The Good, the Bad, and the Ugly of a Public Charity

The primary goal of a public charity is not to generate revenue, but to serve the public good by addressing social and community issues. Public charities are often formed with a specific mission in mind, such as providing education, promoting health, alleviating poverty, or protecting the environment. They rely on the generosity of donors to fund their activities and make a positive impact on society.

What is a public charity?

A public charity is a type of non-profit organization that is primarily funded by the general public, usually through donations. Public charities are typically exempt from federal income tax and are eligible to receive tax-deductible contributions from individuals, corporations, and other organizations. Examples of public charities include religious organizations, educational institutions, medical research organizations, and many other types of social service organizations.

Before Starting A Public Charity

Before starting a public charity, it is important to consider the following:

1. Purpose and Mission: Clearly articulate the purpose and mission of the organization and make sure it is something you are passionate about and committed to.
2. Resources: Determine the resources, including time, money, and personnel, that will be required to start and maintain the organization.
3. Legal Requirements: Familiarize yourself with the legal requirements for establishing and operating a public charity, including tax-exempt status and compliance with state and federal regulations.
4. Competition: Consider the competition for resources in your area of focus and determine how your organization will differentiate itself and attract funding and support.
5. Fundraising: Develop a plan for fundraising, including strategies for soliciting contributions from individuals, foundations, corporations, and government agencies.
6. Board of Directors: Assemble a strong and dedicated board of directors who are committed to the mission of the organization and have the skills and experience needed to provide leadership and oversight.
7. Financial Management: Develop systems for financial management and accounting that are transparent, effective, and compliant with all applicable laws and regulations.
8. Evaluation and Assessment: Develop a plan for evaluating and assessing the effectiveness of the organization’s programs and activities.

Pros

Here are four benefits of creating a public charity.

1. Tax Benefits: Public charities are exempt from federal income tax and donors can take a tax deduction for their contributions.
2. Public Trust: Public charities often have a high level of public trust, which makes it easier for them to solicit contributions and grants.
3. Flexibility: Public charities can engage in a wide range of activities and services, provided they align with the organization’s mission.
4. Resources: Public charities can tap into a variety of resources, including volunteers, in-kind donations, and grant funding.

Cons

Here are five considerations to take stock of before starting a public charity.

1. Public Scrutiny: Public charities are subject to close public scrutiny, and their financial information must be made publicly available.
2. Compliance Requirements: Public charities must comply with various state and federal regulations, which can be time-consuming and costly.
3. Competition for Funds: There is a lot of competition for funding among public charities, which can make it challenging to secure the resources needed to achieve their goals.
4. Limited Political Activity: Public charities are subject to limits on their ability to engage in political activities, which can limit their impact on public policy.
5. Dependence on Donors: Public charities are often heavily dependent on donations, which can make their financial stability subject to fluctuations in the economy and donor behavior.

According to Eric Sheldon, CPA, “It is a good idea to seek the advice of a lawyer, accountant, and other professionals who have experience in the non-profit sector to ensure that the organization is established and operates in compliance with all applicable laws and regulations.”

Need help?

Reach out to us before you start a public charity to ensure you are following the regulations and to avoid the pitfalls. Give us a call today.

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