Grassroots fundraising is a common fundraising method used by political candidates, which has grown in popularity with the emergence of the Internet and its use by US presidential candidates like Howard Dean, Barack Obama, Ron Paul, and most recently Bernie Sanders. Grassroots fundraising is a way of financing their campaigns
for candidates who don't have significant media exposure of front
runner status, or who are perhaps in opposition to the powerful lobby groups which influence the political party nominating process. It often involves mobilizing grassroots
support to meet a specific fundraising goal or sets a specific day for
grassroots supporters to donate to the campaign. Grassroots fundraising
can also be a method for organizations to get as many people as
possible to give and strategically get people involved. This method
encompasses the efforts to reach out to the community being served and
gaining connections and resources for one's campaign.
Strategies of Grassroots Fundraising
There are several methods of undertaking grassroots fundraising, including:
Reaching Donors
Peer-to-peer
fundraising growth has been promoted by the increased use of
affiliations and donor networks. Amongst a younger peer group that views
their age mates as role models who they can trust for advice. Peer
networks have continued to expand in many ways, extending towards the
traditional door-to-door or solicitation at the places of work.
Grassroots in the modern age involves extensive use of e-mail
communication, internet websites, and for monetary support.
Recurring Contributions
Non-profit
donors benefit effectively from a system that contributes monthly.
Accepting little amounts can reduce the absolute financial burden and
anxiety that a donor experiences, yet amounting to large amounts over
time.
Mixing Advocacy and Grassroots Fundraising
Most
people prefer to support in different ways hence this strategy provides
them with multiple calls-to-action in the campaign communications. For
example, a campaign was done from the international Rescue Committee to
reach out to their supporters as a response to presidents Donald Trump's
refugee ban. They gave their supporters a variety to get into the
campaign:
Advocacy: to tell the president to end the refugee ban.
Fundraising: Donate to help support the refugee family relocation fees.
Timely Campaigns
These
aspects go hand in hand with the present events and the news cycle.
Research has shown that the content are most viral if the message makes
people angry. normally the call-to-action and campaign should be:
Specific
Inspiring
Timely
Urgent
Easily Understood Data
Understanding
what inspires the supporters is key to engaging effectively with them.
Such information when targeted to them causes support gained from them
to improve, the opportunities they'd enjoy and the kinds of
communications they prefer. Some demographics such as gender and age are
easy to understand while others are not. Therefore one should keep
track of data as much as possible. Ultimately, this strategy allows you
to understand what is best for the supporters.
Segmented Campaign Outreach
Since
not all of the campaign messages should be sent to every supporter
group. Therefore, the organizations data can be used to segment the supporters into sensible groups.
Focusing on a Single Campaign
There
are very many legislative actions taken every year (more than 1.5
million). Therefore there is the need to be picky when it comes to
advocacy and grassroots campaigns.
History in the United States
In
the 2000 elections, 66.1% of campaign contributions of $200 or less
came from American households earning less than $100,000, who make 86.6%
of the general population, but only 14.3% of the contributions over
$200 come from these households.
2004 Democratic presidential primaries
In 2004, presidential candidate Howard Dean built up his campaign around grassroots fundraising. In an interview with Jeff Howe, Dean described a $2,000-per-plate fundraising lunch organized by Vice President Dick Cheney for George W. Bush's
re-election. In response, Dean challenged his supporters to come to
their computers with him "for lunch". Dean was able to match the amount
raised by Cheney's fundraiser. He remarked, on his use of the Internet
to raise funds for his campaign, "The Internet isn't magic, it's just a
tool that can be used to do things differently."
2008 presidential primaries
According to Spencer A. Overton, a professor at George Washington University, Obama's
presidential campaign received the most grassroots fundraising of
presidential candidates in the first Quarter 2007 based on contributions
under $200 with $5.77 million, more than double the nearest candidate,
John McCain, who got $2.54 million. Out of Obama's quarter fundraising
total, 22% came from contributions under $200 with McCain again second
at 19%. However, candidates outside the top tier received larger
portions of their funds in contributions under $200 with Tancredo at
78%, Brownback 61%, Paul 39% and Kucinich at 68%.
In the 2008 Republican primaries, presidential candidate Ron Paul has made significant use of the Internet to organize grassroots fundraising efforts. His campaign is unique in seeing many grassroots fundraising events begin completely independent of the campaign. The most notable of these was the November 5, 2007 "moneybomb", spread virally through forums like YouTube and Myspace.
It managed to earn Paul $4.2 million in one day, breaking the online
fundraising record as well as raising more than any other Republican
candidate in the election. Ed Rollins,
the manager of Ross Perot's 1992 presidential campaign, said of Paul's
grassroots support, "What he's done – what his supporters have done – is
astonishing. You can't dismiss his anti-war vote. You can't dismiss the
power of one man standing up with a powerful message. I'll tell you,
I've been in politics for 40 years, and these days everything I've
learned about politics is totally irrelevant because there's this
uncontrollable thing like the Internet. Washington insiders don't know
what to make of it."
Door to door fundraising frequently involves a hand-held collection box
Fundraising or fund-raising (also known as "development" or "advancement")
is the process of seeking and gathering voluntary financial
contributions by engaging individuals, businesses, charitable
foundations, or governmental agencies. Although fundraising typically
refers to efforts to gather money for non-profit organizations,
it is sometimes used to refer to the identification and solicitation of
investors or other sources of capital for for-profit enterprises.
