To understand the life cycle of a public charity, you must first understand what a public charity is. A public charity is a nonprofit organization that the IRS recognizes as being tax-exempt under section 501(c)(3) of the Internal Revenue Code. They are also considered a publicly supported organization, which means they rely mainly on contributions from the general public to carry out its mission. Public charities can be found in all areas of society, including religious, educational, charitable, scientific, literary, and / or political organizations. So how do these organizations go about starting up? And more importantly, how do they operate and grow once established? Let’s take a closer look.
Nonprofit public organizational life cycle
The life cycle of a public charity is generally divided into four phases: startup, growth, maturing, and decline.
- Startup phase: This is the phase where the organization is formed and registered as a nonprofit. The startup phase can be very exciting, but it can also be overwhelming. There are a lot of essential tasks to complete during this phase, such as developing your mission statement, board of directors, and volunteer base, registering with the IRS, and applying for 501(c)(3) status.
- Growth phase: Once the organization is up and running, it will enter the growth phase. During this time, the charity will focus on expanding its programs and services to meet the needs of its target population. This is also the phase where the charity will start to generate revenue through donations, grants, and other fundraising activities.
- Maturing phase: As the charity matures, it will focus more on sustainability. During this phase, the organization will develop long-term financial plans and strategies for diversifying its funding sources. Additionally, the charity will continue to refine its programs and services to meet the needs of its target population better.
- Decline phase: Eventually, all organizations reach a point where they begin to decline. This can be due to various factors, such as changes in the economy, decreases in funding, or demographic shifts. During this phase, the organization must reduce expenses and scale back its programs and services. Additionally, the charity may need to consider merging with another organization or dissolving completely.
Public charities versus private foundations
Public charities and private foundations are two types of organizations that are exempt from paying federal income tax. Both types of organizations are 501(c)(3) organizations, but there are some key differences between the two.
Public charities are typically supported by a broad base of donors, while private foundations are typically supported by a single donor or a small group of donors. Private foundations also tend to have more flexible spending guidelines, while public charities must adhere to stricter guidelines.
Private foundations are subject to more stringent regulations than public charities. For example, private foundations must file an annual Form 990-PF with the IRS, while public charities only need to file a Form 990 if they have gross receipts that exceed $200,000 per year.
Private foundations also must pay a 2% excise tax on their investment income, while public charities are not subject to this tax.
Overall, private foundations have less restrictions and more flexibility than public charities. However, private foundations also have greater compliance requirements and may be subject to higher taxes.