Q: We are thinking of starting a nonprofit in Delaware… Can we be a public charity with “Foundation” in our name?
Thank you to one of our customers for that great question! Delaware has certain restrictions for what words that can be used in a nonprofit’s name, especially as it relates to the purpose of the business. While Delaware law does list “foundation” as an acceptable term, the Internal Revenue Service has separate definitions for private foundations and public charities, so it’s in your best interest to use the appropriate name. Here’s what else you need to know:
What are Delaware’s naming requirements for a nonprofit corporation?
Delaware nonprofits are considered non-stock corporations, and are thus governed by Delaware’s General Corporation Law. So a Delaware nonprofit should basically follow the same naming conventions as a standard Delaware corporation. According to 8 DE Code § 102, the name of a Delaware nonprofit must:
1. Use specific terms
Your Delaware nonprofit must have a name that uses one of the following words:
- Association
- Company
- Corporation
- Club
- Foundation
- Fund
- Institute
- Society
- Union
- Syndicate
- Limited
Or, you may choose to use a corresponding abbreviation for one of those words.
2. Be distinguishable in the public record
Your business name cannot be similar to the name of any other business entity registered with the Delaware Corporations Division. (Use Delaware’s Name Availability Search to see if your desired name is available.) If your business name is already taken, the only way you’ll be able to use it is by receiving written permission from the company your desired name is currently registered to.
3. NOT mislead the public
Delaware General Corporation Law bars the use of words “likely to mislead the public about the nature of the business of the corporation.” Specifically, you cannot use the words “trust” or “bank” if your organization is not a trust or a bank.
As for using the term “foundation,” Delaware law indicates that a Delaware nonprofit should only be called a foundation if it actually is one. Of course, you can try to submit whatever name you want on your Certificate of Incorporation, but bear in mind that the state can always reject it.
What’s the difference between a public charity and a private foundation?
Though both public charities and private foundations can qualify to become 501(c)(3) tax-exempt organizations, the IRS draws a proper distinction between the two entities, largely based on their level of public involvement. Here’s how they differ:
- Public charities get a large portion of their financial support from the general public or the government, and interact more with the public at large.
- Private foundations, meanwhile, are usually run by a family or small number of individuals that raises funds from a small pool of donors and investment income. As private organizations, they receive less public inspection; but that also means a private foundation is more controlled by various operating restrictions (and excise taxes for failure to comply with those restrictions).
While the IRS does not mandate that any entity with “foundation” in its name must be an actual private foundation, it may be helpful to do so for the sake of clarity—especially when incorporating in a state like Delaware, which specifically prohibits misleading names.
Is my nonprofit organization a private foundation or public charity?
By default, the IRS presumes that any organization applying for section 501(c)(3) status is a private foundation unless it requests, and qualifies for, a ruling or determination as a public charity. This can be done by completing and submitting IRS Form 1023.
For more on forming a tax-exempt charitable organization, check out our 501(c)(3) guide.