Join

Founder tool

Structure chooser

There's more than one way to do good. Answer a few questions, then compare the options side by side in plain words.

1. What do you mainly want to do?
2. Is another charity already doing this work near you?
3. How long do you expect this work to last?
4. How many committed people would serve on a board with you?
5. How do you feel about paperwork: bookkeeping, filings, insurance, payroll?
6. Where will most of the money come from?
7. How important is it that you keep control?

Your answers aren't stored or sent to anyone. They're only in this page's address, so you can bookmark or share the result.

Answer the questions to rank the options

Your own 501(c)(3) nonprofit
Fiscal sponsorship: comprehensive (Model A)
Fiscal sponsorship: pre-approved grant (Model C)
A donor-advised fund
A program inside an existing charity
An LLC or benefit corporation (a business)

Plain-language comparison for the structure chooser. This is general information, not legal or tax advice. Scores only point toward options worth a closer look.

The options, side by side

Your own 501(c)(3) nonprofit

You form a nonprofit corporation in your state and apply to the IRS for recognition as a tax-exempt charity.

Good for

  • Work you expect to run for many years
  • Founders with a committed board of at least a few people
  • Programs that need their own grants, bank account, insurance and contracts
  • Ideas that no existing charity is doing in your area

Watch out for

  • You take on the paperwork for good: board meetings, bookkeeping, an annual IRS filing and often state filings
  • A charity that misses its required IRS annual filing three years in a row automatically loses its tax-exempt status
  • Directors have legal duties, and no one owns the charity or can take its money out
  • Limits on political campaign activity and lobbying
  • Money and time spent on setup is money and time not spent on your mission
Cost
A state filing fee to incorporate (it varies by state), plus the IRS user fee to apply: $600 for Form 1023 or $275 for the shorter Form 1023-EZ, which only small organizations can use. Add state charity registration fees, insurance and any legal or accounting help.
Time to start
Incorporating can be quick in many states. The IRS application then takes longer, and the IRS posts current processing times on its website. Plan for months, not weeks.
Who's in control
Your board has full legal control. As founder you have influence through the board, but you don't own the charity.
Tax-deductible gifts?
Yes, once the IRS recognizes the charity under section 501(c)(3). If you file Form 1023 within 27 months after the end of the month you were legally formed and the IRS approves it, your exempt status generally starts from your formation date. Ask an accountant before promising donors that gifts made while you wait are deductible.

Sources: IRS: Exemption requirements for 501(c)(3) organizations; IRS: Form 1023 and 1023-EZ, amount of user fee; IRS: Form 990-N (e-Postcard); IRS: Instructions for Form 1023 (effective date of exemption)

Fiscal sponsorship: comprehensive (Model A)

Your project becomes a program of an established charity (the fiscal sponsor), which takes legal and financial responsibility for it.

Good for

  • Testing an idea before setting up a whole organization
  • Projects that will hire people but don't want to run payroll, insurance and tax filings themselves
  • Founders who want donations to be tax-deductible right away
  • Short-term or time-limited projects

Watch out for

  • The sponsor has legal control of the money and the work, and its board has the final say
  • Sponsors usually charge a fee. Ask what it is, how it is worked out and what it covers, and compare sponsors
  • Get a written agreement that says what happens if you want to leave and take the project with you
  • Choose a sponsor whose mission fits yours
Cost
A fee to the sponsor. Fees and what they cover vary between sponsors, so ask for the fee schedule in writing.
Time to start
Often faster than forming your own charity, once a sponsor accepts your project. It depends on the sponsor's review process.
Who's in control
The sponsor has legal control. You run the day-to-day work under the agreement.
Tax-deductible gifts?
Yes. Donors give to the sponsor, which is already a 501(c)(3) charity.

Sources: Fiscal Sponsor Directory: Fiscal sponsorship models and how they evolved (interview with Gregory Colvin)

Fiscal sponsorship: pre-approved grant (Model C)

An established charity approves your project as a grantee, receives donations for it, and passes them on to you as grants.

