Nonprofit Definition

What are nonprofits exactly? They’re the names of organizations, like companies or community groups. They’re usually private, which means that they’re not controlled under the direction of the federal government. They often also have philanthropic purposes. Examples include environmental protection, literacy as well as saving endangered species. Nonprofits also work in education as well as security, the arts, and a range of social or political reforms.

Legally, what defines an organization is how it spends the funds it generates. Instead of distributing the profits in cash to investors, nonprofits channel the funds to their organization’s efforts. That is, the funds are used to expand the organization and to further support the organization’s goals.

In the majority of countries, nonprofits are subject to a variety of legal requirements they must adhere to. They are able to maintain their status as a nonprofit. These rules typically concern the taxation, if any, they have to pay. The rules also define the way nonprofits disclose their Earnings and what they can do and what they do.

Types of Nonprofits

501(c(1): Created and enacted in Congress. Contributions are not allowed for public purposes.

501(c),(2): Managed by another tax-exempt entity, where they must transfer any revenue to their parent organization.

501(c),(3) – Charitable Organizations: Includes religious, scientific and charitable organizations. Funding is usually through membership dues, government grants and donations.

Foundations: Sponsor events, fund other non-profit organizations and raise awareness. To maintain their status, they must donate a portion of their income each year.

501(c),(4) – Civic League or Social Welfare Organization, Local Employee Association: Contribute to the general welfare and support of members. There are fewer restrictions on lobbying and other political activities.

501(c(5): Work in the agricultural, labor, or horticultural sectors and specialize in improving education for these workers.

501(c),(6) – Trade or Professional Associations: Enhances the conditions for their members. These associations are often business leagues, chambers or real estate boards.

501(c),(7) – Social or Recreational Club – Organizes recreational or social activities such as hobby groups or country clubs or sports leagues.

501(c),(8) – Fraternal Societies exist to pay members life, sickness and accident benefits.

501(c),(9) – Employee Benefit Association: Offers insurance or payment to members in the event of sickness or other life-threatening events. The workplace or union where the member is working must be the same.

501(c),(10) – Domestic Fraternal Societies & Associations: Pay membership dues to support other causes, but not to members.

501(c),(11) – Teacher’s retirement fund associations: Manage and set up teachers’ retirement funds.

501(c), (13) – Cemetery Companies exist solely to help in the burial process for members.

501(c),(14) – State Chartered Credit Union, Mutual Reserve Fund: Provides financial services to its members, often at a reduced rate. They are funded through government grants and business activities.

501(c),(15) – Mutual Insurance Companies of Association – Members are required to pay a fee to receive insurance benefits, usually for property damage or funerals.

501(c), (16) – Cooperative Organizations to Finance Crop Operations : Usually formed by farmers to pool resources for agricultural operations.

501(c), (17) – Supplemental unemployment benefits trust: Provides support for employees and employers, and supports those who are on sick leave or permanently unemployed.

501(c),(18) – Employee funded pension trust: This applies to employee trusts that are solely funded by member contributions. Payments can only be used for members’ benefit.

501(c),(19) Veterans Organizations: 75% must be active members or former members of the armed forces. Offer benefits to U.S. Armed Forces personnel.

501(c),(21) – Black Lung Benefits Trust: This trust pays claims to coal miners who have black lung disease. It is based on the Federal Black Lung Benefit Act of 1968.

501(c),(22) – Withdrawal liability payment fund: Employers pay for the funding of this fund, which helps employers meet their pension obligations.

501(c),(23) – Veterans Organization : This applies to veterans organizations that were established prior 1880.

501(c),(26) – State Sponsored Organizations Providing Healthcare Coverage for High Risk Individuals: Created by the state for high-risk individuals that may not have proper healthcare.

501(c),(27) – State Sponsored Workers Compensation Reinsurance Organization: Offers insurance for worker’s compensation programs that are supported by government grants or member dues.

501(d), Religious and Apostolic Associations: Religious-based associations that share a common Treasury. They pool their income and pay taxes.

501(e), Cooperative Hospital Service Organizations: Offer cooperative services to two or more hospitals.

Non-profit Example

Nonprofit organizations are those that have been granted tax-exempt status through the IRS. Their mission and purpose is to promote a social cause or provide a public service. Hospitals, universities, national charities, foundations, and other non-profit organizations are all examples. A private network of CEOs invites you to join.

Purpose of a Nonprofit

Nonprofit organizations are generally designed to improve the quality of life of others on a local, state or national level. These organizations are not for private or financial gain, but rather to advance the public interest.

Non-profit Funding

Donations make up a large portion of the income received by nonprofits. Donations help non-profits fulfill their missions and cover operating expenses. In 2018, 68% of charitable giving was made by individuals. 8 Foundation and corporate giving make up a smaller percentage of this philanthropic effort.

Nonprofit assistance for Church Financing