What Is a Public Benefit?

 

Many countries use the term “public benefit” to describe an activity that benefits the public at large or some significant subset of the general public. The term appears in nonprofit legislation and guidance in dozens of countries. In the U.S., public benefit purposes do not necessarily correspond to charitable purposes. Outside of the U.S., however, 

it is often equated with the U.S. concept of “charitable” or serving a “charitable class.” Below is an overview of the various ways the term is used both within and outside the U.S. 

Comparing Public Benefit in the U.S. and Outside the U.S. 

In many countries, a public benefit is understood to mean an activity that benefits a large subset of the public, as opposed to the private interests of investors, companies, 

or a small group not otherwise in need. While a number of countries specifically define what constitutes a public benefit in legislation and statutory guidance,

 other countries use the term without specifically defining its import. As one Slovenian academic writes:

A public benefit can be considered as a collective benefit of an organized broader community that exceeds the advantages of an individual. …

[A] comparative analysis across selected Slovene legislation leads to the assumption that the assessed systemic regulations as well as other unmentioned sectoral regulations define as public interest or acting in the public benefit the following: safeguarding human life and well-being,

 preserving animal health and life, preserving the natural environment, securing valuable property, ensuring public safety, among others.

 While we might expect a higher degree of specificity in the definitions of such concepts, they nonetheless remain categorized as indefinite legal concepts. Their substance will be concretized on a case-by-case basis through decisions taken by the competent administrative body.

See Sever, T. (2024). Public Benefit and Public Interest in the Slovenian Legal System — Two Sides of the Same Coin? Central European Public Administration Review, https://cepar.fu.uni-lj.si/index.php/CEPAR/article/view/598/567. 

In the U.S., the term “public benefit” is sometimes used at the state level and may describe a charitable entity type, a nonprofit social welfare entity, or a for-profit corporate entity whose goals include making a positive impact on society.

For example, in California (PDF), “a public benefit corporation must be formed for public or charitable purposes and may not be organized for the private gain of any person. A public benefit corporation cannot distribute profits, gains, or dividends to any person.” 

Although California nonprofit public benefit corporations are commonly recognized as charities under Internal Revenue Code section 501(c)(3), they may also be recognized as social welfare organizations under section 501(c)(4), where their purposes are public rather than charitable. This demonstrates that the term “public benefit” may be broader than the term “charitable.”

In Delaware:

A “public benefit corporation” is a for-profit corporation … that is intended to produce a public benefit or public benefits and to operate in a responsible and sustainable manner. 

To that end, a public benefit corporation shall be managed in a manner that balances the stockholders’ pecuniary interests, the best interests of those materially affected by the corporation’s conduct, and the public benefit or public benefits identified in its certificate of incorporation.

This latter definition appears to be limited to certain corporate entity types at the state level. Furthermore, it is not appropriate for charities,

 given that it assumes a for-profit shareholding structure. 

Use of the term “public benefit” outside of the U.S. generally more closely mimics the charitable class requirement under U.S. tax-exempt law, which must be understood together with the concept of charitable.

 An activity must be charitable in nature and must also benefit a “charitable class,” typically consisting of either the public at large, an indefinite subset of the public, or a particular group in need. In other words, an organization could be conducting a charitable activity — like the promotion of education or health — but if it is only doing so for the benefit of a limited group, such as a single family, 

then it is not meeting the charitable class requirement. In the words of the U.S. Internal Revenue Service (IRS):

A charitable class is a group of individuals that may properly receive assistance from a charitable organization. A charitable class must be either large enough that the potential beneficiaries cannot be individually identified, or sufficiently indefinite that the community as a whole,

 rather than a pre-selected group of people, benefits when a charity provides assistance. For example, a charitable class could consist of all individuals located in a city, county, or state. This charitable class is large and benefits to it benefit the entire geographic community.

Below we’ve provided a select overview of local laws and regulations outside of the U.S. that define public benefit. In all cases, the definition of public benefit aligns closely with purposes and activities that fall within the definition of charitable under U.S. tax-exempt law. In most cases, the term “public benefit” is also used to contrast with private benefit or private inurement, which are also restricted and prohibited, respectively, of U.S. charities.

Public Benefit Under UK Law

According to the Charity Commission for England and Wales: “To be a charity in England or Wales, your organisation must be set up with purposes which are exclusively charitable for the public benefit. You also need to carry out these purposes for the public benefit when you run your charity.”

As in the U.S., an activity must both be charitable in nature and also serve a charitable class. The Charity Commission’s public benefit guidance describes this dual requirement as follows:

The public benefit requirement has two aspects:

The ‘benefit aspect’

To satisfy this aspect:

a purpose must be beneficial — this must be in a way that is identifiable and capable of being proved by evidence where necessary and which is not based on personal views

any detriment or harm that results from the purpose (to people, property or the environment) must not outweigh the benefit — this is also based on evidence and not on personal views

The ‘public aspect’

To satisfy this aspect the purpose must:

benefit the public in general, or a sufficient section of the public — what is a ‘sufficient section of the public’ varies from purpose to purpose

not give rise to more than incidental personal benefit — personal benefit is ‘incidental’ where (having regard both to its nature and to its amount) it is a necessary result or by-product of carrying out the purpose

In general, for a purpose to be a charitable purpose it must satisfy both the benefit and the public aspects. However, charities for the relief (and in some cases the prevention) of poverty need only satisfy the benefit aspect.