Traditionally, fundraising consisted mostly of asking for donations on the street or at people's doors, and this is experiencing very strong growth in the form of face-to-face fundraising,
but new forms of fundraising, such as online fundraising, have emerged
in recent years, though these are often based on older methods such as grassroots fundraising.
Some of the most substantial fundraising efforts in the United States are conducted by colleges and universities.
Commonly the fundraising, or "development" / "advancement," program,
makes a distinction between annual fund appeals and major campaigns.
Most institutions use professional development officers to conduct
superior fundraising appeals for both the entire institution or
individual colleges and departments (e.g. School of Art, School of Math,
School of Science, etc... as well as campus institutions like athletics and libraries.). The number of people involved will vary widely depending on the size of the institution.
Equally important are fundraising efforts by virtually all recognized religious groups
throughout the world. These efforts are organized on a local, national,
and global level. Sometimes, such funds will go exclusively toward
assisting the basic needs of others, while money may at other times be
used only for evangelism or proselytism. Usually, religious organizations mix the two, which can sometimes cause tension.
Fundraising also plays a major role in political campaigns. This fact, despite numerous campaign finance reform laws, continues to be a highly controversial topic in American politics. Political action committees (PACs) are the best-known organizations that back candidates and political parties, though others such as 527 groups also have an impact. Some advocacy organizations conduct fundraising for-or-against policy issues in an attempt to influence legislation.
While public broadcasters are completely government-funded
in much of the world, there are many countries where some funds must
come from donations from the public. In the United States less than 15%
of local public broadcasting stations' funding comes from the federal
government. Pledge drives,
a type of annual giving, commonly occur about three times each year,
usually lasting one to two weeks each time. Viewership and listenership
often decline significantly during funding periods, so special
programming may be aired in order to keep regular viewers and listeners
interested.
Sources
Fundraising
is just one of several revenue sources for a nonprofit organization.
Fundraising revenue can come in the form of grants from government
agencies, non-profit foundations or corporations; donations from
individuals; and sales and services. Income from endowment is not
strictly fundraising but rather the fruits of the investment of previous
fundraising.
Grants from agencies, foundations or corporations
Non-profit organizations also raise funds through competing for grant funding. Grants
are offered by governmental units and private foundations/charitable
trusts to non-profit organizations for the benefit of all parties to the
transaction. Charitable giving by foundations in the U.S was estimated
to be $66.90 billion in 2017.
Charitable giving by corporations in the U.S was estimated to be $20.77 billion in 2017. This consists of corporate grants as well as matching gift and volunteer grants. 65% of Fortune 500 companies offer employee matching gift programs and 40% offer volunteer grant programs.
These are charitable giving programs set up by corporations in which
the company matches donations made by employees to eligible nonprofit
organizations or provides grants to eligible nonprofit organizations as a
way to recognize and promote employee volunteerism.
Individual donors
The
donor base (often called a file or simply "constituents") for higher
education includes alumni, parents, friends, private foundations, and
corporations. Gifts of appreciated property are important components of
such efforts because the tax advantage they confer on the donor
encourages larger gifts. The process of soliciting appreciated assets is
called planned giving. Charitable giving by individuals in the U.S. was estimated to be $286.65 billion in 2017.
The classic development program at institutions of higher learning include prospect identification, prospect research
and verification of the prospect's viability, cultivation,
solicitation, and finally stewardship, the latter being the process of
keeping donors informed about how past support has been used. When goods
or professional services are donated to an organization rather than
cash, this is called an in-kind gift.
A number of charities and non-profit organizations are
increasingly using the internet as a means to raise funds; this practice
is referred to as online fundraising. In addition, crowdfunding has begun to be used as a method to engage small-donation donors for small, specific opportunities.
Sales and services
While
fundraising often involves the donation of money as an outright gift,
money may also be generated by selling a product of some kind, also
known as product fundraising. Girl Scouts of the USA are well known for selling cookies in order to generate funds. It is also common to see on-line impulse sales links
to be accompanied by statements that a proportion of proceeds will be
directed to a particular charitable foundation. Tax law may require
differentiating between the cost of an item versus its gift value, such
as a $100.00 per person dinner, for a $25.00 cost meal. Fundraising
often involves recognition to the donor, such as naming rights or adding
donors to an honor roll or other general recognition. Charity Ad Books
are another form of donation for recognition, sponsorship or selling of
ads often in an event related program or group directory.
Purposes
Organizations raise funds to support capital projects, endowments, or operating expenses of current programs.
Capital fundraising is when fundraising is conducted to raise
major sums for a building or endowment, and generally keep such funds
separate from operating funds. This is often done over a period of time
(in a capital campaign) to encourage donors to give more than they would
normally give and tap donors, especially corporations and foundations
who would not otherwise give. A capital campaign normally begins with a
private phase before launching a public appeal.
Many non-profit organizations solicit funds for a financial endowment, which is a sum of money that is invested to generate an annual return. Although endowments may be created when a sizable gift is received from an individual or family, often as directed in a will upon the death of a family member, they more typically are the result of many gifts over time from a variety of sources.
