Meaning and establishment of nonprofit organizations
Nonprofit organizations are defined by the Internal Revenue Service (IRS) as those which are exempt from tax, mainly referred to as charity organizations. One distinguishing factor that clearly sets apart charitable organizations from the other tax-exempt organizations lies in its purpose of benefiting the interests of the whole community and not just its members interests. For an organization to be bestowed the status of a nonprofit (or charitable), it must serve any of the following purposes as prescribed by the IRS: a charitable cause, promotion of educational, religious, literary or scientific activity, fostering local or international amateur sports or the prevention of cruelty to children and/or animals (Sacks, 2012). Congress, as well as state legislatures, have come to appreciate the special role played by these organizations and have voted to give them a tax-exempt status so that they can dedicate all their resources towards the achievement of their missions. In a bid to encourage citizens to contribute to the cause of these organizations, federal and state governments allow for the deduction of contributions made towards charitable or philanthropic organizations when computing their taxable incomes.
Charitable organizations receive their tax-exempt status under section 501 (c) (3) which distinguishes between private and public charities. Public charities receive at least a third of its total funding from either a government institution, the public or a special institution formed to raise money for a school, hospital or a government unit. Private charitable organizations on the other hand receive have a higher proportion of its funding support coming from an individual, family or another corporation. Private charities have more stringent rules governing their operations, including the amount of funds they can distribute for charitable purposes. In addition, its donors receive less favorable tax benefits when it comes to their donations to these organizations (Sacks, 2012).
History of nonprofit organizations
In a world riddled with all sorts of evil, suffering, and hardships, nonprofit and philanthropic organizations play a key role in alleviating the suffering of the masses. Philanthropy traces its roots to the Greek word philantropia which translates to a love of mankind. The meaning of the word has evolved over time, but its implication resonates with the ancient practice of extending kindness towards strangers. Modern charity and philanthropy have its origins in the ancient practices where altruistic practices were engrained in the social and belief structures. Hindu religious beliefs, for instance, elevated giving to the status of duty while ancient Chinese culture highly praised benevolence. In ancient sub-Saharan African dynasties, reciprocity and kindness were deemed very important (Ellis, 2009). Native Americans advocated for the practice of giving so as to promote harmony and peaceful coexistence. Christianity and Islam alike both advocate for the kind treatment and care for strangers and those who are in need. Based on the philosophy of Moses Maimonides, giving unwillingly was considered to lie at the bottom of his golden ladder of charity while a free giving to anyone in need and with the intention to promote his self-reliance was ranked at the top. In todays society, philanthropy is defined as an organized and systematic practice of giving aimed at improving the quality of human life through social change and welfare programs. Modern philanthropists are separated by a wide chasm of time and space from their predecessors, but their charitable deeds that seek to improve human welfare remains a deep connection.
According to Susan J. Ellis, philanthropy and incidences of volunteering seem to be closely associated with the advent of war in the American society. Military action always almost triggers citizen action, and these series of events are strikingly similar from war to war- the first resistance movement, for instance, began when the revolutionary war was being waged. The nonprofit sector was not well established prior to 1970s. Just before the 1950s, art and culture organizations were structured as for-profit organizations but would soon revert to nonprofit ventures, the main incentive for this shift being tax breaks. In the health sector, just about 25 percent of hospitals in the 1920s in the United States operated as nonprofit. By 1970, however, more than half of these had already converted to nonprofit, a third of them run by the government and approximately 12 percent being run privately (Ellis, 2009). Interest on how nonprofit organizations came to be seem to be waning as people are largely concerned with research on the emotional and the positive aspects of the people who are engaged in charitable and philanthropic activities (McKenzie, 2015). This is perhaps an indication of the trends and challenges facing the nonprofit sector in this present day and age.
