11 Nonprofit Terms You Should Know
As in most industries, the world of nonprofits (n. legal entities organized and operated for a
collective, public, or social benefit which are not conducted or maintained for the purpose of making a profit) has its own jargon. Whether you’re working for, serving on the board of, or simply interested in supporting a nonprofit organization, knowing the language will certainly serve you well.
501(c)(3) organizations are the most popular type of nonprofit in the United States. Section 501(c)(3) of the U.S. Internal Revenue Code allows for federal tax exemption for nonprofit organizations which are organized and operated exclusively for the exempt purposes laid out in the code. The organization must not be organized or operated for the benefit of private interests nor can 501(c)(3) organizations be primarily organized or operated to influence legislation. For the most part, if you hear about someone talking about a nonprofit organization in the United States, they are more than likely talking about a 501(c)(3).
Many nonprofit organizations produce annual reports to provide important information to individual and corporate donors, foundations, and other interested parties. Annual reports document what the nonprofit has accomplished in the last year and looks forward to what lies ahead. Most annual reports include financial data to illustrate the nonprofit’s revenue and expenses which provide a transparent way to build trust with the organizations community.
Articles of Incorporation
Articles of incorporation are a set of documents filed with a government to legally document the creation of a corporation. Filing articles of incorporation is part of the process necessary to form a 501(c)(3) organization, however, it is just the beginning. Each U.S. state has its own process for creating and filing articles of incorporation, but, in general, they should include the corporation’s name, type of corporate structure, the registered office address and name of the organization’s initial registered agent, as well as the purpose of the corporation.
Board of Directors
A Board of Directors is the governing body of a nonprofit, responsible for overseeing the organization’s activities, and, at a high-level, providing strategy, oversight, and accountability of the nonprofit. The Board of Directors does not manage the day-to-day operations of nonprofit organizations, although smaller nonprofits might have board members who also serve on the nonprofit’s management staff.
When an organization is established, the first order of business is to create the organization’s bylaws, which, put plainly, are a nonprofit’s operating manual. Each government body has its own rules about what needs to be included in a nonprofit’s bylaws and the specific bylaws of an organization should supplement the rules already established by the government body who has jurisdiction over the nonprofit.
A donor is an individual, family or organization that makes a financial or in-kind donation to a nonprofit organization.
Employer Identification Number (EIN)
An employer identification number, or EIN, is a nine-digit number assigned by the IRS to identify the tax accounts of employers. In the nonprofit world, the EIN is also the number that can ultimately prove your organization’s 501(c)(3) or other tax-exempt status. Oftentimes used synonymously with tax-exempt or tax identification number, having EIN does not mean you have tax-exempt status. However, interested parties can use your EIN to confirm your tax-exempt status through the IRS.
An executive director is the key day-to-day management leader of a nonprofit responsible for overseeing the administration, programs, and strategic plan of the organization. Typically, an executive director serves as the CEO of the nonprofit, steering the organization and managing its day-to-day operations, while reporting directly to the Board of Directors.
A fiscal year is a one-year period that organizations and governments use for financial reporting, budgeting, and accounting. In the United States, most individuals use the standard calendar as their fiscal year, running from January 1–December 31, however, most corporations, businesses, and governments use July 1–June 30 as their fiscal years. Your organization’s fiscal year is either established in your bylaws or are automatically adopted after filing your first tax form to the federal government.
Form 990 is an IRS form that provides the public and the government with financial information about nonprofit organizations. Most tax-exempt organizations must file Form 990—or a variant thereof, like a 990-EZ or 990-N—annually to detail the organization’s activities, governance, and financial information for the fiscal year.
In-kind contributions are donations of goods or services made to organizations instead of cash. These can include donated items, reduced-fee or free services, or specific volunteer time. For many nonprofit organizations, in-kind contributions are a significant source of net revenue as they often reduce expenditures.
For most instances, please see 501(c)(3)
Is there more nonprofit jargon you need help understanding? Drop us a note, and we’ll add more terms to our list.