Fundraising methods
Fundraising events
A fundraising event (also called a fundraiser) is an event or campaign whose primary purpose is to raise money for a cause, charity or non-profit organization. Fundraisers often benefit charitable, non-profit, religious, or non-governmental organizations, though there are also fundraisers that benefit for-profit companies and individuals.
Special events are another method of raising funds. These range from formal dinners to benefit concerts to walkathons. Events are used to increase visibility and support for an organization as well as raising funds.
Events can feature activities for the group such as speakers, a dance,
an outing or entertainment, to encourage group participation and
giving. Events can also include fundraising methods such as a raffle or
charity auction. Events often feature notable sponsors or honoree.
Events often feature a charity "ad book" as a program guide for the
event, but more importantly, as another fundraiser providing members,
supporters and vendors to show their support of and to the group at the
event by way of placing an ad-like page, 1/2 page, 1/4 page, stating or
showing support. Events and their associated fundraisers can be a major
source of a group's revenue, visibility and donor relations.
One specific type of event is the "ad book" fundraiser, where
those who wish to give funds to a fundraising group do so through the
sponsorship or statement within a book of advertisements.
Online fundraising pages have become very popular for people
taking part in activities such as a charity. Those pages facilitate
online payments in support of the charity.
Popular charity fundraisers in major American cities include
lavish black-tie gala benefit dinners that honor celebrities,
philanthropists, and business leaders who help to fundraise for the
event's goals through solicitations of their social and business
connections.
Donor relationship and cultivation
Often called donor cultivation, relationship building is the foundation on which most fundraising takes place.
Most fundraising development strategies divide donors into a series of
categories based on the amount and frequency of donations. For instance,
annual giving and recurring gifts represent the base of a fundraising
pyramid. This would be followed by mid-level gifts, planned gifts, major
gifts, and principal gifts.
More sophisticated strategies use tools to overlay demographic and other market segmentation data against their database of donors in order to more precisely customize communication and more effectively target resources. Research by Peter Maple in the UK
shows that charities generally underinvest in good marketing research
spending around a quarter of what an equivalent sized for profit company
might spend.
Donor relations and stewardship
professionals support fundraisers by recognizing and thanking donors,
and demonstrating the impact of their donations in a fashion that will
cultivate future giving to nonprofit organizations.
Recent research by Adrian Sargeant and the Association of Fundraising Professionals'
Fundraising Effectiveness Project suggests the sector has a long way to
go in improving the quality of donor relations. The sector generally
loses 50–60% of its newly acquired donors between their first and second
donations and one in three, year on year thereafter. The economics of
regular or sustained giving are rather different, but even then
organizations routinely lose 30% of their donors from one year to the
next.
Capital and comprehensive campaigns
A capital campaign
is "an intensive fundraising effort designed to raise a specified sum
of money within a defined time period to meet the varied asset-building
needs of an organization". Asset-building activities include the
construction, renovation or expansion of facilities (for example, a new
building), the acquisition or improvement of land, equipment, or other
items, and additions to a financial endowment.
Two characteristics set capital campaigns apart from other forms of
fund-raising activities. First, "the gifts solicited are much larger
than those generally sought during an annual fund". Second, "pledges are
emphasized as commitments payable over a number of years convenient to
the donor or through the transfer of appreciated real or personal property".
Various types of capital campaigns have been identified. The traditional "brick and mortar"
campaign, focused on building construction or improvements, was
considered a "once in a lifetime" campaign in the past because of the
ambitious goals of the campaign. Today, however, organizations
frequently schedule capital campaigns every five to ten years, and "the
megagoals announced by large institutions often are the result of
'counting everything' during a five-to seven-year campaign period".
A second type of campaign is the comprehensive, integrated, or total development campaign,
which aims for a longer fund-raising program based on a long-term
analysis of the organization's needs and direction. This form of
campaign can wrap together capital projects, endowment and operating
expenses as its purpose, and use a variety of fund-raising activities,
such as annual gift drives, which are "slower-paced and lack the
intensity of the traditional capital campaign".
Accountable fundraising
Some non-profit organizations
demonstrate greater accountability by showing donors the direct impact
of their fundraising efforts. This accountability may comes in the form
of a vote, where the members select a specific program or charity that
they would like their money to go to. Another example is put in place a
mechanism which allows donors to contraint usage of funds toward a
specific purpose and closely monitor/allow spending to ensure proper
usage.
Professional fundraisers
Many
non-profit organizations take advantage of the services of professional
fundraisers. These fundraisers may be paid for their services either
through fees unrelated to the amounts of money to be raised, or by
retaining a percentage of raised funds (percentage-based compensation).
The latter approach is expressly forbidden under the Code of Ethics of
the Association of Fundraising Professionals (AFP), a professional membership body.
However, by far the most common practice of American non-profits is to
employ a staff person whose main responsibility is fund raising. This
person is paid a salary like any other employee, and is usually a part
of the top management staff of the organization.
Some non-profit organizations nonetheless engage fundraisers who
are paid a percentage of the funds they raise. In the United States,
this ratio of funds retained to funds passed on to the non-profit is
subject to reporting to a number of state's Attorneys General or Secretaries of state.
This ratio is highly variable and subject to change over time and
place, and it is a point of contention between a segment of the general
public and the non-profit organizations.
