AO 2006-02: LLC does not qualify as membership organization

A proposed limited liability company (LLC) does not qualify as a membership organization under the Federal Election Campaign Act (the Act). As a result, individuals who pay dues to the company cannot qualify as “members” and cannot, as such, be solicited for contributions to the LLC’s separate segregated fund or sent express advocacy communications. Only the company’s owners and executive and administrative personnel fall within its restricted class.

Background

FEC regulations prohibit an LLC that elects to be taxed as a corporation from making contributions or expenditures in connection with federal elections. However, it may establish an SSF and may make express advocacy communications to its restricted class. For an incorporated membership organization, the restricted class consists of its unincorporated members and executive and administrative personnel, plus the families of both those groups. For other corporations, the restricted class includes executive and administrative personnel, stockholders and the families of both those groups.

The definition of membership organization includes any unincorporated association, trade association, cooperative, corporation without capital stock that:

• Is composed of members, some or all of whom are vested with the power and authority to operate or administer the organization;
• Expressly states the qualifications of membership;
• Makes formal organizational documents available to its members;
• Expressly solicits persons to become members;
• Expressly acknowledges the acceptance of membership, e.g., via membership card; and
• Is not organized primarily for the purpose of influencing an election for federal office. 11 CFR 100.134(e)-(g) 114.1(e)(1)-(3).

Analysis

Robert Titley proposes to establish a for-profit LLC that would be taxed as a corporation. It would be owned by a group of individuals, the Founders, who would make capital investments in the LLC, and receive profits, incur losses, and distributions of distributable cash in accordance with their ownership interests. They (and the Managers they choose) would control the business affairs of the organization. The LLC would produce a web site to express views on candidates and issues and would establish an SSF with the intention of soliciting contributions from “Participating Members,” i.e., those who pay dues to access a password-protected section of the web site. Those Participating Members could serve on the Policy Board, which would be empowered to help shape the issue positions expressed on the web site and approve or disapprove the Company’s choices for recipients of SSF contributions.

Although the proposed LLC seeks to qualify as a membership organization, the Commission determined that the LLC would be, for the purposes of the Act, a for-profit corporation owned by stockholders, the Founders. Assuming the Participating Members would meet the definition of “member” if the LLC qualified as a “membership organization,” none of them, as Participating Members, would be vested with the power and authority to operate or administer the LLC. That authority rests solely with the Founders, who are stockholders rather than members.

Since the LLC does not qualify as a membership organization, it may not solicit its Participating Members for SSF contributions or make express advocacy communications to them. Only the LLC’s owners, administrative and executive staff, and their families are within the organization’s restricted class.

Length: 5 pages; Date Issued: March 1, 2006