The case for formal LUG organisation can be debated:
Pro: Incorporation and recognised tax-exemption limits liability and helps the group carry insurance. It aids fundraising. It avoids claims for tax on group income.
Con: Liability shouldn't be a problem for modestly careful people. (You're not doing skydiving, after all.) Fundraising isn't needed for a group whose activities needn't involve significant expenses. (Dead-tree newsletters are so 1980.) Not needing a treasury, you avoid needing to argue over it, file reports about it, or fear it being taxed away. Meeting space can usually be gotten for free at ISPs, colleges, pizza parlours, brewpubs, coffeehouses, computer-training firms, GNU/Linux-oriented companies, or other friendly institutions, and can therefore be free of charge to the public. No revenues and no expenses means less need for organisation and concomitant hassles.
For whatever it's worth, this HOWTO's originator and second maintainer lean, respectively, towards the pro and con sides of the issue -- but choose your own poison: If interested in formally organising your LUG, this section will introduce you to some relevant issues.
Note: this section should not be construed as competent legal counsel. These issues require the expertise of competent legal counsel; you should, before acting on any of the statements made in this section, consult an attorney.
Thanks to Chris Browne for the following comments about the Canadian situation.
The Canadian tax environment strongly parallels the US environment (for which, see below), in that the "charitable organisation" status confers similar tax advantages for donors over mere "not for profit" status, while requiring that similar sorts of added paperwork be filed by the "charity" with the tax authorities in order to attain and maintain certified charity status.
Correspondent Thomas Kappler warns that the process of founding a non-profit entity in Germany is a bit complicated, but comprehensively covered at http://www.buergergesellschaft.de/?id=106947.
In Sweden, LUGs are not required to register, but then are regarded as clubs. Registration with Skatteverket (national tax authority) offers two classification options: non-profit organisation or "economical association". The latter is an organisation where the goal is to benefit its members economically, and as such is probably unsuitable, being traditionally used for collectives of companies, or building societies / co-operative tenant-owners, and such).
Non-profit organisations in Sweden doesn't have specific laws to follow. Rather, general Swedish law applies: They can hire people and they can make profit. Generally they don't pay tax on their profits. (Profits stay in the organisation; unlike the case with "economical associations", members don't receive business proceeds.) To be able to do business, you must register with Skatteverket to get an "organisation number", allowing the group to pay and get paid. Otherwise you will probably have to arrange business through a member in his/her individual capacity. It may then also be possible, after securing an organisation number to apply for government financial support.
There are at least two different legal statuses a LUG in the USA may attain:
Although relevant statutes differ among states, most states allow user groups to incorporate as non-profit entities. Benefits of incorporation for a LUG include limitations of liability of LUG members and volunteers (but only in their passive roles as member/shareholders, not as participants), as well as limitation or even exemption from state corporate franchise taxes (which, however, is highly unlikely to be a real concern -- see "Common Misconceptions Debunked", below).
While you should consult competent legal counsel before incorporating your LUG as a non-profit, you can probably reduce your legal fees by being acquainted with relevant issues before consulting with an attorney. I recommend the Non-Lawyers' Non-Profit Corporation Kit.
As for the second status, tax-exemption, this is not a legal status, so much as an Internal Revenue Service judgement. It's important to realise non-profit incorporation does not ensure that IRS will rule your LUG tax-exempt. It is quite possible for a non-profit corporation to not be tax-exempt.
IRS has a relatively simple document explaining the criteria and process for tax-exemption. It is Publication 557: Tax-Exempt Status for Your Organization, available as an Acrobat file from the IRS's Web site. I strongly recommend you read this document before filing for non-profit incorporation. While becoming a non-profit corporation cannot ensure your LUG will be declared tax-exempt, some incorporation methods will prevent IRS from declaring your LUG tax-exempt. Tax-Exempt Status for Your Organization clearly sets out necessary conditions for your LUG to be declared tax-exempt.
Finally, there are resources available on the Internet for non-profit and tax-exempt organisations. Some of the material is probably relevant to your LUG.
Common Misconceptions Debunked:
Incorporation and tax-exempt status are separate issues. You don't have to be incorporated to get recognition of tax-exempt status. You don't have to be tax-exempt to be incorporated. (Odds are, you honestly won't want either. You just probably assume you do.)
The "liability shield" one can get from incorporating doesn't protect volunteers from legal liability. All it does is prevent any plaintiffs from suing individual shareholders (LUG members, in this case) for tort damages merely because they own the corporation, if the corporation itself is alleged to have wronged the plaintiff. Plaintiff's maximum haul in damages from suing the corporation is limited to the corporate net assets, in that one case. However, volunteers are still fully liable for any personal involvement they're alleged to have had.
Umbrella insurance coverage against tort liability (i.e., against civil litigation) for your volunteers almost certainly costs far too much for your group to afford (think $2,500 each and every year in premium payouts, give or take, to buy $1M in general liability insurance coverage -- which generally would cover only the corporation as a whole and its directors in the strict performance of their defined duties), if you can find it at all.