The term "professional fundraiser" is in many cases a legislated
term referring to third-party firms whose services are contracted for,
whereas "fundraising professionals" or development officers are often
individuals or staff at charitable non-profits. Although potentially
confusing, the distinction is an important one to note.
A specialty within the fundraising profession is the "grant professional." Grant professionals with at least three years experience, and other requirements, can become certified as Grant Professional Certified (GPC). The GPC credential is administered by Grant Professionals Certification Institute,
whose mission is to strengthen the nonprofit sector's ability to pursue
and maintain public sector and private sector funding by promoting
competency and ethical practices within the field of grantsmanship.
The certification process is designed to measure minimum knowledge and
skills related to all aspects of grant development and management,
including but not limited to such areas as grant research or
pre-production, grant construction, grant reporting, public sector
funding, private sector funding, ethics and grant accountability.
Online & Mobile Fundraising
Online
and mobile fundraising had become a popular fundraising method over the
last few years due to its accessibility. Fundraising organizations are
using mobile and online fundraising providers to attract donors around
the globe. Common online and mobile fundraising methods include online
donation pages, text to give, mobile silent auctions, and peer to peer fundraising.
Since 2016, online giving has grown by 17% in the United States.
In 2018, digital fundraising accounted for 8.5% percent of charitable
donations and 24% of online donations were made on a mobile device in
the United States.
Taxation
Organizations
in the United States established for charitable purposes are allowed to
raise funds from many sources. They are given a specific designation by
the Internal Revenue Service (IRS), commonly noted as 501(c)(3)
organizations. Other nonprofits such as fraternal associations have
different IRS designations, and may or may not be eligible to raise
funds. Financial information on many nonprofits, including all
nonprofits that file annual IRS 990 forms is available from GuideStar.
A nonprofit organization (NPO), also known as a non-business entity, not-for-profit organization, or nonprofit institution,
is an organization dedicated to furthering a particular social cause or
advocating for a shared point of view. In economic terms, it is an organization using its surplus of the revenues
to further achieve its ultimate objective, rather than distributing its
income to the organization's shareholders, leaders, or members.
Nonprofits are tax-exempt
or charitable, meaning they do not pay income tax on the money that
they receive for their organization. They can operate in religious,
scientific, research, or educational settings.
The key aspects of nonprofits are accountability,
trustworthiness, honesty, and openness to every person who has invested
time, money, and faith into the organization. Nonprofit organizations
are accountable to the donors, founders, volunteers, program recipients,
and the public community. Public confidence is a factor in the amount
of money that a nonprofit organization is able to raise. The more
nonprofits focus on their mission, the more public confidence they will
have, and as a result, more money for the organization.
The activities a nonprofit is partaking in can help build the public's
confidence in nonprofits, as well as how ethical the standards and
practices are.
Statistics in the United States
According to the National Center for Charitable Statistics (NCCS), there are more than 1.5 million nonprofit organizations registered in the United States, including public charities, private foundations,
and other nonprofit organizations. Contributions to different charities
reached $358.38 billion in 2014, which was an increase of 7.1% from the
2013 estimates. Out of these contributions, religious organizations
received 32%, educational institutions received 15%, and human service
organizations received 12%. Between September 2010 and September 2014,
approximately 25.3% of Americans over the age of 16 volunteered for a
nonprofit.
Mechanism of money-raising
Nonprofits
are not driven by generating profit, but they must bring in enough
income to pursue their social goals. Nonprofits are able to raise money
in different ways. This includes income from donations from individual
donors or foundations; sponsorship from corporations; government
funding; programs, services or merchandise sales; and investments.
Each NPO is unique in which source of income works best for them. With
an increase in NPO's within the last decade, organizations have adopted
competitive advantages to create revenue for themselves to remain
financially stable. Donations from private individuals or organizations
can change each year and government grants have diminished. With
changes in funding from year to year, many nonprofit organizations have
been moving toward increasing the diversity of their funding sources.
For example, many nonprofits that have relied on government grants have
started fundraising efforts to appeal to individual donors.
Challenges
NPO's
challenges primarily stem from lack of funding. Funding can either come
from within the organization, fundraising, donations, or from the
federal government. When cutbacks are made from the federal government,
the organization suffers from devolution. This term describes when there
is a shift of responsibility from a central government to a local,
sub-national authority. The shift is due to the loss of funds;
therefore, resulting in changes of responsibilities in running programs.
Because of this frequent challenge, management must be innovative and
effective in the pursuit of success.
Nonprofit vs. not-for-profit
Nonprofit and not-for-profit are terms that are used similarly, but
do not mean the same thing. Both are organizations that do not make a
profit, but may receive an income to sustain their missions. The income
that nonprofit and not-for-profit organizations generate is used
differently. Nonprofit organizations return any extra income to the
organization. Not-for-profits use their excess money to pay their
members who do work for them. Another difference between nonprofit
organizations and not-for-profit organizations is their membership.
Nonprofits have volunteers or employees who do not receive any money
from the organization's fundraising efforts. They may earn a salary for
their work that is independent from the money the organization has
fundraised. Not-for-profit members have the opportunity to benefit from
the organization's fundraising efforts.
