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We’ve covered a lot of different business structures in this blog: S-corporations, C-corporations, LLCs, sole proprietorships and partnerships. But today, I’d like to delve into another type of business entirely: non-profits.
Non-profits are, of course, businesses that do not distribute their profits out to any shareholders or owners. Some non-profits are tax exempt—charities, for example—but there are actually a surprising number of non-profit business structures out there to explore. Here is a brief overview of some of the most prominent and popular non-profits:
– 501(c)(3) – The most popular type of non-profit, this is a charitable organization that falls under the qualifier of: church or religious organization, charitable organization, scientific organization, testing organization for public safety, literary organization,
educational organization, amateur sports organization, organization to promote the arts, or organization for the prevention of cruelty to children or animals. A 501(c)(3) is tax-exempt, as are any charitable donations made toward these types of non-profits, but you have to apply and qualify for this special status—after all, it’s highly-coveted, and for good reason. 501(c)(3) organizations are also barred from supporting any individual political candidates or parties, and are subject to strict rules and limits when it comes to political lobbying, under penalty of losing their tax-exempt status. To find out if your 501(c)(3) qualifies for tax exemption status, check out the IRS website.
– 501(c)(4) – These are so-called “social welfare” organizations designed to promote civic issues. Like charitable organizations, a 501(c)(4) can also be tax-exempt, but any income spent on political activities is taxable, and contributions made toward these organizations may also be subject to certain taxes. 501(c)(4) organizations have recently received some high-profile attention thanks to the Citizens United case, as they allow for unlimited political spending during elections—as long as the spending relates to the promotion of a social welfare issue—without publicly disclosing the names of their donors.
There are also specific non-profit structures for trade organizations [501(c)(6)], fraternal organizations [501(c)(8)], employee beneficiary organizations [501(c)(9)], credit unions and mutual reserve funds [501(c)(14)] veterans’ organizations [501(c)(19)], and others. And, as with all business structures, I would advise consulting with an attorney before organizing your new non-profit to make sure you handle all of the specific legal requirements.
Have you ever worked for, or started, a non-profit? Please feel free to share your experience and insights in the comment section.