Two Main Classifications Of 501c3 Nonprofit Organizations

501(c)(3) is a section of the Internal Revenue Code that provides tax-exempt status to certain nonprofit organizations. These organizations must be organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational, or other specified purposes.

There are two main classifications of 501(c)(3) nonprofit organizations: public charities and private foundations.

Public charities

Public charities are the most common type of 501(c)(3) nonprofit organization. They are eligible to receive donations from the general public and from private foundations. Public charities must meet certain requirements, such as receiving at least one-third of their support from public sources (e.g., donations, government grants, and membership fees).

Examples of public charities include 501c3s geared towards:

• Relief of the poor or the underprivileged advancement of religion

• Advancement of education or science

• Erection or maintenance of public buildings

• Eliminating prejudice and discrimination

• Defending human and civil rights secured by law

• Combating community deterioration and juvenile delinquency

Private foundations

Private foundations are typically funded by a single individual or family. They are not required to receive any donations from the general public. Private foundations must meet certain requirements, such as distributing at least 5% of their assets to other charities each year.

Examples of private foundations include:

• The Bill & Melinda Gates Foundation

• The Ford Foundation

• The Walton Family Foundation

• The Open Society Foundations

• The David and Lucile Packard Foundation

Which classification is right for your organization?

The best way to determine which classification is right for your organization is to consult with an experienced attorney or tax advisor. They can help you assess your organization's goals and activities and determine the best way to structure your organization to achieve those goals.

Here are some factors to consider when choosing between public charity and private foundation status:

• Funding: Public charities are eligible to receive donations from the general public and from private foundations. Private foundations are typically funded by a single individual or family.

• Requirements: Public charities must meet certain requirements, such as receiving at least one-third of their support from public sources. Private foundations must meet certain requirements, such as distributing at least 5% of their assets to other charities each year.

• Transparency: Public charities are required to disclose more financial information to the public than private foundations.

• Flexibility: Private foundations have more flexibility in terms of how they can use their funds. Public charities are more restricted in terms of how they can use their funds.

Ultimately, the best way to choose between public charity and private foundation status is to consider your organization's specific needs and goals.

Sources:

https://www.irs.gov/charities-non-profits/exempt-organization-types

https://www.boardeffect.com/blog/what-are-the-different-types-of-501c3-organizations/

https://www.irs.gov/charities-non-profits/charitable-purposes#:~:text=The%20term%20charitable%20is%20used,the%20burdens%20of%20government%3B%20lessening