In the United States, both nonprofits and not-for-profits are
tax-exempt under IRS publication 557. Although they are both
tax-exempt, each organization faces different tax code requirements. A
nonprofit is tax-exempt under 501(c)(3)
requirements if it is either a religious, charitable, or educational
based organizations that do not influence state and federal legislation.
Not-for-profits are tax-exempt under 501(c)(7) requirements if they are an organization for pleasure, recreation or another nonprofit purpose.
Nonprofits are either member-serving or community-serving.
Member-serving nonprofit organizations create a benefit for the members
of their organization and can include but are not limited to credit
unions, sports clubs, and advocacy groups. Community-serving nonprofit
organizations focus on providing services to the community either
globally or locally. Community-serving nonprofits include organizations
that deliver aid and development programs, medical research, education,
and health services. It is possible for a nonprofit to be both
member-serving and community-serving.
Management
A
common misconception about nonprofits is that they are run completely
by volunteers. Most nonprofits have staff that work for the company,
possibly using volunteers to perform the nonprofit's services under the
direction of the paid staff. Nonprofits must be careful to balance the
salaries paid to staff against the money paid to provide services to the
nonprofit's beneficiaries. Organizations whose salary expenses are too
high relative to their program expenses may face regulatory scrutiny.
A second misconception is that nonprofit organizations may not
make a profit. Although the goal of nonprofits isn't specifically to
maximize profits, they still have to operate as a fiscally responsible
business. They must manage their income (both grants and donations and
income from services) and expenses so as to remain a fiscally viable
entity. Nonprofits have the responsibility of focusing on being
professional, financially responsible, replacing self-interest and profit motive with mission motive.
Though nonprofits are managed differently from for-profit
businesses, they have felt pressure to be more businesslike. To combat
private and public business growth in the public service industry,
nonprofits have modeled their business management and mission, shifting
their raison d’être to establish sustainability and growth.
Setting effective missions is a key for the successful management of nonprofit organizations. There are three important conditions for effective mission: opportunity, competence, and commitment.
One way of managing the sustainability of nonprofit organizations is to establish strong relations with donor groups. This requires a donor marketing strategy, something many nonprofits lack.
Functions
NPOs
have a wide diversity of structures and purposes. For legal
classification, there are, nevertheless, some elements of importance:
Management provisions
Accountability and auditing provisions
Provisory for the amendment of the statutes or articles of incorporation
Provisions for the dissolution of the entity
Tax statuses of corporate and private donors
Tax status of the founders.
Some of the above must be (in most jurisdictions in the USA
at least) expressed in the organization's charter of establishment or
constitution. Others may be provided by the supervising authority at
each particular jurisdiction.
While affiliations will not affect a legal status, they may be
taken into consideration by legal proceedings as an indication of
purpose. Most countries have laws that regulate the establishment and
management of NPOs and that require compliance with corporate governance
regimes. Most larger organizations are required to publish their
financial reports detailing their income and expenditure publicly.
In many aspects, they are similar to corporate business entities though there are often significant differences. Both not-for-profit and for-profit corporate entities must have board members, steering-committee members, or trustees who owe the organization a fiduciary duty of loyalty and trust. A notable exception to this involves churches, which are often not required to disclose finances to anyone, including church members.
Formation and structure
In the United States, nonprofit organizations are formed by filing bylaws or articles of incorporation
or both in the state in which they expect to operate. The act of
incorporation creates a legal entity enabling the organization to be
treated as a distinct body (corporation) by law and to enter into
business dealings, form contracts, and own property as individuals or
for-profit corporations can.
Nonprofits can have members, but many do not. The nonprofit may also be a trust or association of members. The organization may be controlled by its members who elect the board of directors, board of governors or board of trustees.
A nonprofit may have a delegate structure to allow for the
representation of groups or corporations as members. Alternatively, it
may be a non-membership organization and the board of directors may
elect its own successors.
The two major types of nonprofit organization are membership and board-only.
A membership organization elects the board and has regular meetings and
the power to amend the bylaws. A board-only organization typically has a
self-selected board and a membership whose powers are limited to those
delegated to it by the board. A board-only organization's bylaws may
even state that the organization does not have any membership, although
the organization's literature may refer to its donors or service
recipients as 'members'; examples of such organizations are FairVote and the National Organization for the Reform of Marijuana Laws. The Model Nonprofit Corporation Act imposes many complexities and requirements on membership decision-making. Accordingly, many organizations, such as the Wikimedia Foundation, have formed board-only structures. The National Association of Parliamentarians
has generated concerns about the implications of this trend for the
future of openness, accountability, and understanding of public concerns
in nonprofit organizations. Specifically, they note that nonprofit
organizations, unlike business corporations, are not subject to market discipline
for products and shareholder discipline of their capital; therefore,
without membership control of major decisions such as the election of
the board, there are few inherent safeguards against abuse. A rebuttal to this might be that as nonprofit organizations grow and
seek larger donations, the degree of scrutiny increases, including
expectations of audited financial statements.
A further rebuttal might be that NPOs are constrained, by their choice
of legal structure, from financial benefit as far as distribution of
profit to members and directors is concerned.
Tax exemption
In many countries, nonprofits may apply for tax-exempt
status, so that the organization itself may be exempt from income tax
and other taxes. In the United States, to be exempt from federal income
taxes, the organization must meet the requirements set forth in the Internal Revenue Code.
