Nonprofit, foundation, NGO: What do they mean?
It can be hard to navigate the nonprofit world—so many terms are used to define mission-driven organizations working for community good. Let’s define some of these terms and share a bit about what various organizations in the nonprofit world do.
What is a nonprofit?
Nonprofits are organizations whose missions are to serve the public good. Also called public charities, nonprofits must register with the Internal Revenue Service (IRS) in order to become tax-exempt. These organizations are known as 501(c)(3) organizations. They qualify for tax-exempt status under section 501(c)(3) of the IRS code.
501(c)(3) organizations are the recipients of most foundation and corporate grants. 501(c)(3) organizations are further defined as public charities, private operating foundations, or private non-operating foundations. Nonprofits have to file Form 990 with the IRS each year.
What is a foundation?
Broadly speaking, a foundation is a nonprofit corporation or a charitable trust that makes grants to organizations or people for charitable purposes such as science, education, culture, and religion.
“Foundation” is not a legal term, though. If an organization has the word in its name, it doesn’t necessarily mean that it gives out money.
There are two foundation types: private foundations and grantmaking public charities.
- A private foundation’s money comes from a family, an individual, or a corporation. An example of a private foundation is the Ford Foundation. Private foundations must meet a “payout requirement,” meaning they have to give away a certain amount of their assets every year. That’s why when you’re looking for potential funders in our database, Foundation Directory Online, the private foundations you see are all active grantmakers.
- A grantmaking public charity (sometimes called a “public foundation”) gets its money from many different sources, such as foundations, individuals, or government agencies. An example of a grantmaking public charity is the Save the Children Federation.
Private foundations must list all the grants they paid in that year through the Form 990-PF. Some public foundations will list their grants but aren’t required to. Knowing where to find information about where a foundation is funding can help you find grants for your own organization.
For more details about the different types of foundations and their history, watch or attend Introduction to Finding Grants, our free class.
What is an NGO?
Non-governmental organizations, or NGOs, were first called such in Article 71 in the Charter of the newly formed United Nations in 1945. While NGOs have no fixed or formal definition, they are generally defined as nonprofit entities independent of governmental influence (although they may receive government funding).
As one can tell from the basic definition above, the difference between nonprofit organizations (NPOs) and NGOs is slim. However, the term “NGO” is not typically applied to U.S.-based nonprofit organizations. Generally, the NGO label is given to organizations operating on an international level although some countries classify their own civil society groups as NGOs.
What is the role of an NGO?
NGO activities include, but are not limited to, environmental, social, advocacy and human rights work. They can work to promote social or political change on a broad scale or very locally. NGOs play a critical part in developing society, improving communities, and promoting citizen participation.
How are nonprofits funded?
Nonprofits can and do use the following sources of income to help them fulfill their missions:
- Fees for goods and/or services
- Individual donations and major gifts
- Corporate contributions
- Foundation grants
- Government grants and contracts
- Interest from investments
- Loans/program-related investments (PRIs)
- Tax revenue
- Membership dues and fees
Should I start a nonprofit organization?
Starting a nonprofit organization can be an inspiring way to give back to your community and help those in need. However, it is important to understand all of the steps involved in this process before moving forward. Growing and sustaining a nonprofit may take years of effort and a great deal of determination.
A great first step is Candid’s course, Is Starting a Nonprofit Right for You? And see how ready you are to start a nonprofit with our Nonprofit Startup Assessment. When you finish this free 75-point checkup, you can download a report of your results, which will include resources to build your skills.
Not planning on forming a nonprofit, but still want to advance your community project? Some mission-minded folk use a fiscal sponsorship arrangement, where they work under the umbrella of an existing 501(c)(3) organization to carry out their work.