Trends and challenges facing the nonprofit sector
Changes and trends in demography, economy, technology and communication will have an impact on how we utilize our available extra hours. This on its own can affect the capacity of a nonprofit organization in its endeavors to meet its objectives and to be effective and sustainable. Those charged with the responsibility of running nonprofit organizations should be well aware of trends and activities going on within their environment. Being aware of these trends will help these overseers, as well as donors, make informed decisions and plans as they will be armed with the requisite information. Some of the major challenges and trends facing the nonprofit sector include insufficient funds, limited resources as a result of increased needs that need to be solved in the economy and management challenges (Stringfellow, 2012).
The number of donors who express an interest in championing for the cause of nonprofit sector has improved though the challenge now being the uncertainty in funding. Between 2010 and 2011, the volume of donations increased by approximately 7.5 percent. Though this is a good trend for the sector, there still exist uncertainties. Man made or natural disasters can at times occur which will alter the distribution of these donations. The occurrence of a hurricane or a terrorist attack will, for instance, shift the allocation of funds towards alleviating such causes at the expense of improving the welfare of the homeless. Government funding cuts at times cannot be avoided. As state and federal budget cuts loom, these organizations are left in a state of uncertainty, forcing them to resort to seek financial support from the public sector (Kylander & Stone, 2012).
There has been a ballooning growth in the number of nonprofit organizations over the years, creating stiff competition for sources of funds. Data compiled by the National Center for Charitable Statistics indicate that the sector grew by 31 percent between 1999 and 2009. This huge volume of organizations implies that the amount of funds that can be distributed among them will diminish (Stringfellow, 2012).
As some of these organizations are in a race to save every dollar donation that lands in their kitty, they do not have the financial muscle to hire qualified technology experts to man their operations, with the result that they lag behind in terms of technological advancement. Those that do not have the financial muscle to command an online presence will miss out on the huge online market opportunity that could add an extra source of funding for their operations.
In order to command a great presence in the market in the future and to create a long lasting impact in the society, nonprofit organizations need to adopt technology in the running of their operations. Online presence in this day of technology boom will increase the organizations visibility to potential donors who might support the cause of the organization.
Instating visionary leaders in strategic positions of the organizations will also help in steering the firm towards greater success and create long lasting impact in the society; leaders capable of uniting the workforce towards a common goal and mobilize resources to the achievement of the set objectives. These leaders should be able to use branding as a tool to help the firm stand out in a crowded market. This is by ensuring that the firm uses its funds efficiently in meeting societal needs (Pincetl, 2003).
Organizations such as Red Cross, Oxfam International, and the American Cancer Society all play a critical role in promoting human welfare and alleviating their suffering. As such, they need to be well funded to complement government activities aimed at improving human welfare in the society. For these organizations to have a lasting impact on the society, they should develop appropriate strategies that will make them adaptable to the dynamic environment within which they operate.
Ellis, S. (2009). History of Non-Profits in America. Shannon Laliberte Parks: Research & Intellectual Inquiry. Retrieved 14 September 2016, from https://shannonlaliberteparks.wordpress.com/2009/09/21/history-of-non-profits-in-america/
Kylander, N. & Stone, C. (2012). The Role of Brand in the Nonprofit Sector (SSIR). Ssir.org. Retrieved 14 September 2016, from http://ssir.org/articles/entry/the_role_of_brand_in_the_nonprofit_sector
McKenzie, D. (2015). Innovation in the Nonprofit Sector - innovairre. innovairre. Retrieved 14 September 2016, from http://www.innovairre.com/innovation-in-the-nonprofit-sector/
Pincetl, S. (2003). Nonprofits and Park Provision in Los Angeles: An Exploration of the Rise of Governance Approaches to the Provision of Local Services*. Social Science Q, 84(4), 979-1001. http://dx.doi.org/10.1046/j.0038-4941.2003.08404019.x
Sacks, E. (2012). Book Review: Philanthropy in America: A History. Nonprofit And Voluntary Sector Quarterly, 41(6), 1281-1284. http://dx.doi.org/10.1177/0899764012438856
Stringfellow, A. (2012). Challenges Facing Today's Nonprofits. OPEN Forum. Retrieved 14 September 2016, from https://www.americanexpress.com/us/small-business/openforum/articles/challenges-facing-todays-nonprofits/
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