Introduction to the Nonprofit Sector
In this chapter, we explained the definitions of the nonprofit sector, outlined the size and the scope of it and compared its characteristics and economic significance with those of the business and the governmental sectors. We also summarized the sources of income available to nonprofits and identified key historic trends in this data.
The Nonprofit Sector
Over the years many authors have developed widely differing terminology for what is ostensibly the same cohort of organizations. Labels such as the third sector, independent sector, not-for-profit sector, nonprofit sector, charitable sector and voluntary sector are used with varying frequency in different countries. Unfortunately they are all too often used interchangeably and with rather different emphasis of meaning making it impossible to be sure with any degree of certainty that any two writers are addressing the same facet of society. Additional resources that may be helpful in navigating this complexity are provided below.
The long running Comparative Nonprofit Sector Project is hosted at the Center for Civil Society Studies and represents the largest systematic effort ever undertaken to analyze the scope, structure, financing, and impact of the nonprofit activity throughout the world. The team has made many of their reports and data tables available online. Users interested in the scope of the sector in different countries will find this site invaluable.
The National Center for Charitable Statistics (NCCS) is the national repository of data on the nonprofit sector in the United States. Its mission is to develop and disseminate high quality data on nonprofit organizations and their activities for use in research on the relationships between the nonprofit sector, government, the commercial sector, and the broader civil society. It provides a helpful breakdown of nonprofit activity by State and is the home of the National Taxonomy of Exempt Entities, allowing users to look at the significance of different categories of nonprofit.
This site provides both technical and procedural information regarding the latest legal requirements for nonprofit organizations. It also allows users to search for nonprofits by both location and keyword.
Guidestar provides access to a database of over 1.8 million IRS recognized tax-exempt organizations. Users of this site may search for specific nonprofits, examine their form 990 returns and identify individuals presently serving on their boards. The flexibility offered by the search facility makes Guidestar perfect for identifying potential competitors for funds and for conducting an analysis of their financial performance. It is also helpful in researching organizations for prospective grant applications.
There is now a UK site offering similar access to the accounts of registered charities. It can be found here.
In the U.K. the NCVO provides a helpful series of reports covering many aspects of the nonprofit sector. Their annual almanac is considered the reference guide to the size, scope and performance of what they prefer to term ‘Civil Society’ in the U.K. They also provide a regular strategic analysis of the issues facing the sector and a wealth of information on giving and volunteering. Their research team is world class and their reports invaluable.
Students in the UK will also find that the Charity Commission website offers considerable value. It provides data on the scale of the UK’s charity sector. It also offers a legal definition of charity and outlines the different legal forms that a charity might take. There are also a wealth of educational resources for individuals looking to establish and run a charity.
In Australia the CPNS is considered the leading hub for information on nonprofits. The Centre brings together academics and research students with expertise in philanthropy, nonprofit organizations, and the social economy. It publishes research reports and offers a series of podcasts on different topics. Perhaps most helpfully of all, CPNS has constructed a detailed list of web resources for students of nonprofit management and civil society. Students in Australasia will find the site particularly helpful, but the resources on their site are also relevant to students elsewhere as it is designed to be international in scope.
Sources of Data
Headquartered in Glenview, Illinois, the Foundation publishes data and trends about charitable giving through its seminal publication, Giving USA and quarterly newsletters on topics related to philanthropy. Prior to the formation of the Foundation, Giving USA was published directly through the American Association of Fund Raising Counsel (AAFRC). The book has documented who gives what to whom for more than 50 years.
The Center on Philanthropy is a key resource for fundraisers. The Center presently conducts the research that underpins Giving USA, and also publishes a range of other reports produced in-house by their research team. Recent projects have included a study of high net worth philanthropy and a major (and ongoing) panel study of giving by individuals. To our knowledge this is the only study of its kind in the world, tracking the giving behavior of different generations of Americans.
The Chronicle of Philanthropy is arguably the leading newspaper of the nonprofit world. It publishes articles, research reports and opinion pieces covering all aspects of philanthropy. The Chronicle appears in hard copy but subscribers also gain access to the search facility of the Chronicle’s website, and through this, to all previously published content. This is a great resource for students and researchers as the database can be searched by keywords.
The Nonprofit Times regards itself as a national business publication focusing exclusively on nonprofit management. It therefore occupies a space distinctive from that of the Chronicle. For our purposes it is a particularly useful publication since it routinely carries a good deal of news and opinions on the topics of fundraising and wider nonprofit marketing. It appears in hard copy format – but the website is also worth a visit as the editor publishes additional resources there that support the content of the hard copy journal. We have published one of our research reports there, for example.
The Voluntary/Charity Sector in the U.K.
Users in the United Kingdom should be aware of the distinction between voluntary organizations and charities. This difference is important mainly because registered charities attract tax advantages akin to the 501(c)(3) in the United States and there are presently circa 170,000 such organizations in England and Wales alone. The voluntary sector is of course much larger (circa 500,000 organizations) and what the National Council for Voluntary Organizations (NCVO) now terms Civil Society, is wider still.
