Did you know that there are over 30 types of nonprofit designations? Most people are familiar with a 501(c)(3) category, also known as a public charity. In the world of nonprofits in the United States, not all organizations are a 501(c)(3). Each type and subtype has different guidelines and serves different needs. The Internal Revenue Code (IRC) has designated over thirty types of nonprofits to serve the many social needs across the country.
A nonprofit organization, often simply referred to as a "nonprofit," is a type of entity formed to pursue a mission or purpose that benefits society rather than generating profits for owners or shareholders. Click HERE for a handy chart on the types of nonprofits.
These organizations can take various forms to serve different needs, such as:
Holding corporations
Charities
Foundations
Civic organizations
Labor, agricultural organizations
religious organizations
Social clubs
Professional business organizations
For example, 501(c)(4) organizations are social welfare organizations and civic leagues. They can “act politically” or lobby if they prove that their actions promote social welfare. Examples include The NRA and Planned Parenthood.
How the organization primarily receives their funding is another characteristic of the nonprofit’s types. Public charities typically rely on donations, grants, and membership fees to fund their operations and achieve their goals. Chambers of commerce are primarily funded by membership fees.
Additionally, the types of activities of nonprofit organizations encompass a wide range of fields, such as education, healthcare, environmental conservation, social services, and the arts.
Nonprofits are governed by a board of directors or trustees and are subject to federal and state regulations that ensure transparency, accountability, and adherence to their stated mission.
Why is it important to know this?
If you are considering forming a nonprofit organization, you need to know which category your new organization qualifies for. For example, a friend of mine formed a new nonprofit and later learned that she had mistakenly chosen the designation for private foundations and the process to change the designation took many months. The Internal Revenue Service (IRS) website has a wealth of information to help you determine your best fit.
Understanding how your nonprofit can operate and raise funds is crucial to following best practices. Knowing your nonprofit type is also important in grant seeking as funders often ask your nonprofit type and subtype.
Michelle Crim, CFRE
Dynamic Development Strategies can help. We offer coaching, grant writing, and fundraising services for our nonprofit clients. We specialize in small to mid-size organizations because we understand your challenges. Please contact us for more information.
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