IRS recognition as a tax-exempt group doesn't mean donations to your group necessarily become tax-deductible: Automatic deductibility is reserved to charities only, IRS category 501(c)(3), which must obey extremely stifling restrictions on group activities (e.g., it would then become illegal to host anti-DMCA events or support any other political activity), and must meet exacting paperwork and auditing standards. It's difficult to envision 501(c)(3) charity status actually making functional sense for any Linux group -- though one continually hears it recommended by those who imagine being able to tell people their donations will be guaranteed tax deductible must justify any accompanying disadvantages. Most LUGs would more logically file (if at all) for recognition as a "social and recreation club", category 501(c)(7).
In any event, unless one wishes to become a registered charity to render incoming donations tax-deductible, there is literally no point in applying for IRS recognition of your small, informal Linux group under any of the Internal Revenue Code section 501(c) tax-exempt statuses, because IRS simply doesn't care about groups with annual gross revenues less than $25,000, and doesn't want to hear from them (2010 update: IRS now does require a very simple annual e-Postcard informational filing from all small non-profits, to keep their 501(c) certifications, but still doesn't want tax from them).
The Federal Volunteer Protection Act of 1997 does not, in fact, shield volunteers of Internal Revenue Code section 501(c)(3) charities from tort lawsuits. At most, it furnishes some legal defences that can be raised during (expensive) civil litigation, with a large number of holes and limitations, and in most states will be denied unless the group also carries large amounts of (very expensive -- see above) liability insurance. Also, unless the volunteer's duties are not very meticulously defined and monitored, and the alleged tort occurs strictly in the scope of those duties, there's no shield at all -- plus the litigated action must not involve a motor vehicle / aircraft / vessel requiring an operator's licence, nor may the volunteer be in violation of any state or Federal law, else again there's no shield at all. (On the bright side, it's completely false, as often alleged, that the volunteer must be a member of the group, to be covered: In fact, the Act clearly states that a volunteer may be anyone who performs defined services for a qualifying group and receives no compensation for that labour.)
As may be apparent from the above, a number of groups have, in the past, talked themselves into unjustifiable levels of bureaucratic strait-jacketing with no real benefit and serious ongoing disadvantages to their groups, because of misconceptions, careless errors, and tragically bad advice in the above areas. In general, you should be slow to heed the counsel of amateur financial and tax advisors. (This HOWTO's maintainer had past experience during his first career as a professional finance and tax advisor, but, if you need competent advice tailored to your situation, please have a consultation with someone currently working in that field.)
As a reminder, it's vital that offers or requests to copy distribution-restricted proprietary software of any sort be heavily discouraged anywhere in LUGs, and banned as off-topic from all GNU/Linux user group on-line forums. This is not generally even an issue -- much less so than among proprietary-OS users -- but (e.g.) one LUG of my acquaintance briefly used a single LUG-owned copy of PowerQuest's Partition Magic on all NTFS-formatted machines brought to its installfests for dual-boot OS installations, on a very dubious theory of legality.
If it smells unlawful, it almost certainly is. Beware.
It's healthy to discuss the consulting business in general in user group forums, but for antitrust legal reasons it's a bad idea to get into "How much do you charge to do [foo]?" discussions, there.
Chris Browne has the following to say about the kinds of intra-LUG political dynamics that often crop up (lightly edited and expanded by the HOWTO maintainer):
GNU/Linux users are a diverse bunch. As soon as you try to put a lot of them together, some problem issues can arise. Some, who are nearly political radicals, believe all software, always, should be "free". Because Caldera charges quite a lot of money for its distribution, and doesn't give all profits over to (pick favorite advocacy organisation), it must be "evil". Ditto Red Hat or SUSE. Keep in mind that all three of these companies have made and continue to make significant contributions to free / open-source software.
(HOWTO maintainer's note: The above was a 1998 note, from before Caldera exited the GNU/Linux business, renamed itself to The SCO Group, Inc., and launched a major copyright / contract / patent / trade-secret lawsuit and PR campaign against GNU/Linux users. My, those times do change. Still, we're grateful to the Caldera Systems that was , for its gracious donation of hardware to help Alan Cox develop SMP kernel support, for funding the development of RPM, and for its extensive past kernel source contributions and work to combine the GNU/Linux and historical Unix codebases.)
Others may figure they can find some way to highly exploit the "freeness" of the GNU/Linux platform for fun and profit. Be aware that many users of the BSD Unix variants consider their licences that do permit companies to build "privatised" custom versions of their kernels and C libraries preferable to the "enforced permanent freeness" of the GPL as applied to the Linux kernel and GNU libc. Do not presume that all people promoting this sort of view are necessarily greedy leeches.
If/when these people gather, disagreements can occur.
