Chapter Relationships and Apparent Authority

May 26, 2015 12:46 pm Published by Leave your thoughts

WIO for blog postThe relationship between a national association and its chapters can take a variety of different forms. The two most typical are those or in which the national office is legally and financially separate from the chapters or in which all entities are incorporated into one organization.

Separate Entities

In this scenario, the national office merely encourages the establishment of chapters, who set up and incorporate separately. As separate entities, they are able to act separately on a limited basis, have their own boards of directors, management and activities, maintain separate bank account rights, and file their own taxes.

One Entity

When the national association and its chapters are the same incorporated entity, different components are merely different office locations. The financial statements and tax returns report all of the offices income and expenses as one entity. The different offices follow the same procedures as the national office, usually by running transactions through national, utilizing the same chart of accounts, same segregation of duties policies, approvals, check-writing, recording and filing procedures.

A common problem facing national associations operating in this fashion is that chapters, over time, adopt a financial and legal hybrid structure of both autonomy and dependence. This system enables chapters to act independently, but relinquishes financial and administrative control of the chapters, putting the national organization at financial and legal risk. As a result, the American Society of Association Executives recommends that each association chapter be separately incorporated but that such incorporation not be mandated by the national association.

The Need for Clarity

It is vital for a national association to have a clearly defined relationship with its chapters. In the absence of a clearly defined relationship, a national organization faces many legal and financial risks. If your national association has a muddled relationship with its chapters, consider the following steps:

  • Encourage the national association to define its desired relationship with its chapters
  • Provide support and counsel to chapters that wish to separately incorporate
  • Minimize the national association’s liability by establishing clear affiliation agreements with chapters operating under the national organization’s umbrella

Chapters can serve as the lifeblood of a national association. However, it’s important for association managers to ensure that a national association and its chapters have the right organizational infrastructure in place to support a mutually successful relationship.

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This post was written by Elizabeth Schlicht

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