Private Membership Association (PMA) vs LLC: Differences, Pros & Cons

Key Takeaways

• PMAs operate under the constitutional right of association, potentially offering privacy advantages and reduced regulatory oversight compared to traditional business structures.
• LLCs provide clear statutory liability protection, established banking relationships, and greater credibility with vendors and clients.
• The right structure depends on your specific goals; PMAs may benefit privacy-focused organizations, while LLCs better serve traditional commercial enterprises.
• Some business owners use a hybrid approach, implementing both structures for different aspects of their operations.
• At The Freedom People, we provide education and formation services for entrepreneurs evaluating these structural options, including documentation and implementation support for both PMAs and LLCs.

Understanding PMAs and LLCs: Two Different Approaches

The distinction between Private Membership Associations and Limited Liability Companies centers on a fundamental difference: whether to operate primarily in the private or public domain. 

PMAs use constitutional rights of association to create member-only organizations, while LLCs function as state-recognized entities designed for commercial activities. 

Understanding these core differences is necessary before making this decision for your business’s future. This guide breaks down everything you need to know about these two structures, including their key features and major distinctions.

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What Is a Private Membership Association?

A Private Membership Association (PMA) is a constitutional approach to organization rather than a statutory business entity. PMAs are formed when individuals exercise their First Amendment rights to freely associate for mutual benefit, with legitimacy derived from constitutional protections and the Ninth and Tenth Amendments. 

Unlike public businesses serving the general population, PMAs offer services exclusively to members who voluntarily join through explicit membership agreements, creating a private contractual relationship that underpins all operations.

PMAs function through a fundamentally different model than traditional commerce; rather than “selling” products or services, they facilitate resource-sharing among members who pay dues or contributions and agree to operate under the association’s private guidelines.

What is a Limited Liability Company?

A Limited Liability Company (LLC) is a state-created statutory entity designed specifically for business operations, created by state legislatures rather than through constitutional rights. 

When you form an LLC through state filing processes, you create a legally distinct entity with separate legal personhood. This means the LLC can enter into contracts, own property, and face lawsuits independently of its owners (members), providing the foundation for its primary benefit: liability protection. 

First created in Wyoming in 1977 and rapidly adopted after the IRS granted pass-through taxation in 1988, LLCs became America’s preferred small business structure. They allow entrepreneurs to protect personal assets without complex corporate formalities or restrictive tax treatment.

5 Critical Differences Between PMAs and LLCs

1. Formation Requirements

Forming a PMA typically requires drafting founding documents such as articles of association, membership agreements, and bylaws, without state filing requirements. 

While this process often avoids upfront state filing fees, proper establishment typically requires specialized legal guidance to ensure the constitutional and contractual foundations are sound.

LLCs, conversely, require formal state registration with standardized formation documents. Most states require annual reports or similar filings, with associated fees, to maintain good standing, creating predictable but mandatory maintenance costs.

2. Liability Protection Reality Check

LLC liability protection stands on solid statutory ground, creating a legal separation between your personal and business assets that courts consistently recognize. This protection activates automatically upon proper formation and maintenance of your LLC, without requiring complex legal theories or constitutional interpretations to defend. 

PMA liability protection operates on less defined legal ground. While advocates argue that constitutional rights of association and private contract law create personal protection for PMA operators, this protection hasn’t been consistently tested or uniformly upheld across jurisdictions.

3. Tax Treatment and Reporting Obligations

LLCs offer well-established tax flexibility, allowing you to choose between pass-through taxation (where profits flow directly to your personal return) or corporate taxation by filing Form 8832. This flexibility lets you optimize your tax strategy as your business evolves, potentially saving thousands in tax liability.

PMA tax treatment remains less clearly defined, creating both opportunities and risks. Some PMAs operate as unincorporated associations, potentially qualifying for tax exemption under specific circumstances, while others may be treated as partnerships for tax purposes.

