Answer in order. The first “yes” that forces a structure usually wins.
Step 1 — Who pays for the work?
| Primary funding | Points to |
|---|---|
| Foundations, government grants, individual donors | 501(c)(3) |
| Dues and sponsorship from companies in one industry | 501(c)(6) |
| Customers buying a product | For-profit |
| Venture or angel investors | For-profit C-corp (Delaware) |
| A mix of grants and product revenue | c3 + subsidiary LLC — see hybrids.md |
If no funder exists yet, ask which one you can realistically reach in twelve months, and structure for that.
Step 2 — Does anyone need to own it?
If a founder or investor must be able to sell their stake or receive distributions, stop: it is a for-profit. No amount of mission language fixes the inurement rules. A nonprofit’s assets are not yours and never become yours.
Step 3 — How much politics?
- None, or occasional issue education → c3 is fine; make the § 501(h) election anyway.
- Sustained lobbying as a core activity → c6 (or a 501(c)(4) if the interest is general social welfare rather than a business line).
- Candidate work → not a c3, ever. c6 with a connected PAC, or a for-profit.
Step 4 — Can you live in public?
Form 990 discloses your budget, your highest-paid people and your board. If that is unacceptable, you want a for-profit.
Step 5 — How fast do you need to exist?
- Days → LLC or C-corp.
- Weeks, with charitable status → operate under fiscal sponsorship while your Form 1023 is pending. This is the standard bridge and is worth doing rather than delaying the work.
- Months is fine → file 1023 directly.
Step 6 — Which state?
Default: the state where your principal office and staff sit. Override only for venture capital (Delaware) or federal policy work (DC). See states.md.
Quick verdicts
Research + publications + tools, grant-funded. 501(c)(3) public charity in your home state. § 501(h) election at formation. Three unrelated directors. Fiscal sponsor while the 1023 is pending.
Standards body or industry convening. 501(c)(6). Membership tiers from day one. Consider a paired c3 for the education and research half, so foundations can fund that piece.
Software product with a public-interest mission. Delaware PBC, foreign-qualified at home. Mission-lock through the charter and through control, not through tax status.
Both — research arm and a commercial product. 501(c)(3) parent with a wholly-owned LLC for commercial work, or two sibling entities with a written cost-sharing agreement. Separate books from day one; it is far cheaper than untangling them later.
Advocacy-heavy policy shop. 501(c)(3) for research and education, paired 501(c)(4) or (c)(6) for lobbying, shared services agreement between them.