Careers Business Ownership What Is a 501(c)(6) Membership Based Nonprofit? Definition & Examples of a 501(c)(6) Membership Based Nonprofit Share PINTEREST Email Print Ales-A/E+/Getty Images Business Ownership Industries Nonprofit Organizations Retail Small Business Restauranting Real Estate Landlords Import/Export Business Freelancing & Consulting Franchises Food & Beverage Event Planning eBay E-commerce Construction Operations & Success Becoming an Owner By Joanne Fritz Joanne Fritz Joanne Fritz is an expert on nonprofit organizations and philanthropy. She has over 30 years of experience in nonprofits. Learn about our Editorial Process Updated on 09/17/20 The 501(c)(6) designation includes membership-based organizations or clubs that promote the business interests of their members, such as trade associations and sports leagues. Learn more about 501(c)(6) membership-based nonprofits, the criteria to become one, and the benefits granted by the IRS. What Is a 501(c)(6) Nonprofit? A 501(c)(6) membership-based nonprofit is an organization that exists to promote its members' business interests, without the goal of making a profit. In addition, these organizations must make sure that no one individual or shareholder benefits financially from the organization's income. While charitable nonprofits must serve a public good and be supported by the public, a trade association and similar organizations do not have to serve the public good. The IRS includes many nonprofits under the umbrella of its 501(c) tax code, and like charitable organizations, these nonprofits enjoy a federal tax exemption and other benefits. A nonprofit business group may also accept unlimited contributions from corporations, individuals, and labor unions without disclosing names or amounts of specific donations. However, contributions are not tax-deductible for an individual's tax return, only as business expenses. The most common 501(c) nonprofit is the 501(c)(3) charitable organization, which includes the Red Cross and United Way, as well as nonprofit hospitals and universities. How 501(C)(6) Nonprofits Work In general, to meet the requirements of IRC 501(C)(6), organizations should: Be an association of people with a common business interest, and its purpose must be to promote this common interestBe a membership organization and have a significant base of membership supportNot be organized for profitNot have any part of net earnings be to the benefit of a shareholder or individualHave activities directed at improving business conditions rather than the performance of particular services for membersNot engage in a regular business that would ordinarily be carried on for profit There are several common types of 501(c)(6) organizations, such as: Chambers of commerce Trade associations Real estate boards Professional associations Pro football leagues (these are business-based leagues, not amateur sports organizations, such as those included under the 501(c)(7) designation) Boards of trade Business leagues These types of organizations have a business purpose but do not provide services for individuals, only the group. A business league must also represent an entire industry or industry segment within a particular area, which means that businesses with a specific brand would not qualify. On the other hand, chambers of commerce and boards of trade promote all businesses' interests within a particular category in a given area, such as San Francisco or the greater Chicago area. Members of 501(c)(6) organizations must have a common business interest, and the organization must promote the welfare of that interest, not engage in the business itself. So a group of realtors would support favorable business conditions for their profession, not sell real estate itself. How to Get 501(C)(6) Status To apply for 501(C)(6) status, you must fill out IRS Form 1024, which can be found online, and submit a user fee. In addition to this, you will need the following information: Organizational activities Present and future sources of funding Names of officers and directors Affiliations with other organizations Financial information Services that will be performed for members Employer Identification Number Like charitable organizations, business associations will need to make everything public, including your tax-exempt determination letter, tax forms (Form 990), IRS application, and supporting documents. Be prepared to provide these documents to anyone who asks for them. Key Takeaways A 501(c)(6) designation is given to organizations that promote its members' interest without the goal of making a profit.Members should pay dues to the organization, which are considered business expenses and are tax-deductible.All net proceeds must be used for the organization's purposes, such as serving its members' interests.Apply for the 501(c)(6) designation by filling out IRS Form 1024. Featured Video