501(c)(3c) is a US IRS designation for an organisation that meets specific criteria and seeks the designation in order to qualify for tax-exempt status. The organisation is designated as a charity when it is organised and operated exclusively in service of exempt activities, which are charitable, religious, educational, scientific, literary, fostering national or international amateur sports competition, and preventing cruelty to children or animals. In addition, no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual. Salaries for employees should be at ‘market rate.’ These organisations are prohibited from engaging in political lobbying. A 501(c)(3) must demonstrate public support by receiving at least one-third of its operating revenue from public sources.
Pays no taxes so long as legal status is maintained. Can bring in non-taxable income for related earned income.
Can apply for philanthropic grants and received tax deductible donations. Access to foundation grants and other non-profit specific funding.
Volunteers and contributors are motivated by a collective sense of purpose for the collective good. Many experts offer pro-bono or reduced rates to non-profits for services.
The right board can help level up skills or facilitate partnerships
This transparency could be an advantage or disadvantage, but intends to benefit ethics with higher public visibility.
Setup is subject to a long review process (27 months before full tax exempt status). Long form filing can take 6 months. Short form filing can take one month.
Specific accounting practices required. May be more cumbersome.
No ownership incentives for workers. Can ignore stakeholders in governance.
Boards tend to slow things down if not structured well or present risk to maintaining the original purpose. Distractions from product development in some funding models, or grants. Grants focus areas can determine what you build and when.
incentivizes unsustainable revenue strategies like donations