Are the benefits of a 501(c)3 worth it? When, and when not, to incorporate

ioby works every day with all types of community groups and leaders. These range from loosely-affiliated groups of neighbors working together for the first time on a specific and discrete project, to established 501c3 nonprofit organizations with paid program staff and multiple sources of operating revenue. (Here’s how crowdfunding can help established nonprofits.)

benefits of 501c3


Oftentimes, we’ll hear from smaller or unincorporated groups (the “deep roots”) that they are dipping their feet into fundraising as a step to help them grow, and eventually seek nonprofit status. And while a crowdfunding campaign can be a great way to raise initial “seed” funding before going on to incorporate, many others rely on crowdfunding in order to stay lean and focus on one project — and this is also great!

Incorporation as a nonprofit is a heavy lift, and for grassroots groups with limited resources, it can take time and effort away from what you’re really trying to accomplish. We hear a lot about the pros and cons of incorporation from the people we serve, and we know this step is not necessarily right for all groups at all times.

Some powerful benefits of incorporating as a 501(c)3 include: 

  • Being able to receive grants. Being able to accept grant money is a powerful motivator for many groups, and can often change the trajectory of a project. That said, it’s important to have diversified funding stream, so even if grants are an important support you’ll want to develop other funding streams. Of course, you don’t have to be a 501(c)3 to accept grants (and when you crowdfund with ioby, our fiscal sponsorship allows you to collect grants as part of your fundraising), but it can be helpful. 
  • Tax-deductible donations. Having nonprofit status can help you make the most bang for your donors’ buck, and tax-deductibility can be a strong carrot to encourage your community to give and get involved with your project. 
benefits of 501c3

There’s no doubt that formally incorporating can be a powerful tool in your repertoire. But, even if you don’t incorporate, there are ways you can have the best of both worlds, like the way informal groups can stay nimble, shift gears quickly, and be efficient with limited resources. That’s why we’ve shaped our service to work well for unincorporated groups as well. Here’s how:

  • ioby provides fiscal sponsorship in order to allow community leaders from unincorporated groups to collect tax-deductible donations. This helps ease the pressure to incorporate.
  • Our crowdfunding platform provides an alternative to grant funding. The prospect of being eligible for grant funding can often sway small unincorporated groups toward a path of incorporation and growth, which is not always the best choice.
  • We encourage and train leaders in fundraising from within their own community. The independence of being community-supported can allow leaders to experiment and determine the best long term course: to stay small, disband after accomplishing a single project, or incorporate and grow. All are viable next steps in certain instances.

Rather than just serving as a launchpad toward nonprofit incorporation (though we can do that!), ioby focuses on building capacity of community leaders to determine the best tactics and strategy to accomplish the positive change they want to see in their neighborhoods.

There is no single correct path, but by sharpening your focus on building your network of supporters, strengthening your fundraising, and building broader local movements, you can get a better sense for what you and your team are good at and what your community most needs form you. 

Ready to start fundraising for your informal group? Or do you want to raise the money needed to pay to formally incorporate your group as a 501(c)3? We’re here to help! Share your idea with us and we’ll share tips and tricks for crowdfunding to get good down, however you’re incorporated.