Nonprofit Organizations Law and Policy Third Edition - Libraries ...

CHAPTER 1
OVERVIEW OF THE NONPROFIT SECTOR
• • •
I. NATURE OF A NONPROFIT
ORGANIZATION
The role of the third sector in society, even the concept of the
nonprofit organization, is somewhat unclear. Although one expert on
nonprofit law calculated some years ago that almost half of the organizations
and enterprises in the United States at that time were nonprofit in
nature,l there remains a misconception of the nonprofit sector. The types
and forms of nonprofit enterprises are varied, and they serve many and
diverse purposes in a community. Some are formed to further the general
welfare of members of a community. Some are organized for specific
charitable purposes-whether educational, religious, artistic, literary, or
scientific. 2 Some are formed to benefit their members exclusively. The
charitable organization, funded for the most part through donations, is
the type of organization the public generally associates with nonprofit
status. There are, however, many nonprofit organizations that are not
charitable organizations. Political organizations, professional and trade
organizations, social clubs, homeowners' associations, and employee organizations
are a few examples. There are numerous nonprofit organizations
of a commercial nature that derive most of their funds from profits
generated by operations. Hospitals, day care centers, retirement villages,
country clubs, and farmers' cooperatives are examples of profit-making
entities often established as nonprofit corporations. Some nonprofit organizations
have been identified as nongovernmental organizations (NGOs)
1. See Howard Oleck, Nature of Nonprofit Organizations, 10 U. Tol. L. Rev. 962 (1979), In
2002 Statistics of Income, the Internal Revenue Service reported that assets of charitable
organizations rose, from $423 billion in 1985 to $1.733 trillion in 2002. The five percent of
organizations with assets of $10 million or more held 89'7< of these assets. See data at www.irs.
gov/taxstats.
Lester M. Salamon reported that there were 1.6 million identifiable nonprofit organizations in
1995 with revenues as of 1996 of $670 billion. See Lester M. Salamon, "Scope and Structure: The
Anatomy of America's Nonprofit Sector," in The Nature of the Nonprofit Sector, J. Steven Ott,
ed., Westview Press, 2001, p. 23. The number has grown to 1.9 million since 1995. See IRS Data
Books Publication Table, p. 25.
2. These organizations seek tax exempt status as § 501(c)(3) organizations. Discussion in
Chapters 4, 6, and 7.
1