Have you ever wondered how charities run? 501c3’s can be either of the following: public charities or private foundations. However, all 1.5 million of American charities need to follow IRS regulations to be considered charitable and tax-exempt. There are three aspects that go into the makeup of these IRS-regulated organizations.They include structure, finances, and of course, legal obligations.
Let’s start where public charities and private foundations are similar: legal obligations. Legal obligations are the most important aspect of an organization, because you will not have an organization to run if it does not meet regulations. What these organizations cannot and SHOULD NOT DO is: have a political affiliation or have their employees benefit from the organization (conflict of interest). What they can and SHOULD DO is: provide written receipts for donations, make their tax returns and their exemption public for others to access the information, and they should record all financial distributions as well as their non-financial activities.
The structure of a public organization is quite different from a private foundation, although there are some slight similarities. For the purpose of this article, we are going to focus on private foundations first. For both types of these organizations, there are a lot of responsibilities to be handled. These responsibilities range from managing normal day-to-day issues to handling what grants will be given out for people to receive by the organization, and controlling its investments portfolio. The people who handle them in private foundations are called trustees.
Public charities are led a little differently. What public charities have in common with corporations is that, they have to have a board of directors. The board of directors, without being paid, has to be familiar with the organization’s mission and they have to make sure the company does not stray from it, as the company strives to become financially stable. As is common and necessary in small companies, board of directors will typically have many hats, they help with marketing and human resources, as well as accounting. When companies are bigger however, they have more specific responsibilities, such as compensation or programs and development.
Note: Regardless of the size of the charity, the board of directors will hire an executive director to handle day-to-day matters.
Although organizations that fall under 501c3’s can be either private or public, most people will only associate 501c3’s as public charities. There are several popular ones, two examples of it being, the American Red Cross or United Way. Private foundations receive their funding from different successful investments, and an example of this would be, the Bill & Melinda Gates Foundation. Public charities receive their funding from several sources, such as government agencies and a broad range of foundations or individual donors. They both, however, provide financial support to fulfill several needs, whether they are educational, social, medical, cultural programs etc.
*This is a lot of information to handle. That is why it is important to have a team of differently-skilled individuals. Although you may have vast knowledge, most people have a niche. It is important to figure out where your expertise lies, and use what you do know to the best of your ability. Otherwise, the responsibilities end up being too stressful, and the organization’s performance will suffer.