Leaders should be clear on the following facts:
The main principle can be extended well beyond this; computer "holy wars" have long been waged over endless battlegrounds, including GNU/Linux vs. other Unix variants vs. Microsoft OSes, the "IBM PC" vs. sundry Motorola 68000-based systems, the 1970s' varied 8-bit systems against each other, KDE versus GNOME....
A wise LUG leader will seek to move past such differences, if only because they're tedious. LUG leaders ideally therefore will have thick skins.
It is important to be careful with finances in any sort of non-profit. In businesses, which focus on substantive profit, people are not typically too worried about minor details such as alleged misspending of immaterial sums. The same cannot be said of non-profit organisations. Some people are involved for reasons of principle, and devote inordinate attention to otherwise minor issues, an example of C. Northcote Parkinson's Bike Shed Effect. LUG business meetings' potential for wide participation correspondingly expands the potential for exactly such inordinate attention.
As a result, it is probably preferable for there to not be any LUG membership fee, as that provides a specific thing for which people can reasonably demand accountability. Fees not collected can't be misused -- or squabbled over.
If there is a lot of money and/or other substantive property, the user group must be accountable to members.
Any vital, growing group should have more than one active person. In troubled nonprofits, financial information is often tightly held by someone who will not willingly relinquish monetary control. Ideally, there should be some LUG duty rotation, including duties involving financial control.
Regular useful financial reports should be made available to those who wish them. A LUG maintaining official "charitable status" for tax purposes must file at least annual financial reports with the local tax authorities, which would represent a minimum financial disclosure to members.
With the growth of GNU/Linux-based financial software, regular reports are now quite practical. With the growth of the Internet, it should even be possible to publish these on the World-Wide Web.
Governing your LUG democratically is absolutely vital -- if and only if you believe it is. I intend that remark somewhat less cynically than it probably sounds, as I shall explain.
Tangible stakes at issue in LUG politics tend to be minuscule to the point of comic opera: There are typically no real assets. Differences of view can be resolved by either engineering around them with technology (the GNU/Linux-ey solution) or by letting each camp run efforts in parallel. Moreover, even the most militantly "democratic" LUGs typically field, like clockwork, exactly as many candidates as there are offices to be filled -- not a soul more.
It's tempting to mock such exercises as empty posturing, but such is not (much) my intent. Rather, I mention them to point out something more significant: Attracting and retaining key volunteers is vital to the group's success. Anything that makes that happen is good. It seems likely that the "democratic" exercise stressed in some groups, substantive or not, encourages participation, and gives those elected a sense of status, legitimacy, and involvement. Those are Good Things.
Thus, if elections and formal structure help attract key participants, use them. If those deter participants, lose them. If door-prizes and garage sales bring people in, do door-prizes and garage sales. Participation, as much as software, is the lifeblood of your LUG.
The reason I spoke of "key" volunteers, above, is because, inevitably, a very few people will do almost all of the needed work. It's just the way things go, in volunteer groups. An anecdote may help illustrate my point: Towards the end of my long tenure as editor and typesetter of San Francisco PC User Group's 40-page monthly magazine, I was repeatedly urged to make magazine management more "democratic". I finally replied to the club president, "See that guy over there? That's Ed, one of my editorial staff. Ed just proofread twelve articles for the current issue. So, I figure he gets twelve votes." The president and other club politicos were dismayed by my work-based recasting of their democratic ideals: Their notion was that each biped should have an equal say in editorial policy, regardless of ability to typeset or proofread, or whether they had ever done anything to assist magazine production. Although he looked quite unhappy about doing so, the president dropped the subject. I figured that, when it came right down to it, he'd decide that the club needed people who got work done more than they needed his brand of "democracy".
But we weren't quite done: A month or so later, I was introduced to a "Publications Committee", who arrived with the intent of doing nothing but vote on matters of newsletter policy (i.e., issue "executive" orders to the volunteer production staff). Their first shock came when I listened politely to their advice but then applied my editorial judgement as usual. Much worse, though: I also assigned them work, as part of my staff. Almost all immediately lost interest. (Bossing around other people seemed likely to be fun; doing actual work was not.)
The point is that the widespread urge to vote on everything is at best orthogonal to any desire to perform needed work; at worst, the former serves as an excuse to compulsively meddle in others' performance of the latter.
To sum up: Have all the "democracy" that makes you happy, but watching after the well-being of your key volunteers is what matters. (To quote Candide, "We must cultivate our garden.")
Last, plan for your replacement: If your LUG is a college student group, and must go through a paperwork deathmarch every year to stay accredited, make sure that and all other vital processes are documented, so new LUG officers needn't figure everything out from scratch. Think of it as a systems-engineering problem: You're trying to eliminate single points of failure.
And what works for the guys in the next town may not work for your crowd: Surprise! The keys to this puzzle are still being sought. So, please experiment, and let me know what works for you, so I can tell others. Have fun!