However, this tax ambiguity creates significant compliance risks. The IRS generally looks at the substance of activities rather than organizational labels, meaning PMAs conducting what appears to be commercial activity may face unexpected tax liabilities, penalties, or classification challenges.

4. Banking and Financial Operations

LLCs enjoy straightforward banking access; virtually every financial institution recognizes LLC formation documents, making account opening a standardized process. 

Your LLC’s EIN (Employer Identification Number) and state-issued documentation provide the necessary credentials for establishing merchant accounts, payment processing, and business lending relationships.

PMAs frequently encounter banking challenges because they often lack the traditional business registration documents banks require. Without state-issued business identification or standard formation documents, many financial institutions typically decline PMA accounts or require extensive additional documentation. 

5. Regulatory Oversight and Compliance

LLCs operate squarely within traditional regulatory frameworks, subject to industry-specific regulations, general business requirements, and ongoing compliance obligations. While this regulatory certainty provides clear operational guidelines, it also means accepting government oversight across various aspects of your business.

On the other hand, PMAs may operate with reduced regulatory oversight due to their private, membership-based structure, though the exact boundaries remain subject to ongoing legal interpretation. The constitutional argument holds that private associations engaged in non-commercial activities among voluntary members may fall outside certain regulatory frameworks, particularly in areas involving fundamental rights.

However, regulatory agencies don’t always recognize these distinctions, creating potential enforcement risk. While constitutional protections for private associations exist, their application to specific business activities varies significantly across industries, jurisdictions, and activity types.

Pros of Private Membership Associations

• Member registries remain private rather than publicly filed.
• Operational details, financial arrangements, and governance stay confidential.
• Ability to create custom membership classes and specialized voting arrangements.
• Ability to design unique leadership structures without statutory restrictions.
• May operate with less regulatory oversight in specific contexts.
• Private, membership-based nature can fall outside certain commercial regulations.
• Organizational decisions prioritize member interests over profit maximization.
• There’s a stronger alignment between activities and participant needs.

Cons of Private Membership Associations

• Constitutional protections may be challenged or interpreted differently by different jurisdictions.
• Not all courts universally accept legal theories supporting PMAs.
• Many banks are unfamiliar with PMA structures and are hesitant to open accounts.
• Limited access to traditional business loans and financing options.
• Vendors and clients may be unfamiliar with the PMA structure.
• Can face skepticism from partners accustomed to traditional entities.
• Reduced regulatory burden is not guaranteed across all industries.
• Government agencies may challenge PMA status in certain contexts.

Pros of LLCs

• Statutorily defined liability shield between personal finances and business.
• Protection activates automatically upon proper formation.
• Courts across all jurisdictions understand and respect LLC protections.
• State-registered status conveys instant legitimacy.
• Vendors, partners, and clients recognize LLCs as established entities.
• Easier to establish contracts and extend credit with a familiar structure.
• Financial institutions readily understand LLC structures.
• Clear pathways to equity investment when growth requires capital.
• Well-established mechanisms for ownership transfers and business sales.
• Business becomes a transferable asset independent of personal involvement.

Cons of LLCs

• Owner and manager information is typically filed publicly.
• Less privacy for members and operational activities.
• Must adhere to state-mandated formation and maintenance requirements.
• Annual filings, fees, and reporting obligations vary by state.
• Subject to industry-specific regulations governing commercial activities.
• Must follow statutorily prescribed formats for certain decisions.
• Less flexibility in creating custom membership or voting structures.
• Ongoing state fees and annual report requirements.
• May require registered agent services.
• Failure to maintain formalities can jeopardize liability protection.