Granting nonprofit status is done by the state, while granting
tax-exempt designation (such as 501(c)(3)) is granted by the federal
government via the IRS. This means that not all nonprofits are eligible
to be tax-exempt. NPOs use the model of a double bottom line
in that furthering their cause is more important than making a profit,
though both are needed to ensure the organization's sustainability.
By jurisdiction
Australia
In Australia,
nonprofit organizations include trade unions, charitable entities,
co-operatives, universities and hospitals, mutual societies, grass-root
and support groups, political parties, religious groups, incorporated
associations, not-for-profit companies, trusts
and more. Furthermore, they operate across a multitude of domains and
industries, from health, employment, disability and other human services
to local sporting clubs, credit unions, and research institutes.
A nonprofit organization in Australia can choose from a number of legal
forms depending on the needs and activities of the organization:
co-operative, company limited by guarantee, unincorporated association,
incorporated association (by the Associations Incorporation Act 1985) or
incorporated association or council (by the Commonwealth Aboriginal
Councils and Associations Act 1976). From an academic perspective, social enterprise
is, for the most part, considered a sub-set of the nonprofit sector as
typically they too are concerned with a purpose relating to a public
good. However, these are not bound to adhere to a nonprofit legal
structure, and many incorporate and operate as for-profit entities.
In Australia, nonprofit organizations are primarily established
in one of three ways: companies limited by guarantee, trusts, and
incorporated associations. However, the incorporated association form is
typically used by organizations intending to operate only within one
Australian state jurisdiction. Nonprofit organizations seeking to
establish a presence across Australia typically consider incorporating as a company or as a trust.
Belgium
By Belgian law, there are several kinds of nonprofit organization:
These three kinds of nonprofit organization are in contrast to a fourth:
Feitelijke vereniging (Dutch) or Association de fait
(French), an informal organization, often started for a short-term
project, or managed alongside another NPO that does not have any status
in law so cannot purchase property etc.(association sans personnalité
morale).
Canada
Canada
allows nonprofit organizations to be incorporated or unincorporated.
They may incorporate either federally, under Part II of the Canada Business Corporations Act,
or under provincial legislation. Many of the governing Acts for
Canadian nonprofits date to the early 1900s, meaning that nonprofit
legislation has not kept pace with legislation that governs for-profit
corporations, particularly with regards to corporate governance. Federal, and in some provinces (including Ontario), incorporation is by way of Letters Patent,
and any change to the Letters Patent (even a simple name change)
requires formal approval by the appropriate government, as do bylaw
changes. Other provinces (including Alberta) permit incorporation as of right, by the filing of Articles of Incorporation or Articles of Association.
During 2009, the federal government enacted new legislation repealing the Canada Corporations Act, Part II – the Canada Not-for-Profit Corporations Act. This Act was last amended on 10 October 2011, and the act was current until 4 March 2013. It allows for incorporation as of right, by Articles of Incorporation; does away with the ultra vires
doctrine for nonprofits; establishes them as legal persons; and
substantially updates the governance provisions for nonprofits. Ontario
also overhauled its legislation, adopting the Ontario Not-for-Profit Corporations Act during 2010; the new Act is expected to be in effect as of 1 July 2013.
Canada also permits a variety of charities (including public and private foundations). Charitable status is granted by the Canada Revenue Agency
(CRA) upon application by a nonprofit; charities are allowed to issue
income tax receipts to donors, must spend a certain percentage of their
assets (including cash, investments, and fixed assets) and file annual
reports in order to maintain their charitable status. In determining
whether an organization can become a charity, CRA applies a common law test to its stated objects and activities. These must be:
The relief of poverty
The advancement of education
The advancement of religion, or
Certain other purposes that benefit the community in a way the courts have said is charitable
Charities are not permitted to engage in partisan political activity;
doing so may result in the revocation of charitable status. However, a
charity can carry out a small number of political activities that are
non-partisan, help further the charities' purposes, and subordinate to
the charity's charitable purposes.
France
In France, nonprofits are called associations. They are based on a law enacted 1 July 1901. As a consequence, the nonprofits are also called association loi 1901.
A nonprofit can be created by two people to accomplish a common goal. The association
can have industrial or commercial activities or both, but the members
cannot make any profit from the activities. Thereby, worker's unions and
political parties can be organized from this law.
In 2008, the National Institute of Statistics and Economic Studies (INSEE) counted more than a million of these associations
in the country, and about 16 million people older than 16 are members
of a nonprofit in France (a third of the population over 16 years old).
The nonprofits employ 1.6 million people, and 8 million are volunteers
for them.
The Hong Kong
Company Registry provides a memorandum of procedure for applying to
Registrar of Companies for a Licence under Section 21 of the Companies
Ordinance (Cap.32) for a limited company for the purpose of promoting
commerce, art, science, religion, charity, or any other useful object.
India
In India, non-governmental organizations
are the most common type of societal institutions that do not have
commercial interests. However, they are not the only category of
non-commercial organizations that can gain official recognition. For
example, memorial trusts, which honor renowned individuals through
social work, may not be considered as NGOs.
They can be registered in four ways:
Trust
Society
Section-25 company (Section 8 as per the new Companies Act, 2013)
Special licensing
Registration can be with either the Registrar of Companies (RoC) or the Registrar of Societies (RoS).
