Nonprofit Basics: Understanding the Sector and Your Role in Giving

What Is the Nonprofit Sector?

The nonprofit sector encompasses institutions and organizations that are neither government nor business. A nonprofit exists to benefit the public and operates without the intent of making a profit. Any revenue generated is reinvested into the organization to support its mission or charitable purpose rather than distributed to shareholders, as in a for-profit business.

Nonprofits often fill gaps in services that would otherwise fall to the government. Because of this role, they are granted tax-exempt status, enabling them to focus resources on advancing their missions while upholding public trust.

Nonprofits in Action

Nonprofits come in all shapes and sizes, from small, community-driven groups led by volunteers to large, professionally managed organizations. Globally, nonprofits are often referred to as NGOs (nongovernmental organizations).

To achieve nonprofit status in the U.S., an organization must apply to the Internal Revenue Service (IRS). Once granted, these organizations—commonly referred to as 501(c)(3)s—are exempt from paying income taxes. Within the nonprofit sector, you’ll find several key types of organizations:

Public Charities

Public charities are what many people think of when they hear the term “charity.” These organizations rely on diverse funding sources and pursue missions ranging from alleviating poverty to promoting education, health, and the arts.

Examples of public charities include:

• Local nonprofits: Big Brothers Big Sisters, local arts organizations
• National institutions: The American Red Cross, National Public Radio
• Specialized causes: Sierra Club (environment), Salvation Army (social services)

Public charities are everywhere, providing vital services and enriching communities.

Private Foundations

Unlike public charities, private foundations typically draw funding from a single source—an individual, family, or corporation. Due to this concentrated funding, they face stricter legal requirements.

Types of private foundations:

1. Operating Foundations: Focus on running their own programs (e.g., DC Public Library Foundation).
2. Non-Operating Foundations: Primarily give grants to other organizations or individuals (e.g., The Bill & Melinda Gates Foundation).

Exploring Types of Foundations and Giving

Here’s a breakdown of some key players in philanthropy:

• Independent or Family Foundations: Funded by individuals or families, often governed by family members.
• Corporate Foundations: Funded by companies but legally separate from the parent corporation.
• Community Foundations: Public charities supported by diverse donors, giving locally, and offering donor-advised funds.
• Giving Circles: Groups pooling their resources to collectively decide where to give.
• Individual Giving: By far the most common form of philanthropy, driven by personal contributions.

Philanthropy Support Organizations

For those interested in giving well or connecting with like-minded philanthropists, philanthropy support organizations offer resources, networking, and expertise.

Examples include:

• Grantmaker Support Organizations: National groups like Exponent Philanthropy, the Council on Foundations, and the National Center for Family Philanthropy.
• Regional Associations of Grantmakers: Supporting philanthropists in specific states, regions, or metro areas. Learn more here.
• Affinity Groups: Focusing on specific causes, areas, or populations (e.g., women’s rights, racial equity). Learn more here.

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Additional Introductory Resources

The Foundation Guidebook

Your Roadmap to Effective Foundation Management
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