What type of 501(c)(3) should our new organization become?

My organization is new and our founder wants to have nonprofit 501(c)(3) status. But she would rather not have a board of directors because she wants to maintain control. We realize that in the nonprofit 501(c)(3) status there are two distinct categories charitable organization and private operating foundation. She would rather be set up as a private operating foundation. Is it more difficult for a private operating foundation with a nonprofit 501(c)(3) status to obtain funding from larger foundations? Is there a source that I can go to find out what foundations may provide funding for private operating foundations?

First, this is not legal advice. We encourage you to consult with an attorney who has expertise in this area prior to making any decisions about the organizations structure or desired tax exempt status.

There are two subgroups of 501(c)(3) organizations: private foundations and public charities. Private foundations generally receive their money from one source, such as a business, individual, or family. With their income tax exempt status comes certain responsibilities, including minimum distributions each year.

Within the subgroup of a private foundation is another subgroup of “private operating foundations”. The word “private” does not mean that the control is vested in one person. It means that it is a private foundation that operates its own programs or services. So, rather than distributing grants as a private foundation does, a private operating foundation may meet its required distribution amount by using its money to support its own programs–although it might also award some grants to outside organizations.

All 501(c)(3) organizations have governing Boards of Directors that are responsible for the organization. If your organization becomes a 501(c)(3), it would no longer “belong” to the founder. The organization would also have certain responsibilities in return for its tax exempt status regardless of whether it is a private foundation or a public charity, and governance would lie with the Board of Directors in any case.

Private foundations are generally interested in seeing broad community support, involvement, and investment in the organizations they fund. Public charities that have only the minimal number of Board members, or where the Board members are related to each other and/or the staff, are generally viewed with at least a bit of skepticism.

This IRS website offers more information about private operating foundations (as well as other types of 501(c)(3) organizations): http://www.irs.gov/charities/foundations/article/0,,id=136358,00.html The organization may also wish to check out the following resources regarding various standards that many nonprofit organizations work to meet: Standards for Charity Accountability: http://www.bbb.org/us/Charity-Standards/ Standards for Excellence: An Ethics and Accountability Code for the Nonprofit Sector: http://www.standardsforexcellenceinstitute.org/public/html/explore_b.html Independent Sector has some very helpful information available as well: http://www.independentsector.org/issues/accountability/standards2.html#