Nonprofit organizations play a crucial role in our society. They provide valuable services and support to needy communities and are driven by a mission rather than profit. If you are considering starting a nonprofit or are already involved with one, it is important to understand the legal structure governing these organizations. At May Herr & Grosh, we have lawyers specializing in nonprofit organizations that worked with people in all parts of their nonprofit journey. We have the experience to help you navigate the legal complexities of this organization type, and this blog post will discuss the three main types of nonprofits and their legal structures.
Charitable Nonprofits or 501(c)(3) Organizations
The most common type of nonprofit is the 501(c)(3), named after its designation in the Internal Revenue Code. These organizations are typically involved in charitable, religious, educational, scientific, or literary endeavors. The key characteristic of a 501(c)(3) organization is that donations made to it are tax-deductible to the donor. These nonprofits must be organized and operated exclusively for their stated exempt purposes. They cannot distribute profits to owners or shareholders, and there are restrictions on political and legislative activities within these organizations.
Can A 501(C)(3) Nonprofit Engage in Political Activities?
A 501(c)(3) nonprofit cannot engage directly or indirectly in political campaigns. These organizations can engage in some lobbying activities, but if they exceed certain limits, they may lose their tax-exempt status. Legal services from 501c3 lawyers can help guide nonprofits through these complex regulations.
Social Welfare Nonprofits or 501(c)(4) Organizations
501(c)(4) organizations, also known as social welfare organizations, primarily promote social welfare and may engage in some political activities, provided those activities do not become their primary focus. Contributions to 501(c)(4) organizations are generally not tax-deductible. These organizations can lobby for legislation related to their mission and participate in political campaigns and elections, as long as these activities are not their primary activity.
Business Leagues or 501(c)(6) Organizations
501(c)(6) organizations include business leagues, chambers of commerce, real estate boards, and professional football leagues. These organizations aim to improve business conditions for their members.
Legally, these organizations must promote the common business interest of all members, not provide services for individual persons. Contributions to 501(c)(6) organizations are not tax-deductible as charitable donations but may be deductible as a trade or business expense.
Remember, the right legal structure and understanding of the law can help your nonprofit thrive and continue positively impacting your community. Stay informed about the laws that apply to your organization, and keep working towards your mission.
What Is The Main Difference Between A 501(C)(3), 501(C)(4), And 501(C)(6) Nonprofit?
The main differences between a 501(c)(3), 501(c)(4), and 501(c)(6) nonprofit lie in their purpose, activities, and benefits.
A 501(c)(3) is a public charity or private foundation that focuses on religious, charitable, scientific, or educational purposes. Donations to these organizations are generally tax-deductible. 501c3 lawyers often assist clients with the tax exemption process for these types of organizations.
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A 501(c)(4) nonprofit is typically a social welfare organization, like a community group or a homeowners association. Unlike 501(c)(3) organizations, they can engage in some political activities.
501(c)(6) organizations include business leagues, chambers of commerce, and real estate boards. They focus on improving business conditions for their members.
Can a nonprofit change its type (for example, from 501(c)(3) to 501(c)(4))?
A nonprofit can change its type, but this requires a complex process that includes amending the organization’s articles of incorporation and bylaws, obtaining board approval, and submitting a new application for tax-exempt status. Experienced nonprofit attorneys can assist clients with this process.
What Are the Consequences If a Nonprofit Fails to Adhere To Its Legal Structure?
If a nonprofit fails to adhere to its legal structure, it may face penalties, including loss of tax-exempt status, fines, and legal action. Nonprofits must work with attorneys who practice law in this area to prevent such consequences.
What Kind of Record Keeping Is Required for Nonprofits to Maintain Their Status?
Nonprofits are required to maintain detailed financial records, hold regular board meetings, and file annual tax returns. They also need to meet specific public disclosure requirements. Nonprofit law includes guidance on these and other operational aspects.
What Kind of Services Do 501(c)(3) Lawyers Provide for Nonprofits?
501(c)(3) lawyers provide various legal services for nonprofits, including assisting with nonprofit incorporation, guiding through the tax exemption process, advising on fundraising activities and charitable solicitation laws, and addressing operational questions.
Let the Experts at May Herr & Grosh Be Your 501(c)(3) Lawyers Today
Navigating the complexities of nonprofit law can be challenging, especially when advancing social change or managing a medium-sized nonprofit organization. At May Herr & Grosh, our 501(c)(3) lawyers have extensive experience in tax law and the tax exemption process and understand the legal intricacies of running a nonprofit. We can help you with everything from nonprofit incorporation to understanding charitable solicitation laws and addressing operational questions. Our expertise ensures your organization remains compliant with state law, helping you maintain your tax-exempt status while pushing for social change. Contact our lawyers specializing in nonprofit organizations today to ensure you can continue to make a difference in your community.