What is a Nonprofit? Explanation of the types of nonprofits, definition, and the difference between “Public Charities” and “Foundations.”

A nonprofit organization or foundation (NPO), also known as a non-business entity, not-for-profit organization, or nonprofit institution, is dedicated to furthering a particular social cause or advocating for a shared point of view. In summation, it is a business/corporation that has been given tax-exempt status by the Internal Revenue Service (IRS) because the further a religious, scientific, charitable, educational, literary, public safety or cruelty-prevention mission or area of work. an organization needs to request 501(c) prior to operating with a tax exemption.

What is a Nonprofit? Explanation of the types of nonprofits, definition, and the difference between “Public Charities” and “Foundations.”

What is a Nonprofit?

A nonprofit organization or foundation (NPO), also known as a non-business entity, not-for-profit organization, or nonprofit institution, is dedicated to furthering a particular social cause or advocating for a shared point of view. In summation, it is a business/corporation that has been given tax-exempt status by the Internal Revenue Service (IRS) because the further a religious, scientific, charitable, educational, literary, public safety or cruelty-prevention mission or area of work. an organization needs to request 501(c) prior to operating with a tax exemption.

The Definition of “Nonprofit”

The term is meant to describe a nonprofit organization not operating primarily to make a profit. Instead it an organization whose mission focuses on furthering a social cause or a shared goal or mission. People use the term “nonprofit” to describe all of the different types of NPO’s and NFPO’s widely. There are actually about three dozen different types of nonprofit that congress has created.

The Different Types of Nonprofit Organizations In The United States

Technically under the IRS’s 501(c) code, there are two main types of nonprofits: nonprofit organization (NPO) and not-for-profit organization (NFPO). NPO’s serve the public via goods and services while a not-for-profit organization (NFPO) may serve just a group of members.  501(c)(3), are organizations that are “corporations, funds or foundations that operate for religious, charitable, scientific, literary or educational purposes.” Conversely, NFPOs may exist for more private focused groups or members. Other types include:

  • Section 501(c)(4): civic leagues and social welfare organizations, homeowners associations, and volunteer fire companies.
  • Section 501(c)(5): such as labor unions
  • Section 501(c)(6): such as chambers of commerce.
  • Section 501(c)(7): such as Social and Recreational Clubs
  • Section 501(k): childcare-related organizations.
  • There are also others. The U.S. Internal Revenue Code contains many different classifications of tax-exempt groups.

What Is The Difference Between “Public Charities” and “Foundations”?

501(c)(3) organizations are divided into two main categories, “public charities” and “private foundations.” Public charities are 501(c)(3) organizations that get their support from the general public, government. Donations made to public charities are usually tax-deductible. Private foundations conversely distribute money via grants to fulfill a public purpose. Contributions to private foundations are normally tax-deductible. Private foundations are also not allowed to engage in direct lobbying activities.

How to spell “Nonprofit?”

When speaking about NPO’s the public spells them many ways. This includes nonprofit, non-profit and also non profit. While it is acceptable to use any of these versions the most widely accepted spelling is nonprofit all one word.

How Do I Start A Nonprofit?

Starting a nonprofit can be a very fulfilling and impactful way to serve a mission and help the general public. It also takes considerable expertise, time, money and strategic resources. If you are considering starting a nonprofit we would advise learning more at the Foundation Center’s GrantSpace to learn if Starting A Nonprofit is Right For You. GrantSpace and the Foundation Center have helpful classes to prepare you and or empower you to make a smart decision.  Their classes can help walk you through best practices and the main first steps in creating a nonprofit. This can include:

  • Deciding on if starting a nonprofit is the right choice
  • Creating a mission statement
  • Developing a business plan
  • Building a board
  • Incorporating and filing for tax-exempt 501(c)(3) status

 What is a nonprofit? Image of nonprofit worker shaking hands.

 

How Many Nonprofits Are In The United States?

According to (NCCS) the National Center for Charitable Statistics more than 1.5 million nonprofit organizations are registered in the United States. The 1.5 million includes public charities, private foundations and the many other types of nonprofit organizations mentioned above. Additional organizations include chambers of commerce organizations, fraternal organizations, and civic leagues. In addition on average, over 25% of all adults volunteer annually to support a nonprofit organization of some type. There are also over 11.4 million workers in the United States nonprofit workforce.

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