Ways To Form A Charity In The United States

Giving and supporting causes is an incredibly fulfilling way to contribute to the community and improve the lives of others, and that much is evident in the sheer number of charities that exist just in the United States. However, finding a charity that supports a cause that one feels passionate about may take time, and sometimes it can be hard to find assurance that funds are being allocated honestly.

In response, many people simply decide to form a charity of their own! While some business acumen is required to make decisions along the way, starting a charity can be a fulfilling and effective way to meet real needs in the community. A skilled business lawyer from Harrison Law, PLLC can advise those decisions and provide sound counsel when creating a charity. Consider scheduling a consultation by calling (480) 320-2310.

Benefits of Starting a Charitable Foundation

Many people form a charity because they are passionate about serving a people group, campaigning for a social cause, or giving back to their communities. Organizing an endeavor like this can positively impact the community and leave a lasting legacy. Charities across the world have changed lives and even saved them, and many continue to give to this day.

However, there are additional financial benefits to starting charitable foundations as opposed to simply giving. An officially registered 501(c)(3) charity is tax-exempt, which means the foundation can receive funds without paying tax on them. In certain circumstances, the donor may also claim their contributions as tax deductible.

Public Charity or Private Foundation?

However, when one decides to form a charity, several key decisions will influence the scope and functionality of the charity itself. Choosing the right fit for a foundation can help it succeed and grow effectively. One of these choices is deciding between a public charity or a private foundation.

Public

Public charities are, as the name suggests, largely funded by and more deeply connected to the general public. A public foundation will be open to the scrutiny of the public as they depend on them for the majority of their funding, though this is sometimes supplemented by the government. Forming a public charity may require proof of the public’s awareness via Form 990.

Private

Private foundations or charities tend to be largely controlled by a small group of donors or a founding family. These charities tend to create most of their revenue from fewer, wealthier donors and investment income. Because this kind of trust is not as deeply connected to the public, there are certain regulations and restrictions that they must abide by, according to the Internal Revenue Service.

Corporate Structure or Trust?

Once the founder has decided on a public or private model, they must then consider whether to employ a corporate or trust model for the application of these funds. Both structures have benefits and drawbacks and can be effective in different situations.

Corporate

A corporate structure for a charity is equivalent to a business that receives donations instead of turning a profit from sales. This generally involves creating a board of directors and appointing officers and directors for the daily operations of the charity. A corporate structure may involve more work in the beginning to create, but it allows for great flexibility and accountability within the organization.

To form a charity with a corporate structure, the charity must register with the IRS much like they would if they were a for-profit corporation. Once the charity has an official certificate of incorporation that specifically states they are a charitable operation, it can begin to receive donations and give to causes.

Trust

However, some charities may opt for a trust structure instead of a corporate structure. Instead of forming a corporation with a governing body of board members, a trust achieves the same purpose by nominating several trustees who manage and carry out the intended purpose of the charity.

Due to the nature of the trust, it is generally advisable for a charitable foundation to employ an irrevocable trust. This may help to focus and specifically define the purpose of the charity, but in doing so it may make the trust inflexible and difficult to adapt.

For more information on the benefits and drawbacks of these different structures, consider speaking with a skilled Arizona business attorney from Harrison Law, PLLC.

How to Form a Charity

Once these decisions are made, many people may wonder how they actually form a charity. The process can be lengthy as many forms must be approved by specific government officials, but the method itself is generally straightforward.

Determine the Organizational Values and Mission

Before a charity can serve a cause, solve a problem, or give to a people group, they have to know what, how, and who they are supporting! Many charities do this with a value or mission statement, determining specifically what and how they will give back to the community so they can accurately describe their charity to donors.

Register With the Government

Once a charity knows what they are about, the task of getting registered and officially recognized by the government. This may require creating an official trust or registering as a corporation with the relevant authorities. Doing so will allow the charity to function properly and ensure that they comply with state regulations.

Apply for Tax Exemption

However, where a normal business or company would stop at governmental registration, those who want to form a charity must go a step further. Since charitable foundations are tax-exempt, they must file with the IRS for a 501(c)(3) or similar exemption form depending on the nature of the charity. This may take approximately six months for this permit to be approved, though those numbers may vary.

Comply With Regulations

Once the charity has been granted tax exemption, it must continue to comply with state legislature, tax regulations, and internal bylaws to keep its tax-exempt status. This may require dedication from the board to ensure that operations are being handled ethically and transparently. However, when in compliance with these regulations, the charity is now in the perfect position to impact the world for good.

Contact an Arizona Business Attorney Today

When an individual decides to form a charity, that choice can set off a chain reaction that moves others in the community to give, which can grow into greater and greater positive change for the world. Making sure that this decision is backed up with sound legal knowledge can help to remove obstacles in the way of this change and build a foundation for lasting good. Consider speaking with an experienced Arizona business attorney from Harrison Law, PLLC, by calling (480) 320-2310.

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This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.