The following laws or Constitutional Articles of the Republic of India are relevant to the NGOs:
Articles 19(1)(c) and 30 of the Constitution of India
Income Tax Act, 1961
Public Trusts Acts of various states
Societies Registration Act, 1860
Section 25 of the Indian Companies Act, 1956 (Section 8 as per the new Companies Act, 2013)
Foreign Contribution (Regulation) Act, 1976.
Republic of Ireland
The
Irish Nonprofits Database was created by Irish Nonprofits Knowledge
Exchange (INKEx) to act as a repository for regulatory and voluntarily
disclosed information about Irish public-benefit nonprofits. The
database lists more than 10,000 nonprofit organizations in Ireland. In 2012 INKEx ceased to operate due to lack of funding.
Israel
In Israel
nonprofit organizations (NPOs) and non-governmental organizations
(NGOs) are usually established as registered nonprofit associations
(Hebrew amutah, plural amutot) or public benefit companies (Hebrew Chevrah LeTo’elet Hatzibur, not to be confused with public benefit corporations). The structure of financial statements of nonprofit organizations is regulated Israel's Accounting Standard No. 5, and must include a balance sheet, a report on activities, the income and expenditure for the particular period, a report on changes in assets, a statement of cash flows,
and notes to the financial statements. A report showing the level of
restriction imposed on the assets and liabilities can be given, though
this is not required.
‘'Amutot'’ are regulated by the Associations Law, 1980. An amutah is a body corporate, though not a company. The amutah
is successor to the Ottoman Society which predated the State of Israel,
and was established by the now-superseded Ottoman Societies Law of
1909, based on the French law of 1901. Public benefit companies are
governed solely by company law; if their regulations and objectives meet
the two conditions specified in Section 345A of the Companies Act, they
will in effect be amutot in all but name.
An amutah must register with the Rasham Ha’amutot ('Registrar of Amutot'); a public benefit company must register with the Rasham HaChavarot [Registrar of Companies]. Both are under the purview of the Rashot Hata’agidim ('Corporations Authority') of the Ministry of Justice.
Japan
In Japan,
an NPO is any citizen's group that serves the public interest and does
not produce a profit for its members. NPOs are given corporate status to
assist them in conducting business transactions. As at February 2011,
there were 41,600 NPOs in Japan. Two hundred NPOs were given
tax-deductible status by the government, which meant that only
contributions to those organizations were tax deductible for the
contributors.
Russian
law contains many legal forms of non-commercial organization (NCO),
resulting in a complex, often contradictory, and limiting regulatory
framework.
The primary requirements are that NCOs, whatever their type, do not
have the generation of profit as their main objective and do not
distribute any such profit among their participants (Article 50(1),
Civil Code). Most commonly there are five forms of NCO:
Public associations
– A public association is the form most comparable to an 'association'
as used in international parlance. A public association is a
membership-based organization of individuals who associate on the basis
of common interests and goals stipulated in the organization's charter.
Foundations
– Foundations are property-based, non-membership organizations created
by individuals or legal persons (or both) to pursue social, charitable,
cultural, educational, or other public benefit goals.
Institutions
– The institution (uchrezhdeniye) is a form that exists in Russia and
several other countries of the former Soviet Union. Like foundations,
institutions do not have members. Unlike foundations, however,
institutions do not acquire property rights in the property conveyed to
them (Article 120, Civil Code, and Article 20, NCO Law). Moreover, the
founders are liable for any obligations of the institution that it
cannot meet on its own.
Non-commercial partnerships
– A non-commercial partnership (NP) (Article 8, NCO Law) is a
membership organization pursuing activities for the mutual benefit of
members. Therefore, assets that have been transferred to an NP as
donations can be used for purposes other than those having public
benefit.
Autonomous non-commercial organizations
– An autonomous non-commercial organization (ANO) (Article 10, NCO Law)
is a non-membership organization undertaking services in the field of
education, social policy, culture, etc., which in practice often
generates income by providing its services for a fee.
South Africa
In South Africa,
certain types of charity may issue a tax certificate when requested,
which donors can use to apply for a tax deduction. Charities/NGOs may be
established as voluntary associations, trusts or nonprofit companies
(NPCs). Voluntary associations are established by agreement under the
common law, and trusts are registered by the Master of the High Court.
In Ukraine, nonprofit organizations include non-governmental organizations, cooperatives (inc. housing cooperatives), charitable organizations, religious organizations, political parties, commodities exchanges
(in Ukraine, commodities exchanges can't be organized for profit) and
more. Nonprofit organizations obtain their non-profit status from tax
authorities. The state fiscal service is the main registration authority
for nonprofit status.
After a nonprofit organization has been formed at the state level,
the organization may seek recognition of tax-exempt status with respect
to U.S. federal income tax. That is done typically by applying to the Internal Revenue Service
(IRS), although statutory exemptions exist for limited types of
nonprofit organization. The IRS, after reviewing the application to
ensure the organization meets the conditions to be recognized as a
tax-exempt organization (such as the purpose, limitations on spending,
and internal safeguards for a charity), may issue an authorization
letter to the nonprofit granting it tax-exempt status for income-tax
payment, filing, and deductibility purposes. The exemption does not
apply to other federal taxes such as employment taxes. Additionally, a
tax-exempt organization must pay federal tax on income that is unrelated
to their exempt purpose. Failure to maintain operations in conformity to the laws may result in the loss of tax-exempt status.
