Approximately 2.3 million nonprofits operate in the United States, according to the Urban Institute. Furthermore, the Bureau of Labor Statistics estimates that nonprofit jobs account for about 10.3 percent of private sector employment. With nonprofits representing a significant segment of the economy, it is no surprise that those that fit the definition are substantially varied in purpose. The IRS recognizes 29 different types of nonprofits. Below are five of the most common.
Types of Nonprofits
A nonprofit organization is any group that is considered tax-exempt under IRS Section 501(c), the National Council of Nonprofits explains. Different types of nonprofits are subject to different tax rules, but all receive this benefit because of the contributions they make to the community.
Public charities are by far the most common type of nonprofit. The Urban Institute estimates that more than 1 million are registered in the United States. Public charities receive funding through multiple channels, including the government, individuals, corporations and foundations. Their sizes and missions vary widely. They can include groups such as religious congregations, hospitals, colleges, neighborhood organizations, community theaters, environmental groups and human services organizations. The American Red Cross and the Metropolitan Museum of Art are just two examples of large public charities.
There are an estimated 103,430 foundations in the United States, according to the National Center for Charitable Statistics. The primary purpose of foundations is to provide sponsorship to other nonprofit organizations. They generally do not engage in direct charitable work. Foundations can be established through a variety of means, including family or community groups, or through businesses.
Although both foundations and public charities fall under the 501(c)(3) IRS code, they are governed by different laws and regulations. “Foundations must distribute a certain portion of their income for charitable purposes; are subject to strict rules and penalties to prevent personal gain on the part of trustees, substantial contributors and other disqualified persons; must pay an excise tax on investment income,” according to the Center for Non-Profits.
The center also mentions that while these types of nonprofits are prohibited from participating in lobbying activities, they may contribute to charities that lobby as long as the funds are not earmarked for lobbying purposes. Two recognizable nonprofits under this category are the Bill and Melinda Gates Foundation and the Ford Foundation.
Social Advocacy Groups
Social advocacy groups hold a different tax code status, 501(c)(4), than either foundations or public charities. The mission of social advocacy groups is to further social or political causes. They are usually membership based and use funds (often in the form of donations and membership dues) to advocate for specific social changes. Examples include the NAACP and the American Civil Liberties Union.
Professional Trade Organizations
Professional trade organizations are tax-coded under 501(c)(6) and have the mission of providing programs and services to members of the same profession. There are approximately 63,468 organizations of this type in the United States. Members pay dues and often receive discounted or free classes and career training in their field. The American Farm Bureau falls into this category.
Fraternal societies are organizations with the mission of furthering the development of their members. These can include service clubs, lineage clubs or even secret societies. To be considered a nonprofit, fraternal societies must meet certain IRS standards, including having both parent and subordinate organizations. Tax status sometimes hinges on whether or not the organization provides insurance to its members. Some well-known examples are the Shriners and the Knights of Columbus.
Preparing for a Nonprofit Career
Although there are a variety of types of nonprofits, all serve the collective mission of benefiting individuals and communities. Shorter University’s online Master of Management with a concentration in Human Services Nonprofit Management provides the necessary education for individuals with similar goals. The fully online program equips students with the management expertise required to succeed in today’s demanding business climate, specifically those with an interest in the nonprofit sector.