Giving Compass' Take:
- Exponent Philanthropy presents an introductory guide to understanding the nonprofit sector, providing definitions and examples of different types of organizations and giving.
- What simple first steps can you take as a donor to support nonprofits for social impact and systems change?
- Learn more about best practices in philanthropy.
- Search our Guide to Good for nonprofits in your area.
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The first step to understanding the nonprofit sector is having a basic definition of what it is. The nonprofit sector encompasses institutions and organizations that are neither government nor business. A nonprofit exists to benefit the public and operates without the intent of making a profit. Any revenue generated is reinvested into the organization to support its mission or charitable purpose rather than distributed to shareholders, as in a for-profit business.
Nonprofits often fill gaps in services that would otherwise fall to the government. Because of this role, they are granted tax-exempt status, enabling them to focus resources on advancing their missions while upholding public trust.
Understanding the Nonprofit Sector in Action
Nonprofits come in all shapes and sizes, from small, community-driven groups led by volunteers to large, professionally managed organizations. Globally, nonprofits are often referred to as NGOs (nongovernmental organizations).
To achieve nonprofit status in the U.S., an organization must apply to the Internal Revenue Service (IRS). Once granted, these organizations—commonly referred to as 501(c)(3)s—are exempt from paying income taxes. Within the nonprofit sector, you’ll find several key types of organizations that are vital for understanding the nonprofit sector:
Public Charities
Public charities are what many people think of when they hear the term “charity.” These organizations rely on diverse funding sources and pursue missions ranging from alleviating poverty to promoting education, health, and the arts.
Examples of public charities include:
- Local nonprofits: Big Brothers Big Sisters, local arts organizations
- National institutions: The American Red Cross, National Public Radio
- Specialized causes: Sierra Club (environment), Salvation Army (social services)
Public charities are everywhere, providing vital services and enriching communities.
Private Foundations
Unlike public charities, private foundations typically draw funding from a single source—an individual, family, or corporation. Due to this concentrated funding, they face stricter legal requirements.
Types of private foundations:
- Operating Foundations: Focus on running their own programs (e.g., DC Public Library Foundation).
- Non-Operating Foundations: Primarily give grants to other organizations or individuals (e.g., The Bill & Melinda Gates Foundation).
Read the full article about understanding the nonprofit sector at Exponent Philanthropy.