How to Start a 501(c)(6) Organization From Scratch
Not all nonprofits are charitable organizations. Nonprofit status only indicates an organization isn’t operating to generate and distribute profits, which leaves plenty of room for interpretation. That’s where the various identifying organizational codes come into play.
For example, 501(c)(6) nonprofit organizations serve communities and constituents by promoting business practices. These nonprofits focus on business leagues, which are associations of people with shared business interests, but (as the name suggests) these interests don’t involve profits for the organization or its members.
Looking to start a 501(c)(6) organization? Below, we’ll walk you through everything you need to know about this type of nonprofit, including status requirements, advantages, and step-by-step instructions on getting set up.
What Is a 501(c)(6)?
By definition, 501(c)(6) nonprofits are a collection of individual persons with common business interests. Those interests could include anything from assisting local businesses in the community to building a professional football league. The Internal Revenue Service’s (IRS) definition¹ of 501(c)(6) nonprofits includes the following business leagues:
- Chambers of commerce
- Boards of trade
- Professional associations
- Real estate boards
- Professional football leagues
You can learn all the technical ins and outs of the 501(c)(6) organizations in the Internal Revenue Code’s (IRC) official document.²
What Are the Requirements to Qualify for 501(c)(6) Status?
Your nonprofit organization must meet the following requirements to qualify for 501(c)(6) status:
- Business interests: Your organization’s purpose must be for the common business interest of an association of persons—not to engage in transactions for profit.
- Activities: Your activities must focus on improving business conditions for an entire industry or collection of industries within a geographic area.
- Benefits: Your activities and services must not benefit private shareholders or individuals or focus on a specific brand within an industry.
Beyond those conditions, you’ll need to follow the government’s step-by-step application process. We’ll cover that in more detail below.
Classification of Tax-Exempt Organizations
Not sure if 501(c)(6) is the right classification for your nonprofit? Here are a few other common types of organizations to consider:
- 501(c)(4): Social welfare
- 501(c)(5): Agricultural organizations
- 501(c)(7): Social and recreational clubs
- 501(c)(8): Fraternal societies
- 501(c)(12): Life insurance associations
Read our comprehensive guide to the types of nonprofits to learn more details about these organizations and their differences.
Modern-day examples of 501(c)(6) nonprofits include:
- Drone Service Providers Alliance
- National Board for Health & Wellness Coaching
- National Hockey League
- Professional Golfers’ Association
- Denver Metro Chamber of Commerce
Benefits of Starting a 501(c)(6)
Obtaining 501(c)(6) status for your nonprofit can provide a few attractive benefits:
1. Enjoy Tax Exemption
Organizations with 501(c)(6) status don’t have to pay taxes. This benefit allows you to dedicate your capital and business expenses solely to growing your nonprofit organization and serving more individuals. However, any charitable donation made to your nonprofit isn’t tax-deductible, which can sometimes hurt your fundraising efforts.
2. Perform Unlimited Lobbying
The IRS allows 501(c)(6) organizations to lobby for items relevant to the organization’s purpose. For example, if your nonprofit represented restaurants and other eateries in your community, you might lobby for decreased regulations putting unnecessary strain on owners in these lines of business.
3. Participate in Political Campaigns
Your 501(c)(6) organization can actively participate in election campaigns and political activity. However, you must report on these business activities and the expenditures to your members.
4. Protect Donors
A 501(c)(6) organization isn’t required to report any personal information of donors to the general public, which provides an element of confidentiality that some donors prefer.
How to Start a 501(c)(6) Nonprofit
- Form a board: Form a nonprofit board of at least three members, as required of these organizations by the IRS. This means you’ll need to learn who you need on your board and what their responsibilities should be. You’ll also likely want board members familiar with your target industry and its constituents so they can understand the problems you face as a business league.
- Create bylaws: Establish nonprofit bylaws that define your business’ exempt purpose and processes. These bylaws show the IRS your motives and how you operate your organization.
- File paperwork: Submit Form 1024 and pay the application fee.³
501(c)(6) vs. 501(c)(3): What’s the Difference?
While 501(c)(3) organizations are the most common type of nonprofit, these differ from 501(c)(6) nonprofits in the following ways:
- Charitable status: 501(c)(3)s are charitable organizations, whereas 501(c)(6) organizations promote common business interest.
- Tax-exempt status: 501(c)(3) and 501(c)(6) organizations receive tax exemption from federal income taxes, but 501(c)(6) nonprofits are sometimes subject to state and local taxes.
- Political lobbying: 501(c)(3) organizations can advocate for causes but have more restrictions and limitations, while 501(c)(6) nonprofits can engage in unlimited political lobbying activity.
- Electioneering: 501(c)(3) organizations can’t participate in political campaigns, whereas 501(c)(6) nonprofits can.
- Donor information: 501(c)(3) organizations must disclose donors’ identities to the public, but 501(c)(6) nonprofits have the option to protect donors’ confidential personal information.
Bring Your Fundraising to Life With Classy
Then, once you have your fundraising tools in place, you’ll need to figure out how to engage your supporters. Need some inspiration? Download A Year of Creative Fundraising Ideas to learn 100 timely, themed fundraising charity events and campaigns to add to your 501(c)(6) organization’s upcoming calendar.
- “Business Leagues,” Charities and Nonprofits, IRS, https://www.irs.gov/charities-non-profits/other-non-profits/business-leagues.
- “IRC 501(c)(6) Organizations,” Documents, IRS, https://www.irs.gov/pub/irs-tege/eotopick03.pdf.
- “About Form 1024,” Tax-Exempt Application Process, IRS, https://www.irs.gov/forms-pubs/about-form-1024.
A Year of Creative Fundraising Ideas
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