Good for

  • A group or person that wants to keep running its own operations
  • A young organization waiting for its own 501(c)(3) status
  • Projects that mainly need a way to receive tax-deductible gifts and grants

Watch out for

  • You stay responsible for your own taxes, insurance, payroll and legal risks
  • The sponsor must keep real discretion over the money, so you can't promise donors that every dollar will reach you
  • You report to the sponsor on how you spent each grant
  • Sponsors usually charge a fee. Get the agreement and the fee in writing
Cost
A fee to the sponsor, which varies between sponsors. Ask for it in writing.
Time to start
Often faster than forming your own charity, once a sponsor approves your project.
Who's in control
You control your own operations. The sponsor controls whether and when to make grants to you.
Tax-deductible gifts?
Yes, for gifts made to the sponsor. Gifts made directly to you are not deductible unless you are a 501(c)(3) yourself.

Sources: Fiscal Sponsor Directory: Fiscal sponsorship models and how they evolved (interview with Gregory Colvin)

A donor-advised fund

You give money to a fund held by a sponsoring charity, and later recommend grants from it to other charities.

Good for

  • People whose main goal is to give money, not to run programs
  • Families or groups who want to pool gifts and decide together which charities to support
  • Getting started quickly with very little paperwork

Watch out for

  • Once you give, the sponsoring charity legally controls the money. You only advise
  • A donor-advised fund is for recommending grants to charities. It is not a way to run your own programs
  • The IRS warns against arrangements that give donors or their families economic benefits, and excise taxes can apply
  • Sponsoring organizations charge fees and set minimums. Compare them
Cost
Fees set by each sponsoring organization. Compare their published fee schedules and minimums.
Time to start
Usually quick: you open an account with a sponsoring organization.
Who's in control
The sponsoring organization has legal control. You keep advisory privileges over grants and, often, investments.
Tax-deductible gifts?
Gifts into the fund are made to a 501(c)(3) sponsoring organization. Ask a tax advisor how the deduction rules apply to you.

Sources: IRS: Donor-advised funds

A program inside an existing charity

Instead of starting something new, you bring your idea to a charity already working in this area and run it as one of their programs.

Good for

  • When another charity already serves the same people or does similar work
  • Founders who want to spend their time on the work, not on paperwork
  • Using an existing charity's reputation, donors, insurance and systems
  • Proving your idea works before deciding whether it needs its own organization

Watch out for

  • The host charity's board makes the final decisions
  • Your idea may change to fit their priorities
  • Agree in writing on roles, money and what happens to the program if things change
Cost
Often little or nothing up front. The host charity may ask the program to cover a share of its overhead costs.
Time to start
As fast as the host charity can agree. Often the quickest way to start helping people.
Who's in control
The host charity controls the program. You lead it as a staff member, volunteer or partner.
Tax-deductible gifts?
Yes, if the host is a 501(c)(3) charity and donors give to it.

Sources: IRS: Tax Exempt Organization Search (check a host charity's status)

An LLC or benefit corporation (a business)

You set up a business that does good, and that can earn money, pay its owners and take investment.

Good for

  • Ideas that can pay for themselves by selling products or services
  • Founders who want to own the organization and be able to take profits
  • Raising money from investors rather than donors
  • Work that doesn't fit the IRS rules for charities

Watch out for

  • Not tax-exempt, and gifts to it are not tax-deductible
  • Most foundations and government grants for charities won't fund it
  • Business taxes and filings apply
  • A benefit corporation is a for-profit corporation formed under state law with a stated public benefit. Rules differ by state, so check whether and how your state offers it
Cost
State filing fees to form the LLC or corporation, which vary by state, plus ongoing state fees and business tax filings.
Time to start
Often quick: forming an LLC or corporation is a state filing. Check your state's processing time.
Who's in control
The owners (members of an LLC, or shareholders of a corporation) have control.
Tax-deductible gifts?
No. Payments to a business are not charitable donations.

Sources: IRS: Limited liability company (LLC); IRS: Exemption requirements for 501(c)(3) organizations

General information, not legal or tax advice. The right structure depends on your state, your plans and your people; a short conversation with a nonprofit lawyer is worth it before you commit.

JoinAsk a personLeer en español