Individual states and localities offer nonprofits exemptions from other taxes such as sales tax or property tax.
Federal tax-exempt status does not guarantee exemption from state and
local taxes and vice versa. These exemptions generally have separate
applications, and their requirements may differ from the IRS
requirements. Furthermore, even a tax-exempt organization may be
required to file annual financial reports (IRS Form 990) at the state and federal levels. A tax-exempt organization's 990 forms are required to be available for public scrutiny.
Governance
The board of directors has ultimate control over the organization, but typically an executive director
is hired. In some cases, the board is elected by a membership, but
commonly, the board of directors is self-perpetuating. In these 'board-only' organizations, board members nominate new members and vote on their fellow directors' nominations.
Part VI Governance, Management, and Disclosure, section A, question 7a
of the Form 990 asks 'Did the organization have members, stockholders,
or other persons who had the power to elect or appoint one or more
members of the governing body?'; the IRS instructions added '(other than
the organization's governing body itself, acting in such capacity)'.
Problems
Founder's syndrome
Founder's syndrome
is an issue organizations experience as they expand. Dynamic founders,
who have a strong vision of how to operate the project, try to retain
control of the organization, even as new employees or volunteers want to
expand the project's scope or change policy.
Resource mismanagement
Resource
mismanagement is a particular problem with NPOs because the employees
are not accountable to anybody who has a direct stake in the
organization. For example, an employee may start a new program without
disclosing its complete liabilities. The employee may be rewarded for
improving the NPO's reputation, making other employees happy, and
attracting new donors. Liabilities promised on the full faith and credit
of the organization but not recorded anywhere constitute accounting fraud.
But even indirect liabilities negatively affect the financial
sustainability of the NPO, and the NPO will have financial problems
unless strict controls are instated.
Some commenters have argued that the receipt of significant funding
from large for-profit corporations can ultimately alter the NPO's
functions. A frequent measure of an NPO's efficiency is its expense ratio (i.e. expenditures on things other than its programs, divided by its total expenditures).
Competition for talent
Competition
for employees with the public and private sector is another problem
that nonprofit organizations inevitably face, particularly for
management positions. There are reports of major talent shortages in the
nonprofit sector today regarding newly graduated workers, and NPOs have for too long relegated hiring to a secondary priority,
which could be why they find themselves in the position many do. While
many established NPOs are well-funded and comparative to their public
sector competitors, many more are independent and must be creative with
which incentives they use to attract and maintain vibrant personalities.
The initial interest for many is the remuneration package, though many
who have been questioned after leaving an NPO have reported that it was
stressful work environments and implacable work that drove them away.
Public- and private-sector employment have, for the most part,
been able to offer more to their employees than most nonprofit agencies
throughout history. Either in the form of higher wages, more
comprehensive benefit packages, or less tedious work, the public and
private sectors have enjoyed an advantage over NPOs in attracting
employees. Traditionally, the NPO has attracted mission-driven
individuals who want to assist their chosen cause. Compounding the issue
is that some NPOs do not operate in a manner similar to most
businesses, or only seasonally. This leads many young and driven
employees to forego NPOs in favor of more stable employment. Today,
however, nonprofit organizations are adopting methods used by their
competitors and finding new means to retain their employees and attract
the best of the newly minted workforce.
It has been mentioned that most nonprofits will never be able to match the pay of the private sector
and therefore should focus their attention on benefits packages,
incentives and implementing pleasurable work environments. A good
environment is ranked higher than salary and pressure of work.
NPOs are encouraged to pay as much as they are able and offer a
low-stress work environment that the employee can associate him or
herself positively with. Other incentives that should be implemented are
generous vacation allowances or flexible work hours.
In the traditional domain noted in RFC1591,
.org is for 'organizations that didn't fit anywhere else' in the naming
system, which implies that it is the proper category for non-commercial
organizations if they are not governmental, educational, or one of the
other types with a specific TLD. It is not designated specifically for
charitable organizations or any specific organizational or tax-law
status; however, it encompasses anything that is not classifiable as
another category. Currently, no restrictions are enforced on
registration of .com or .org, so one can find organizations of all sorts
in either of these domains, as well as other top-level domains
including newer, more specific ones which may apply to particular sorts
of organization including .museum for museums and .coop for cooperatives. Organizations might also register by the appropriate country code top-level domain for their country.
Alternative names
Instead
of being defined by 'non' words, some organizations are suggesting new,
positive-sounding terminology to describe the sector. The term 'civil
society organization' (CSO) has been used by a growing number of
organizations, including the Center for the Study of Global Governance.
The term 'citizen sector organization' (CSO) has also been advocated to
describe the sector – as one of citizens, for citizens – by
organizations including Ashoka: Innovators for the Public.
Advocates argue that these terms describe the sector in its own terms,
without relying on terminology used for the government or business
sectors. However, use of terminology by a nonprofit of self-descriptive
language that is not legally compliant risks confusing the public about
nonprofit abilities, capabilities, and limitations.
In some Spanish-language jurisdictions, nonprofit organizations are called "civil associations".
