Step 2 of 5
Deciding the type/category of organization
The proposed organization would best be described as:
A Public charitable organization
A Mutual benefit organization
A Private foundation
A Religious organization
Why is it important to know this ?
Classifying of organizations as ‘public charity’, ‘mutual benefit’ or a ‘religious organization’ is a legal requirement mandated by IRS as well as by most of the states of America.
Different statutory provisions are applicable to each of these three categories and hence it is very important to know the applicable classification before you venture out to start a nonprofit organization.
Not Sure what they mean ?
Public Charitable organization – An organization would be called a public charitable organization if its activities are expected to benefit the general public. Generally a public charitable organization accepts donations and funds from a large section of people either through membership subscription or from a variety of funding agencies. To be classified as a Public charitable organization the body must have an active or continuing program to raise funds and receive donations from a number of sources which could include the private organizations, funding agencies, the general public, or the agencies set up by the Government.
Mutual benefit organization – An organization that is established for the benefit of a closed group of members (say: professional associations, trade unions etc) are classified as mutual benefit. Generally mutual benefit organizations solicits funds and donations from a limited number of members who contribute a major portion of donations to the organization.
Private foundations -Private Foundations generally do not actively or directly engage in actual charitable work. Instead, they fund the organizations that work on the chosen causes. The term ‘mutual benefit’ and ‘private foundation’ are sometimes used interchangeably.
Religious organization – Includes – churches, temples, mosques, synagogues and other such organizations.
While public charity and religious organizations are eligible for obtaining tax exempt recognition under section 501(c)(3) of the IRS code, mutual benefit organizations are not exempt from federal taxes. Private foundations have to meet additional criteria for being eligible for tax exemption.
Make sure you have understood what these specific categories stand for and that you are clear about the category into which your proposed nonprofit organization would fall.