There are many important decisions to make in forming your volleyball club. From partners to business structure, here are important considerations and tips when forming a volleyball club.

Choosing Your Partner(s)

The most important decision to make in forming your volleyball club is partner selection. Choosing partners who complement each other in terms of skills and interests is only part of the equation and, perhaps, not even the most important part. As much as possible, partners should spend time in the beginning to share their visions and distill all of their plans down into discrete, measureable goals and timetables. This practice will enhance communications between partners and keep the organization moving forward. Consult with other clubs in other markets to pick those owners’ brains. There is no need to reinvent the wheel if a particular idea of yours has been tried in a different city.

You will need to decide on a full time director or directors who will be responsible for running the day to day operation of your club. Compensation decisions are important and every effort should be made to reach a fair and equitable arrangement.

Partnerships can create great synergies and wonderful camaraderie. Enjoy the ride together. In fact, it has been my experience that the ride (building the business) is more enjoyable than the ultimate destination whatever that turns out to be.

Once you have everything worked out together as partners it is time to decide on a business structure. Different business legal structures have been developed to suit different business circumstances and needs. We will now examine the three most popular types employed in the volleyball industry.

Limited Liability Companies (LLC’s)

The advantages of this business format are that profits and losses can be passed through to owners, without taxation of the business itself, while shielding the owners from personal liability.

Limited Liability Companies can adopt a cash basis accounting system that permits a certain degree of flexibility with regard to year end income and expense recognition. This can delay income a little from one year to the next and, thereby, postpone tax liability.

The following is a list of legal documents required for a Limited Liability Company.

  • A. Articles of Organization. After deciding on the name for your Limited Liability Company you will need to file Articles of Organization with your state’s LLC’s filing office. Some states call this form a “Certificate of Formation” or “Certificate of Organization”. The Articles of Organization require you to state the name of the entity, the address, the name and address of the resident agent (person authorized to receive summons in the event of a lawsuit), the duration of the entity will be managed by a Manager or by its Members. There is also usually a filing fee paid to file the Articles of Organization. The Articles of Organization can also be filed online in some states.
  • Operation Agreement. You also need to carefully prepare an Operating Agreement for your LLC. This document is usually filed with your state’s LLC filing office. The Operating Agreement sets out the rules for the ownership and operation of the business. The Operating Agreement typically includes: each member’s percentage of ownership in the business, the member’s rights and responsibilities, the voting rights of the members, how profits and losses are allocated between the members, who will manage the LLC, and buy-sell provisions in the event of a member’s death, disability or desire to sell that member’s interest to a third party.*
  • Application for Federal Employer Identification Number—Form SS-4. A Federal Employer Identification Number is required for all LLC’s. This number is obtained by filing form SS—4 with the Internal Revenue Service. This form can be filed on line with the Internal Revenue Service.
  • Annual Reports. Some states will require the LLC to file an annual or biannual report with the state’s LLC filing office. This report asks the current location and principals of the LLC. The failure to file this report may result in the dissolution of the LLC.
  • Annual Tax Returns. Each year the LLC will be required to file a tax return with the Internal Revenue Service. If the LLC elects to be taxed as a partnership then it will file IRS form 1065 and if it elects to be taxed as a corporation it will need to file form 1120. State income tax returns will also need to be filed in the state where the LLC is located.
  • Form 8832. The LLC will also need to file form 8832 with the Internal Revenue Service to elect whether the LLC will be taxed as a partnership or a corporation.
  • Other Forms. The LLC may also need to obtain the same licenses and permits that all new businesses must have to operate. These forms may include Business License or Tax Registration Certificate, a Seller’s Permit or a Zoning Permit.

*The Operating Agreement is a very important document. Provision should be made for partners wishing or being asked to leave the enterprise. It should also outline any buyout provisions.

Subchapter S Corporation

With an S Corporation, income is passed through to shareowners’ individual tax returns. In addition, S Corporation owners that do not have inventory can use the cash method of accounting which is simpler than the accrual method and permits some flexibility in recognizing income and expenses between years potentially postponing tax liabilities.

S Corporations do come with some disadvantages. They are subject to some of the same record keeping requirements as C Corporations which can result in higher legal and tax service costs. You must also keep minutes of your periodic board meetings and save them in a corporate minutes log.

The following is a list of the legal documents required for an S Corporation.

