Deciding Between Types of Nonprofit Organizations
Advocacy groups and charitable organizations are growing at astronomical rates, and each mission, backed by tax exemption and the Internal Revenue Service, bands together all across the United States, Canada, and the globe.
From religious organizations to private foundations, there are important distinctions between different types of nonprofit organizations. Knowing those distinctions can make or break your ability to choose the right path for your organization.
How nonprofit organizations are categorized
In the regular day-to-day world of business, we’re blissfully unaware of federal and state guidelines that require organizations to qualify for their standing.
When we don’t consider all of the possibilities at hand, we make our lives much harder than it needs to be. The IRS recognizes two types of nonprofits, but there are 4 ways nonprofits can be classified.
The different types of nonprofit organizations
The average person has a specific image in their head when they think about the inner workings of a nonprofit. But there are multiple types of nonprofits that offer different options and opportunities depending on the needs of the founder.
Association
Associations are some of the most common nonprofits. You may even hear about associations in your neighborhood, like the Homeowners Association or bridge club. The PTA at your child's school is another example of the type of work associations gather to do.
The legal liabilities of associations are structured so that all members of the club could be liable for an injury, should an association take a summer trip together. Because of these dangers, associations rarely become incorporated.
Trust
Trusts are deemed an irrevocable status and were established specifically for charity- though depending on the law in each state, certain jurisdictions may require a more specific definition. The varying degree of tax benefits and goodwill that's subsequently generated makes trusts a popular option for those looking to support charitable giving.
Corporation, or a 501(c)(3)
So which is it? And what route will best serve your organization's needs? It just might be time for a series of lists to cross off things you do and don’t need based on your work.
There are endless formalities to consider when you’re writing your business plan and deliberating over what type of nonprofit your business would benefit from. The truth is that it’s hard. And a little outside guidance from a professional is essential in these types of decisions.
Benefits of a 501(c)(3) over other types of organizations
A corporation is a term you'll hear most often when talking about nonprofits. There's a slew of benefits that accompany this distinction. Since a nonprofit corporation can stake its claim as its own entity, it can enter contracts that protect nonprofit members from liability.
Corporations also enjoy the benefits of tax-exempt status. If the corporation incurs any debts, officers, directors, and members of nonprofits are exempt from liability. Private programs and funding can also make grants available to nonprofit organizations to staff their enterprises and create opportunities for people to become employed or volunteer.
Follow state laws and regulations
State laws and regulations aren’t always in place to make life more difficult by creating higher barriers. Sometimes, they exist in favor of a particular sector, and use those guidelines to help that business qualify for financial assistance.
All nonprofit organizations must adhere to state laws and regulations as they navigate incorporation. Moreover, following those guidelines can set you up for success, especially if your nonprofit is in need of federal and state funding to help a greater cause like homeless services.
Other types of 501 nonprofit organizations
In addition to the nonprofits listed, there are plenty of other types of these organizations. 501(c) fours include civic leagues, volunteer fire companies, and organizations that benefit social welfare. 501(c) fours are labor unions. 501(c) sixes act as the chambers of commerce and 501(c) seven includes social and recreational clubs— and it doesn’t stop there. There are even childcare-related organizations, the list goes on
How Mark Goldsmith started his nonprofit organization
Building a nonprofit organization from the ground up is no easy task. It requires years of business experience, grit, and the drive to create something bigger than yourself. If you’re new to social entrepreneurship, Mark Goldsmith, founder of Getting Out and Staying Out in NYC can offer some integral insight from the driver's seat. You can check out his book via his website to learn more.