Understanding Nonprofit Organization Structures

There are several different structures that nonprofit organizations can adopt, each with its own unique rules and governance procedures. The three most common structures are:

501(c)(3) public charities

Public charities must file for tax-exempt status with the IRS, and they operate to benefit the public good. They are required to have an independent board of directors that oversees the organization.

Public charities operate for the public benefit and include organizations like Habitat for Humanity, American Red Cross, World Wildlife Fund, local food banks, and emergency shelters.

Private foundations

Private foundations receive funding from a single source, like an individual or family, but also have tax-exempt status. However, they face more restrictions on activities and compliance requirements. Private foundation boards need to be fully independent from donors and follow the same best practices as public charities. 

Private foundations such as the Bill and Melinda Gates Foundation, the Ford Foundation, and family foundations like the Rockefeller and Hewlett Foundations, receive funding from individuals, families, or corporations.

Membership organizations

These nonprofits, like associations and advocacy groups, serve members rather than the general public. They have tax-exempt status but are governed by members, who have voting rights to shape the organization. Boards are responsible to members so transparency, elections, and two-way communication are key best practices.

Membership organizations include professional associations like the American Bar Association or American Medical Association; unions like the American Federation of Labor and Congress of Industrial Organizations or National Education Association; advocacy groups like the Sierra Club; and other member-serving organizations like Rotary Clubs, Chambers of Commerce, and Junior Leagues. These nonprofits represent and serve their membership bases.

Some well-known nonprofits may actually utilize multiple structures (e.g. have both a 501(c)(3) public charity and private foundation), but in general, most nonprofits will fall under one of these three main types. The structure an organization chooses depends on factors like its mission, funding sources, and who it aims to benefit or represent. 

The key for all nonprofits, regardless of structure, is to ensure transparency, accountability, and responsibility to stakeholders, whether that is the general public, private funders, or an organization’s membership. An effective governance structure and board of directors help establish and safeguard these practices.  Finding the right structure and implementing strong governance helps maximize a nonprofit’s impact and community benefit.