  • Articles of Incorporation. Every S Corporation must file Articles of Incorporation with the state’s corporation filing office. The Articles of Incorporation contain information about the business including the number of shares the corporation has the authority to issue, the address of the corporation, the name of the resident agent (person authorized to receive summons in the event of a lawsuit), and the purpose of the corporation. There is usually a fee which must accompany the Articles of Incorporation. Most states allow the Articles of Incorporation to be filed on line.
  • By-Laws. Each S Corporation must have written By-Laws to govern the business of the corporation. The By-Laws are not filed with the state’s corporation filing office. The By-Laws usually contain the amount and consideration for the issuance of shares, the rules for the meeting of shareholders and directors, the officers of the corporation, which officers can sign on behalf of the corporation and how the By-Laws can be amended.
  • Minutes of Directors and Shareholders. The minutes of the meetings of the shareholders and directors are written down and placed in the corporation minute book. These minutes include the organizational meeting of the shareholders and the annual meetings of the directors and shareholders of the corporation.
  • Form 2553 must be filed with the IRS to elect Subchapter S Corporation status. This form should be filed no later than two months and 15 days after the beginning of the tax year in which election is to take effect.
  • Tax form 1120S must be filed annually with the Department of Treasury— Internal Revenue Service. The corporation will also be required to file the corresponding state S Corporation tax return.
  • Application for Federal Employer Identification Number—Form SS-4. A Federal Employer Identification Number is required for all corporations. This number is obtained by filing form SS-4 with the Internal Revenue Service. This form can be filed online with the Internal Revenue Service.
  • Buy-Sell Agreement of Shareholders. The buy-Sell Agreement of the Shareholders would contain buy-sell provisions in the event of a shareholder’s death, disability or desire to sell the shareholder’s interest to a third party.

Not-For-Profit Corporation

If you would like to start a 501 (C) (3) nonprofit corporation you would be eligible for the following advantages:

  1. You would not have to pay income taxes on federal, state or local levels.
  2. You would be eligible to receive grants and donations. Individual donors to your 501(C) (3) corporation would eligible for tax deductions on their donations.
  3. Board members, officers and employees would be protected from liability for corporate debts or liabilities like unpaid debts and lawsuits.
  4. Your nonprofit company could offer employee benefits such as group life and health insurance, retirement plans and health savings accounts.

Nonprofit corporations cannot pay directors. Moreover, if the company fails, its assets must be turned over to another nonprofit organization.

The following is a list of legal documents required for your nonprofit 501 (C) (3) corporation.

  • Articles of Incorporation. Every Not-For-Profit Corporation must file Articles of Incorporation with the state’s corporate filing office. The Articles of Incorporation contain information about the business including the number of shares the corporation has the authority to issue, the address of the corporation, the name of the resident agent (person authorized to receive summons in the event of a lawsuit), and the purpose of the corporation. There is usually a fee which must accompany the Articles of Incorporation. Also, most states allow the Articles of Incorporation to be filed online.
  • By-Laws. Each Not-For-Profit Corporation must have written By-Laws to govern the business of the corporation. The By-Laws are not filed with the state’s corporation filing office. The By-Laws usually contain the rules for the meeting of the directors, the officers of the corporation who can sign on behalf of the corporation as well as amend the By-Laws.
  • Application for Federal Employer Identification Number—Form SS4. A Federal Employer Identification Number is required for all corporations. This number is obtained by filing form SS-4 with the Internal Revenue Service. This form can be filed online with the Internal Revenue Service.
  • IRS form 1023. If the Not-For Profit Corporation desires to be a nonprofit corporation to which people can give tax deductible gifts then it will need to qualify with the IRS as a 501 (C) (3) corporation by filing IRS form 1023. In order to be a 501 (C) (3) corporation there is a certain language that will have to be contained in the Articles of Incorporation and the By-Laws of this corporation. The corporation will also have to show that it was formed primarily for religious, civic or charitable purposes.
  • IRS form 990. This is an annual form that must be filed with the IRS for all Not-for-Profit Corporations to keep its 501 (C) (3) status current.

Nonprofit corporations can still pay salaries for staff persons performing the actual work of the company.

These are the three primary legal structures used for forming a volleyball club. Typically you will pay an attorney $2,000-3,000 for the complete set of forms. Be involved in this process as you will want to have input, particularly, in the nuts and bolts of your Operating Agreement or By-Laws. Forming your own club can be a highly rewarding experience. There is nothing like being your own boss!

For more information on the business of running a volleyball club, click here and login.

About the Author

Tim Kuzma is the Business Director of Munciana Volleyball Club in Muncie, IN.