What Is a Nonprofit? Definition and Types of Nonprofits
Nonprofits are organizations that work for the benefit of society without creating profits for private owners. Unlike traditional businesses and companies, nonprofits are charities, religious institutions, and voluntary organizations all working towards a common cause. Let’s take a closer look at what a nonprofit is and the types of nonprofits that exist.
Definition of a Nonprofit
A nonprofit organization (also known as a not-for-profit, non-governmental organization, or nonprofit institution) is an organization that is managed on a non-business basis and devoted to public or charitable activities. Nonprofits are typically established to support activities meant for benefit for society, religious organizations, or to promote other charitable interests.
The defining characteristics of a nonprofit differs from country to country, but typically, nonprofits don’t distribute profits to their founders, workers, or members. All earnings by the nonprofit are instead reinvested in the organization and its activities. Additionally, the tax status of nonprofits in the United States require them to abide by specific regulations and guidelines in order to maintain their antitax consequence.
Types of Nonprofits
There is a vast array of different types of nonprofits, and depending on the purpose of the organization, the type of nonprofit chosen can have an effect on the use of monies raised, donation deduction eligibility, and other factors. Here is an overview of common types of nonprofits:
Charitable Organizations
Charitable organizations (also known as 501(c)(3)s) is the most common type of nonprofit. Examples of these include the American Cancer Society, Doctors Without Borders, Goodwill Industries and more. These organizations typically receive funding from the government, foundations, corporations, and most importantly, individual donors.
Educational Organizations
Nonprofits that are classified as educational organizations are typically put in place to increase awareness, knowledge, and understanding of specific topics, such as health, human services, animal rights, or any other educational topic. Educational nonprofits focus on teaching people about different issues and causes, sometimes providing informational resources to help people understand more about these topics. These organizations also may offer workshops and events to spread awareness of their causes. Examples of these organizations include Teach for America, the National Wildlife Federation, National PTA and more.
Religious Organizations
Religious nonprofits are used to promote, operate, or support religious services and activities such as worship or missions. This type of nonprofit includes churches, mosques, temples, and other places of worship. The main focus of religious nonprofits is to promote religious beliefs or practices and to provide spiritual guidance. All donations to religious nonprofits are tax deductible if they are over $250.
Foundations
Foundations are nonprofit organizations funded by donations given by individuals or businesses, sometimes set up as a separate corporation. There are three types of foundations: public charities, private foundations, and corporate foundations. Foundations can make grants, provide technical assistance, or directly offer services in order to promote public interest. Common examples of foundations include the Bill and Melinda Gates Foundation, the Open Society Foundations, and the Robert Wood Johnson Foundation.
Public Benefit Organizations
Public Benefit Organizations (also known as 501(c)(4)s) are organized exclusively to support social welfare, or local, civic or charitable interests. Unlike charitable organizations, these types of nonprofits are allowed to engage in moderate amounts of lobbying. The money earned by public benefit organizations is typically used to cover operating costs and not used to benefit any one individual or corporation. Examples of public benefit organizations include labor unions, social clubs, veterans groups, and retirement groups.
Benefits of Having a Nonprofit Organization
Nonprofit organizations offer a variety of advantages and benefits for their founders, members, partners, and overall their respective cause. Here are some of the most popular benefits associated with forming a nonprofit:
Tax Exemptions
One of the greatest benefits of forming a nonprofit is the tax exemption granted by governments. Nonprofits are typically exempt from state and federal income tax, payroll tax, and sales tax. Additionally, donations to a nonprofit can be tax-deductible for the person who donated.
Public Legitimacy
Nonprofits are viewed by the public as trustworthy and reliable organizations, giving their cause a level of legitimacy. This can be beneficial in gaining donations, finding volunteers, and increasing awareness of the organization and the cause itself.
Ease of Formation
Not only are nonprofits beneficial for their members, but they are also relatively quick, easy and cheap to form. There are many resources available that can explain how to form a nonprofit, which makes the process less daunting.
Nonprofits are special organizations that are wholly devoted to a specific cause, and devoted to helping the world without requiring a profit to do so. Nonprofit organizations come in a variety of types, are easy to form, have multiple financial benefits, and gain public credibility for their mission.
