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Nonprofit organization

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Nonprofit organizations are organizations that meet two defining financial conditions: 1) They are subject to legal, ethical or other non-distribution constraints prohibiting transactions with owners or stockholders. 2) They are set up to legally accept contributed capital, in the form of gifts or donations. [1]

A private nonprofit organization is any nonprofit organization not organized or controlled by or closely affiliated with a unit of government, while a public nonprofit organization has such origins, controls or affiliations. (See also nongovernmental organization).

Informal nonprofit organizations include a vast and uncounted array of self-governing groups, clubs, voluntary associations, coalitions, social networks. Formal nonprofit organizations are those that have one or more of the following: by-laws, operating rules, written policies and procedures, organization charts, goals, objectives, an established division of labour including governance, service delivery or advocacy programs, established offices, paid employees or other evidences of formal (intentional and durable) organization.

One large category of nonprofit organizations are formally organized nonprofit corporations which in the U.S. are typically chartered by appropriate units of state government (such as the state-level Secretary of State). The majority of states have adopted a model nonprofit code developed by a committee of the American Bar Association.

A subset of these nonprofit corporations are also recognized by the Internal Revenue Service as exempt from federal income tax and eligible to accept tax-deductible contributions under Section 501(c)(3) of the IRS Code. This makes them tax-exempt, tax-deductible nonprofit corporations, a phrase that is often shortened to "501(c)(3)s". The IRS further defines 501(c)(3)s into two broad categories: public charity and private foundations.

Nonprofit organizations are classified into approximately two dozen categories, using the National Taxonomy of Exempt Entities, the first and currently one of several classification schemes used internationally to categorize nonprofits.

References

  1. Robert N. Anthony and David W. Young, "Financial Accounting and Financial Management". Robert D. Herman & Associates, The Jossey-Bass Handbook of Nonprofit Leadership and Management. Second Edition. San Francisco: Jossey-Bass. 2005. p. 468.