Private Membership Association (PMA) vs LLC: Comparison Table

Feature	Private Membership Association (PMA)	Limited Liability Company (LLC)
Legal Basis	Constitutional rights (First, Ninth, Tenth Amendments)	State statutory law
Formation Process	Private documentation and membership agreements	State filing with Secretary of State
Privacy	Member registries and operations remain private	Owner/manager information publicly filed
Liability Protection	Based on constitutional and contractual principles; less court precedent	Statutorily defined; universally recognized by courts
Regulatory Burden	Potentially reduced oversight in specific contexts	Subject to state and industry-specific regulations
Governance Flexibility	Highly flexible; custom structures allowed	Must comply with state LLC statutes
Financing Options	Limited access to traditional loans	Broad access to business loans and investment
Tax Treatment	Varies; may qualify for 508(c)(1)(A) status (for faith-based organizations)	Pass-through taxation; well-defined IRS guidelines

Business Structure Formation with The Freedom People

Evaluating PMA and LLC structures requires understanding both immediate operational needs and long-term business implications. At The Freedom People, we provide education on these distinctions to help entrepreneurs evaluate which structure aligns with their specific situation.

We provide LLC and PMA formation services, along with documentation and implementation support. Our process includes all necessary legal documentation and ongoing guidance throughout the formation process.

What’s Included in Your PMA Formation

For a one-time set-up fee of $2,500, we will provide everything you need to establish a properly structured Private Membership Association, including:

• Articles of Association
• Bylaws
• Membership Terms
• Membership Waiver
• Certification of PMA
• 508(c)(1)(A) setup (for faith-based organizations)
• PMA Starter Kit with 18 supporting documents

From start to finish, expect 3–4 weeks to have your documents, EIN, and bank account fully in place—a streamlined process that gets your organization operational quickly and correctly.

What’s Included in Your LLC Formation

We offer the formation of trust-owned LLCs for $2,000–$3,000, providing all the required documentation to establish your LLC, including:

• State & filing documentation
• Operating Agreement
• Initial Resolutions
• EIN registration
• Form 8832 Preparation
• Registered agent service for one year
• Guidance on management and operation

Join a Thriving Network of Freedom-Minded Organizations

When you work with us at The Freedom People, you’re not navigating this path alone. You become part of a proven network that includes:

• 460+ businesses that are already operating successfully within this ecosystem.
• Thousands of members on our private platform share knowledge and resources.
• Unlimited support via text, email, and phone whenever questions arise.
• A full ecosystem of tools and resources designed specifically for business owners seeking operational independence.

Schedule a consultation to discuss your business structure options. 

Frequently Asked Questions (FAQs)

Can a PMA completely exempt me from federal and state regulations?

No, PMAs cannot grant complete regulatory exemptions, despite claims made by some overzealous promoters. While constitutional rights of association provide important protections, these rights exist within a broader legal framework in which courts balance private freedoms with public interests.

How much does it cost to form and maintain a PMA versus an LLC?

Initial PMA formation typically costs less in direct government fees since it doesn’t require state registration. However, proper establishment often requires specialized legal assistance that may exceed standard LLC formation costs. At The Freedom People, we offer proper PMA establishment at a one-time set-up fee of $2,500.

Can I convert my existing LLC to a PMA or vice versa?

When transitioning from an LLC to PMA operations, you typically establish the PMA as a new entity, then strategically transfer specific activities while potentially maintaining the LLC for certain functions.

Conversely, moving from a PMA to an LLC structure usually requires formal LLC formation followed by transferring operations to the new entity through appropriate asset purchase or contribution agreements.

Do banks recognize PMAs for business banking purposes?

Most national banks require standard business registration documents that PMAs typically don’t possess, creating significant banking challenges for purely private associations. Without state-issued business identification numbers, standard formation certificates, and other traditional documentation, many financial institutions simply decline PMA accounts or require extensive additional documentation that may be difficult to provide.

Does The Freedom People offer PMA formation services?

Yes! At The Freedom People, we provide comprehensive guidance for both traditional LLC structures and alternative private membership associations. For a one-time set-up fee of $2,500, we provide PMA formation services and provide everything you need to establish a properly structured Private Membership Association.