Types of Nonprofit Organizations
According to Internal Revenue Code Section 501(c), types of nonprofit organizations in the United States include:
- Section 501(c)(1): Corporations organized under the Act of Congress, such as federal credit unions.
- Section 501(c)(2): Nonprofit organizations established to hold titles for exempt organizations.
- Section 501(c)(3): The most typical nonprofits, including religious, charitable, educational, literary, and scientific organizations. Most nonprofit organizations fall under Section 501(c)(3).
- Section 501(c)(4): Social advocacy groups established to promote various kinds of social or nonprofit political and advocacy efforts, including civic leagues and social welfare organizations, volunteer fire companies, and homeowners associations.
- Section 501(c)(5): Labor unions, and agricultural and horticultural organizations.
- Section 501(c)(6): Trade or professional associations such as chambers of commerce, business leagues, and real estate boards.
- Section 501(c)(7): Social and recreational clubs.
Starting a nonprofit can be an excellent and fulfilling way to serve a mission, assist a social cause, or help with public needs. To start a nonprofit organization:
- Perform comprehensive research to identify or determine problems within your community that you want your nonprofit to address
- Choose a name for your organization
- Establish a solid plan for financing, especially during the initial stages
- Build a solid foundation or structure for your organization
- Recruit incorporators and initial directors
- Prepare and file the articles of incorporation
- Obtain an Internal Revenue Service Employer Identification Number (EIN)
- Establish the bylaws and other governing policies
- Hold a meeting of the board of directors
- Apply for 501(c) tax exemption status
- Maintain good standing and ensure ongoing compliance with all federal, state, and local agencies
How Does a Church or Religious Organization Differ from Other Nonprofits?
For tax purposes, religious organizations include places of worship, including churches, mosques, temples, synagogues, and other worship centers, as well as religious councils. Unlike other nonprofits, churches are not obligated to register with the IRS by submitting Form 1023 (Application for Recognition of Exemption).
Who Qualifies for Tax Exemptions?
Tax exemption means an organization’s income and receipts that are not subject to federal, state, and local taxes. Qualifying for tax exemption requires the nonprofit to apply under Section 501(c)(3) of the Internal Revenue Code. To be eligible for tax-exempt status, the nonprofit organization must:
- Be organized and operated exclusively for the exempt purposes specified
- Have a charitable purpose
- Ensure that earnings are not related to any individual or private shareholder
- Not have political affinities or participate in partisan political campaigns
Pitfalls to Avoid
Starting a nonprofit organization is both art and science. Consider getting good advice about
- Industry research
- Personnel management
- Staff and board development
- Marketing and public relations
- Markers for success and improvement
- Legal affairs
Work with a
Starting a nonprofit organization with a simple mission can still be complex. Choosing a name, filing the articles of incorporation, drafting bylaws, obtaining licenses and permits, and applying for federal tax exemption requires detailed guidance and assistance from legal counsel. A knowledgeable nonprofit attorney can offer you the proper guidance you need to navigate important decisions.
Chris Sanders Law PLLC has the experience and resources to assist in nonprofit formation, development, and ongoing support suited to your organization’s goals and needs.