Define a Non Profit Organization
Large and small businesses operate on either a for profit or nonprofit basis. According to the Foundation Center, there are over a million registered nonprofit organizations in the United States that provide a myriad of services and assistance to individuals and families in need. To qualify as a nonprofit, a business must be organized and registered specifically to do so in their state and with the federal government.
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What Nonprofits Do
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Nonprofit organizations, or NPOs, exist for a public purpose, meaning no one person or group of persons "owns" the business. A nonprofit organization is set up to provide specific types of services to individuals, families or specialized groups in need. A nonprofit may have paid employees or run solely by a group of dedicated volunteers. A nonprofit may be large or small, having as little as two or three employees or volunteers, to one that employs hundreds. These types of businesses may also be known as not-for-profit corporations or organizations.
Types of Nonprofit Organizations
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Nonprofit organizations may be referred to in technical terms as the nonprofit sector, voluntary sector, third sector, philanthropic sector, social sector, or charitable sector. Nonprofit organizations may be either secular or religious. A nonprofit may be a church, shelter, a political, educational or business association, a soup kitchen, specialized sports affiliation, hospital, theater, museum, or organization that provides free or low-cost services to specialized groups of people, such as battered women, individuals with disabilities or veterans.
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Funding
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Generally, nonprofits are funded via charitable public giving, grants, fundraising, private donations, trusts and endowments. Neither the investors nor board of directors of the organization benefit financially from their involvement with the nonprofit organization. Nonprofits may also benefit from "in-kind" gifts. An in-kind gift is a service, facility, product or equipment that is given to the nonprofit to assist with running the business, such as donation of office space or office products. Funding is used to staff and run the nonprofit business, as well as invest in raising funds for the future of the nonprofit.
Income Tax Requirements
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A nonprofit organization must register as a nonprofit by filing a 501c3 application with federal and state governments, unless the organization has a working budget of less than $5,000 annually. While a nonprofit organization is exempt from paying income taxes on dollars raised to run the business, each is required to file a 990 form with the Internal Revenue Service each year to report funds raised and spent by the organization. This form also documents the names and positions of current board members of the nonprofit. The 990 is a public document and can be accessed by the public.
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