BENEFICIAL ASSOCIATION
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.
History
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 associa-
tion to pay substantial death benefits. Other
groups that followed its model were soon cre-
ated. These early associations and societies fur-
nished 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 Pro-
tective 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 author-
izes the formation of a beneficial association
through the voluntary association of its mem-
bers. 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 per-
taining 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.
FURTHER READINGS
“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.
CROSS-REFERENCES
Bylaws; Insurance.
