Congratulations on your moral compass! While the rest of us are busy running the rat race, here you are doing good for the world. When it comes to starting a nonprofit organization, there are a lot of things to consider. But the first is figuring out the type of nonprofit you want to found (i.e., the legal mumbo jumbo). Second is the premise—your mission, how you can scale its impact, and how you can reach the most people.
In our last nonprofit Goji Blog, we talked about how to leverage app development to further your nonprofit’s mission and scale its impact. In this Goji Blog, we’ll take you on the journey regarding the different types of nonprofit organizations you can start. So strap in—it’s going to be a wild, altruistic ride.
What are Nonprofit Organizations?
We all know the general gist of nonprofits: they’re non-business entities whose motivators are not—for lack of a better word—profit. Instead, they’re organizations that are dedicated to furthering a cause or advocating for a shared purpose.
However, despite their non-monetary missions, they function like any business. Money in, money out, employees in, employees out. And, just as death is inevitable, so is the IRS presence that defines them. Yes, the was a butchered quote, but you get the reference.
What makes an organization a nonprofit or a business depends on its IRS classification. In this case, it’s tax-exempt. And to be tax-exempt, its mission has to file under one of 27 nonprofit types detailed in the IRS Publication 557 [which is a fun read, if that’s your kind of fun.]
Each type has its own rules regarding eligibility, lobbying, electioneering, and tax-deductible contributions. Nonprofit organizations also don’t issue stock, and their profits definitely shouldn’t be shared with shareholders or owners.
Non-Profit Organizations vs. Not-for-Profit Organizations
There might be some confusion about distinguishing between Nonprofits (NPOs) and Not-for-Profit Organizations (NFPOs). NPOs serve the public through goods and services, while NFPOs serve their members.
So, it’s the difference between the ACLU and Social Fraternities—which is big. Very, very, big. One enables human rights, and the other enables the human right of college students to party.
Types of Nonprofits and Not-for-Profits
Under the general tax-exempt umbrella, there are 27 different types of organizations. These nonprofit organizations cover everything from unions, insurance, religious institutions, veteran issues, and recreation. To give a few examples, we outline a few of the main ones below.
Charitable Organizations – 501(c)(3)
This category is the big nonprofit kahuna. Out of the 1.54 million nonprofits in the US, ⅔ of them are 501(c)(3)s. You’ve probably heard of a few—Feeding America, National Geographic Society, and the Bill and Melinda Gates Foundation.
These are organizations that are committed to causes that are charitable, educational, literary, religious, or scientific. In addition, they promote public safety, such as preventing child or animal abuse—all in all, good work.
501(c)(3)s rely on donors, fundraising campaigns, government grants, and membership dues to keep doing what they’re doing. The donations are tax-deductible for donors—73% of whom consider it very important to trust a charity before donating [financial transparency is a must.]
Charitable organizations are also prohibited from directly or indirectly funding campaigns and lobbying.
Public Charities vs. Private Foundations
More distinction! There are many types of 501(c)(3)s, but there’s also an essential difference between public charities and private charitable foundations. Tricky, huh? The difference primarily lies in funding and management.
So, public charities generally get their funding from the public and government, and private charitable foundations distribute money through grants to further a public purpose. Usually, they’re founded by a wealthy benefactor or business and use grants to fund smaller, more niche organizations with an overarching goal or theme. And while contributions are usually tax-deductible, they’re donated by an individual who also manages their investment.
Civic leagues, social welfare orgs, and employee associations – 501(c)(4)
501(c)(4) organizations promote the common good for their members. They’re funded by membership dues and contributions that aren’t tax-deductible, but they are still exempt from federal income tax.
They’re pretty similar to 501(c)(3) orgs, with the main difference being that they can lobby and promote social or political change. Think of the American Civil Liberties Union (ACLU) or the American Association of Retired Persons (AARP).
There are two types of 501(c)(4)s: Social Welfare and Social Advocacy Groups.
While social welfare groups do some political advocacy, their focus is on promoting their causes through awareness and education. However, social advocacy groups, on the other hand, focus on doing so through lobbying and political change. They rely heavily on membership dues to supplement funding from public donations.
Agricultural Nonprofit Organizations
501(c)(5) are orgs do with labor, agriculture, and horticulture. They work to improve working conditions, as well as to provide education in these critical sectors. They’re primarily funded by donations and union dues and can engage in lobbying.
501(c)(16) are cooperative organizations to finance crop operations, such as the National Finance Credit Corporation of Texas. They find and secure funding for anything and everything to do with eligible crop operations and are usually founded by a farmers’ coop.
Finance Nonprofit Organizations
501(c)(6): fun fact—the National Hockey League (NHL) is actually tax-exempt. There’s something interesting you can share at your next (covid-safe) party! So is the American Bar Association, come to think of it.
This category includes business leagues, chambers of commerce, and real estate boards. They work to improve the working conditions, offer education, and advance the business interests of their members. They’re also allowed to engage in politics with the permission of their members.
501(c)(14) are state-chartered credit unions and mutual reserve funds that are exempt from federal income tax. Some examples are coop banks and loan associations.
Union, Employee Benefits, and Retirement Nonprofit Organizations
There are several types that could fall under this category:
501(c)(9)s are voluntary employee beneficiary associations. They provide income to their members and dependents in times of sickness and accidents. These nonprofit orgs formed voluntarily by co-workers or union members.
501(c)(11)s are locally organized nonprofits that manage and pay teachers’ retirement payouts and benefits. They’re funded by membership contributions, tax proceeds, and investment income.
501(c)(17)s are organizations that pay income to members (employees and employers) during temporary or permanent layoffs, as well as injury and sickness.
So why are we listing types of nonprofit organizations in a Goji Blog?
Well, when you’re founding a nonprofit, it’s so important to be aware of the landscape into which you’re stepping. There are so many different nonprofit organizations, and the rules, regulations, and official policies that apply to them make them distinct.
When you’re out propelling your mission, it’s good to know what other relevant organizations there are and how you can partner with them.
And, perhaps the crux of our motivation here is to show that every one of these can benefit from app development.
A 501(c)(9) can develop an app to manage and provide payouts and communicate with its members on changes in regulation and updates in the industry.
501(c)(3)s can use app development to propel their mission through app development by creating tools for volunteers. (You can find a few case studies on our work with the World Wildlife Fund, MedsPaL/World Health Organization, and USC here.)
And a 501(c)(4) social advocacy group with a powerful web application can further its reach, create a petition platform, and create a streamlined donation subscription process.
We’re in a digital age where 85% of Americans use smartphones, and 80% of Millenials prefer giving by an app. So, it’s essential to create appropriate tools for your members and streamline access to your mission. And that, my friend, is where app and website development comes in.
Looking to further your nonprofit’s mission and scale its impact through nonprofit app development?
Searching for the right technical development partner?
Have general comments, questions, concerns, or relevant jokes?
Reach out to us at GojiLabs.com.
– Goji Labs