How to Decode Nonprofit Legal Jargon

If you're thinking of starting a nonprofit tax-exempt entity, you'll likely know that there's quite a bit of research involved. Once you start digging, you'll come across words that might make absolutely no sense whatsoever.

So here's to demystifying these crazy words and making the law of tax exempt organizations a little more user friendly. Have a look at our top 5 legal terms for nonprofit law.

1. Private inurement. Most people have never heard of "inurement," let alone "private inurement." This is one of the most important words in nonprofit tax law. Private inurement is the "flowing" of benefit from the nonprofit to a private individual. Of course, it also applies to the flowing of benefit to a company or organization. In simple terms, it refers to deriving improper benefit from using the nonprofits resources. After all, these resources are meant to be used for the sake of a cause, not for the sake of a specific person or entity.
2. Public charity. A public charity is the flip side of a private foundation. It generates much of its income from the general public and instead of making grants, it usually engages in activities in furtherance of its exempt purposes.
3. Foundation. A foundation generally refers to a private foundation. A private foundation might also be a family foundation. It's typically a nonprofit that generates most of its funds from limited sources as opposed to the general public. It also usually engages in grant-making activities instead of actual activities.
4. Advisory Board (Board of Advisors, Honorary Board). This refers to a group of advisors that aren't technically board members. Nevertheless, they usually serve a ceremonial purpose and are on the board for image reasons. They aren't mentioned in the Articles or in the Form 1023 Application.
5. Executive Director. Don't be fooled by the term "director" in the title. The Executive Director is usually a salaried employee or a principal employee, similar to what a for-profit company would refer to as a CEO.

Related Resources:

• 10 Things to do for a 501(c)(3) Tax Exemption (FindLaw's Free Enterprise)
• Board Glossary of Nonprofit Terms (BoardSource)
• Charitable Contributions (FindLaw)