If you are talking about an extra-curricular book club, then I think you would go about it differently. The teacher or sponsor of the group would send home informational fliers with students to share with parents. Once a group of interested students has been assembled, there could be some discussion of what types of books are of interest to the various members of the group. From there, the teacher could try to gather a variety of books at the appropriate reading level of the group and have the students look them over. Perhaps students could vote on the top 2 or 3 that interest them and then commit to reading whatever the top vote-getters were. Part of the motive of a book club is be exposed to books that might be out of a student's comfort zone. Once the book is chosen and read, then students would meet to discuss their questions and reactions to the book. The teacher would likely want to give some guidance here, but the students, if they have read the book, are likely to be able to discuss it without the teacher being "in charge" of the disucssion.
I agree that the discussion groups should be separated according to reading level. The books should supplement what they are already learning and reading in class. It wouldn't work well to select a book that the students are reading in class anyway. Book club books should probably be something targeted at their interests rather than just curriculum. You might even give students the chance to have some input on the books they will be reading in book club. If this is a classroom activity, it would be helpful for each child to have a specific job. If this is an after school activity or something outside of the class work, it might be better to offer a little more freedom.
Through previous experience as a middle school Reading teacher, I think the best way to group students for literature circles is by ability levels. The book should be chosen based on the reading level of the group. Each group member has a daily job to do. This could include titles such as: summarizer, vocabulary enricher, connector, discussion director, and character tracer. Basically each member is breaking apart the story based on their jobs. At the beginning of class everyone takes turns sharing their findings with the literature circle group. This helps all members to develop a higher understanding of different aspects of the literature circle book. The job duties can switch daily.
The discussion director creates thought provoking questions for the group and everyone discusses. As a connector the responsibilities include finding connections between the book and the real world. The summarizer tells the main idea (who, what, when, where, why, and how). The vocabulary enricher finds and defines words that are interesting, unusual, or difficult. Finally the character tracer looks for adjectives to describe the main character or character(s).
As a teacher you can create any jobs for the students based on the story. I've even had students hold the job of illustrator. Please check out the book from Amazon. It has job duties for elementary and middle school students.