A charitable organization (or a charity) is an organization with the main goals of aiding social wellbeing and philanthropy. In order to achieve these goals, charities often require the financial support of donors. Since money is involved, this means that there are extensive laws associated to the running of a charity.
When it comes to other companies, their main motivation is to make a profit; however, charities are known as non-profit organizations. With a standard company, as they’re making profit, the law is designed so the government are also able to take benefit from this business via tax. Since charities don’t make a profit in the same way, the law must be adjusted to accommodate them.
Taxes
Firstly, for an organization to be exempt from paying taxes, they must state that no agents, officers, directors, or members will benefit from their profit. Essentially, all charitable organisations must have a legal purpose; for instance, they need to be established to support charitable, religious, or educational activities.
Despite this, this doesn’t mean that contractors and employees can’t be paid for their work. Instead, it means that the organization is required to operate within its exempt purposes and use its excess revenue to develop its activities. Should the organization engage in activities that benefit its members, it’s liable to pay a penalty.
Although there are laws that apply to the entirety of the USA, there are also some state laws that set charities in some states apart from charities in others. For instance, some states don’t have laws that require unapproved non-profits to fix their business type for profit.
Organization
Aside from taxation, non-profits are generally expected to adhere to the same laws that any other business is required to follow. What’s more, non-profits can have a strict, secondary liability for injuries that may be caused by their volunteers or employees to third parties. As a result, charities are required to gain liability insurance and also pay their staff a wage that complies with minimum wage laws, while also gaining workers’ compensation insurance.
Business Ethics
When it comes to the running of a charity, one must always have their ethics in the forefront of their minds. Essentially, as a charity worker, one’s role is to make the world a better place for those who are most in need.
Consequently, it can be tricky to tread the balance between your consideration for business and your consideration for ethics. This is especially true of charities that rely on the funding or certain companies or governments, as they may not agree with the stance of these organizations.
Despite this, they must consider whether the financial contribution of such organizations are more important than one’s personal ideology.
Fraud Prevention
In the absence of necessary laws, fraud in the charity sector could be rife. For instance, the managers of charities could take the contributions of their donors and use them for their own personal gain, rather than distributing this funding to those in need.
Similarly, people could set up false charities to con people out of their money. In order to avoid instances such as these, roughly 45 states have laws regulating charities and require registration before the soliciting of donations can take place.
Conclusion
Charity is a beautiful thing and giving what we can to the less fortunate is a trait that we should all adopt. Despite this, charities couldn’t operate in the absence of laws that mean they can function in a just capacity. Charity is an essential feature of our society, much like law and the enforcement of such is, too.