In respect to the voluntary sector, the 2004 Treasury’s report ‘Exploring the Role of the Third Sector in Public Service Delivery and Reform’ defined voluntary organizations as:
- Value-driven, or primarily motivated by the desire to further social, environmental and cultural objectives rather than to make a profit per se
- Principally reinvesting surpluses to further their social, environmental or cultural objectives
Including a range of organizations: community and voluntary groups, registered charities both large and small, foundations, trusts and a growing number of social enterprises and co-operatives
Among these, a number of organizations can be recognized as charities. Charity law in the UK recognizes an organization to be a charity if (a) it has exclusively charitable objects and (b) it exists for public benefit. Charities with an income of £5,000 and above are required to register with the Charity Commission.
Fundraisers working in England and Wales should be aware that charities can take a variety of legal forms.
The four most common charitable legal forms are described below:
1. Charitable Trust
A charitable trust is governed by a trust deed, and can be established simply by an initial donor (the settler) declaring a trust over some property (usually a sum of money) and appointing initial trustees. The trustees can subsequently raise further funds, provided all funds are applied for the specific charitable objects.
Charitable trusts do not have a legal personality, so, in law, any agreements must be made with the trustees collectively, and there is no issue of limited liability.
Creating a trust may be advisable if:
- The organization will be run by a small number of people and its administration will be simple
- Trustees will be chosen by existing trustees and there is no time limit on how long they will be in office
- The organization is not likely to need to rely on members for its administration
- The organization’s sole activity is giving grants
- Land and buildings are to be held on trust for permanent use of the charity
- There is to be a restriction on the spending of the capital
2. Charitable Association
A charitable association is a group of members who agree to be governed by a set of rules known as the constitution. In most associations, the members elect a committee who are empowered to make decisions on the use of funds, and hence the committee members are the charity trustees. This is a very flexible structure, suitable for a wide range of small and medium voluntary organizations, including many involved in delivering public services. However, it is again not a corporate form – so agreements must be made with the trustees – and there is no limited liability.
This structure is commonly selected if:
- The members of the organization elect trustees for a fixed period of time
- Members are involved with the running of the organization and their views need to be reflected
- The organization does not have very large assets (ie property, land or investments) or a high turnover
- The organization will not need to hire staff or enter into any other contracts
3. Charitable Company
A charitable company is formed by establishing a company under the provisions of the Companies Act 1985, with clear charitable objects in its Memorandum, and limitations to prevent payments to trustees etc. The structure will almost always be a company limited by guarantee. Provided the company meets the tests of charitable status, it can be registered with the Charity Commission: if so, the directors of the company are also the trustees of the charity.
Despite the disadvantage of requiring dual regulation by Companies House and by the Charity Commission, having a corporate legal form these charities are able to enter directly into contracts, and the trustees have the protection of limited liability provided they comply with all the relevant requirements of company law.
This structure is commonly selected if there is a need:
- For a sizeable organization
- To employ people
- To enter into contracts to deliver or use services
- To own land or property
- There will shortly be a fourth option added to charitable legal forms.
4. Charity Incorporated Organizations
Charity Incorporated Organizations (CIO) were introduced by the Charities Act 2006. CIOs are registered and regulated by the Charity Commission. The CIO model offers charities an alternative to incorporation under company law, and unlike the company law structure will not require dual regulation by the Commission and Companies House. A detailed consultation exercise has been conducted by the Commission and the Office of the Third Sector and this completed in December 2008. The responses received will shape the final versions of the Regulations, Order and model constitutions that will provide the legal framework for running the CIO. The latest information from the Office of the Third Sector suggests it will be available for charities in April 2010.
As reports on giving in particular countries are published (and authors are prepared to share their resources with us), we will add to this section.
The Charities Aid Foundation published a fascinating report in 2010 comparing giving/volunteering and helping across 153 different countries. Their survey, conducted by Gallup was typically administered to 1000 people in each target country. Their World Giving Index is now an annual event.
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- Billis D (2010) Hybrid Organizations and the Third Sector: Challenges for Practice, Theory and Policy, Palgrave MacMillan.
- Fremont-Smith, Marion R. (2004) Governing Non Profit Organizations: Federal and State Law and Regulation. The President and Fellows of Harvard College.
- Hammack, David C. Making the Nonprofit Sector in the United States: A Reader (Philanthropic and Nonprofit Studies). Indiana University Press, 2000.
- Hopkins, Bruce R. (2009) Starting and managing a nonprofit organization: a legal guide.5th Edition,. John Wiley & Sons.
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- O’Neil, Michael. (2002) Nonprofit Nation: A New Look at the Third America. John Wiley & Sons.
- Ott, J. Steven and Dicke, Lisa A. (2015) The Nature of the Non Profit Sector. 3rd Edition, Westview Press.
- Phillips, Susan and Rathgeb Smith, Steven (2012) Governance and Regulation in the Third Sector: International Perspectivs, Routledge.
- Salamon, Lester. (1999) America’s Non Profit Sector. Foundation Center Press.
- Salamon, Lester. (2003) The Resilient Sector: The State of Non Profit America. The Brookings Institute.
- Steinberg, Richard and Powell, Walter W (2006) The Nonprofit Sector: A Research Handbook. Yale University Press.