of Directors
• Executive Committee
• Standing or ad hoc committees
• Fundraising teams
• Marketing teams
• Volunteer teams

Examples of an Organization

Here are some examples of organizations:

• Nonprofit
• Neighborhood association
• Charity
• Foundation
• Union
• Corporation
• School groups

Download The Nonprofit’s Guide to Board Effectiveness to identify areas of improvement and apply best practices for a more effective, productive and successful board.

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What Is an Association?

If we look at our history, associations were an integral part of society even before legal systems developed. Associations came into being to connect people who had a common interest in a topic or activity. Farmers, quilters, athletes, singers, and people with various religious faiths have been meeting informally for centuries to share information, practice skills, and learn from one another.

How does the IRS define an association? The definition is important because the IRS determines which professional organizations or associations must pay taxes. The IRS states the following:

“To qualify under section 501(a) of the Code, the association must have a written document, such as articles of association, showing its creation. At least two persons must sign the document, which must be dated.” The IRS uses the term association, yet because nonprofits fall under the 501 IRS Code, they must have leadership. An association with a structure and leadership could be called an association, but it is more accurate to call it an organization.

For an association to qualify as a non-taxable body, it must meet the criteria under section 501(c)(3) of the IRS Code, and the articles of association must contain certain language as outlined by the IRS. In addition to the federal government’s definition of an association, states may also have their own definitions of an association.

Regardless of what an association’s purpose is, nonprofit boards have a fiduciary responsibility to understand the IRS rules, state laws, federal laws, and any local laws that apply to their group.

Examples of an Association

Here are some examples of  types of associations:

• Homeowners associations
• Condominium associations
• Social advocacy groups
• Sports teams
• Family groups
• Coworkers
• Reading groups
• Bingo groups
• Prayer meetings
• Sewing circles

What Is the Difference Between an Association and an Organization?

The nature, scope, and purpose of an organization are all considerations on whether to call it an organization or association. Either an association or organization can be tax-exempt as long as they meet the IRS rules for not having to pay taxes.

While professional organizations and associations are allowed to make a profit, nonprofit organizations and associations must reinvest their profits into the body.

A distinct difference between associations and organizations is that nonprofit entities must work toward their missions, while associations may exist only to share information and resources. An organization encompasses all the relationships and divisions within it that align with its purpose and mission.

Organizations have a structure that outlines who is in charge and who they are in charge of based on the principle of the division of work. Leaders are responsible for the people and activities they lead.

By contrast, associations generally have no structure or designated leadership. It’s common for associations to have an open-door policy where people can drop in or out of the group as they choose. An association can be as simple as a group of veterans who get together monthly to talk about their experiences and enjoy a cup of coffee. A particular person may be responsible for communicating where and when an association meets, although they don’t typically have leaders with typical leadership responsibilities.

Another difference to consider when deciding whether a group is an organization or an association is the geographical location where the group meets. Organizations commonly meet in public or private spaces such as conference rooms, office buildings, or churches. Association groups generally meet anywhere they wish. They can choose a formal space such as an office, an informal place such as someone’s home, or somewhere else.

Organization vs. Association

Organization and Association Similarities

We’ve pointed out the main differences between organizations and associations, here is a brief list of the similarities between them:

• Both must have two or more people in them
• Both have a common purpose and meet regularly
• Both are interested in a common purpose, goal, or aspiration
• Both may have a leader or may share leadership responsibilities
• Both are legally allowed to make a profit. In the case of nonprofits, any profit made is reinvested back into the organization.

Nonprofits: Association or Organization?

Does a nonprofit fall into the category of an association or organization? If we stick to the true definitions of each term, nonprofits are considered organizations. Why?  Because nonprofits are entities that must have a board of directors to legally be considered a non-taxable body. As such, they have a structure and leaders. Nonprofits are required to work toward the benefit of their missions. The board sets goals for the organization to achieve. While boards may meet at someone’s home, they generally hold meetings in public or private spaces.

When it comes to association vs. organization, one is not better than the other, and both are vital parts of our society helping to deliver necessary services to key stakeholders. Due to this significance, it is essential to ensure they run efficiently. Whether an association or organization, a board portal can streamline complex tasks and secure communication to ensure success will into the future.