Fraternal Organization: What it is, How it Works

What Is a Fraternal Organization?

A fraternal organization is a brotherhood or a type of social organization whose members freely associate for a mutually beneficial purpose such as for social, professional or honorary principles. The term fraternal organization is from the Latin frater, meaning brother.

How Fraternal Organizations Work

Fraternal organizations are groups that are formed based on a common bond, as with social or academic interests. Examples of fraternal organizations include college fraternities which are based on religion, previous members, or just common interests. Sometimes these organizations provide great networking opportunities that allow graduates a smoother transition into the workforce.

Trade guilds, which were predecessors to trade unions, made up of professionals from a given trade are also forms of fraternal organizations, with groups such as Freemasons as persistent examples. In addition to the guiding principle that led to the formation of a fraternal organization, many groups also perform community service or charitable tasks.

How Fraternal Organizations are Established

Fraternal organizations date back into the early history of society and their intent and function have evolved over time. Some early fraternal organizations were based on faith-driven precepts that encourage cooperation and support among members within the group. While the concept of a fraternal organization is derived from the idea of brotherhood, and many organizations continue to be exclusively comprised of men, memberships do not necessarily have to be restricted by gender.

It is possible for fraternal societies to qualify for tax exemption under Internal Revenue Code section 501(c)(8). In order to do so, the organization must have a fraternal purpose, meaning the intent of membership is based on a common bond and have a substantial program of activities. The group must operate under the lodge system, which requires a minimum of two active entities, which include the parent organization and a subordinate branch. The branch must both be self-governing and chartered by the parent organization.

The fraternal organization must also provide the payment of benefits to members and their dependents in the event of injury, accident, or other calamities.

Domestic fraternal organizations might also be exempt under Internal Revenue Code 501 (c)(10) under largely similar criteria with several differences. In this instance, the organization must not provide payment of benefits to its members for injury, illness, and other calamities. However, the organization can make arrangements with insurers to offer optional insurance to the membership.

The organization, in this case, must commit its net earnings exclusively toward charitable, literary, religious, educational, fraternal, and scientific endeavors. The organization must also be domestically organized within the United States.