Public Benefit Under South African Law

Public Benefit Organizations (PBOs) in South Africa are exempt from income tax in accordance with the South African Income Tax Act. In order to be recognized as a PBO, the Income Tax Act requires that an organization’s “sole or principal object is carrying on one or more public benefit activities, where — (i) all such activities are carried on in a non-profit manner and with an altruistic or philanthropic intent; (ii) no such activity is intended to directly or indirectly promote the economic self interest of any fiduciary or employee of the organisation, otherwise than by way of reasonable remuneration payable to that fiduciary or employee; and (iii) … (c) where — (i) each such activity carried on by that organisation is for the benefit of, or is widely accessible to, the general public at large, including any sector thereof (other than small and exclusive groups). …” Income Tax Act, § 30(1).

The South African Revenue Service’s Basic Guide to Income Tax Exemption for Public Benefit Organisations (PDF) excerpts the schedule of public benefit activities set forth in section 30 of the Income Tax Act, which include non-profit-making activities focused on the following:

Welfare and Humanitarian: serving the elderly, abandoned and orphaned youth, refugees, the poor, and other people in need, as well as promoting public safety, human rights, conflict resolution, and community development.

Health Care: the promotion and provision of health care to those in need, including care or counseling of terminally ill persons or persons with a severe physical or mental disability, and the counseling of their families in this regard, the provision of blood transfusion, organ donor or similar services, and the provision of primary health care education, sex education or family planning.

Land and Housing: promoting and providing low-income housing, community housing, infrastructural development, advocating for the rights of poor and needy tenants, and the provision of training, support or assistance to emerging farmers in order to improve capacity to start and manage agricultural operations

Education and Development: the promotion and provision of education through schools (at all levels), various certification and training programs, and curriculum support, governance, whole school development, and safety and security at schools, pre-schools or educational institutions

Religion, Belief, or Philosophy: the promotion or practice of religion which encompasses acts of worship, witness, teaching and community service based on a belief in a deity, and the promotion of philosophical activities 

Cultural: the advancement, promotion or preservation of the arts, culture or customs; the promotion, establishment, protection, preservation or maintenance of areas, collections or buildings of historical or cultural interest, national monuments, national heritage sites, museums, including art galleries, archives and libraries; and the provision of youth leadership or development programmes.

Conservation, Environment, and Animal Welfare: engaging in the conservation, rehabilitation or protection of the natural environment; the care of animals, including the rehabilitation, or prevention of the ill-treatment of animals; and the promotion of, and education and training programmes relating to environmental awareness and biological diversity.

Research and Consumer Rights: research including agricultural, economic, educational, industrial, medical, political, social, scientific and technological research; and the protection and promotion of consumer rights and the improvement of control and quality with regard to products or services.

Sport: the administration, development, co-ordination or promotion of sport or recreation in which the participants take part on a non-professional basis as a pastime. 

Providing of Funds, Assets, and Other Resources: contributions of money, goods, services, and no-interest loans to government agencies, or public benefit organizations and similar nonprofit associations engaged in public benefit activities. 

General: the provision of support services to, or promotion of the common interests of other PBOs, government agencies, the poor and needy, or other nonprofit organizations engaged in public benefit activities, domestic or foreign. 

Public Benefit Under Hungarian Law

The Hungarian Act CLVI on Public Benefit Organisations, as amended, defines a “public benefit activity” thus:

public benefit activity: the following activities aimed at satisfying the common interests of society and the individual — specified in the organization’s charter:

health preservation, disease prevention, healing and health rehabilitation activities,

social activities, family assistance, care for the elderly,

scientific activity, research,

education and training, skill development, dissemination of knowledge,

cultural activity,

preservation of cultural heritage,

monument protection,

nature conservation, animal protection,

environmental protection,

child and youth protection, child and youth advocacy,

promoting social equality of opportunity for disadvantaged groups,

protection of human and civil rights,

activities related to national and ethnic minorities in Hungary and Hungarians across the border,

sport, with the exception of sports activities carried out on the basis of an assignment in the framework of the employment relationship and the civil legal relationship,

protection of public order and traffic safety, voluntary fire fighting, rescue, disaster prevention,

consumer protection,

rehabilitation employment,

promoting the training and employment of disadvantaged groups on the labor market and related services,

promoting Euro-Atlantic integration,

services provided to non-profit organizations — which can only be used by non-profit organizations,

activities related to the provision of flood and inland water protection,

activities related to the development, maintenance and operation of roads, bridges and tunnels open to public traffic.

Public Benefit Under Kenyan Law

The Public Benefit Organizations Act in Kenya (PDF) defines a “public benefit activity” as “an activity that supports or promotes public benefit by enhancing or promoting the economic, environmental, social or cultural development or protecting the environment or lobbying or advocating on issues of general public interest or the interest or well-being of the general public or a category of individuals or organizations.”

“An organization that has as its objective the promotion of public benefit in any of, but not limited to the areas set out below may be registered by the [Public Benefit Organizations Regulatory] Authority — (a) legal aid; (b) agriculture; (c) children; (d) culture; (e) disability; (f) energy; (g) education; (h) environment and conservation generally; (i) gender; (j) governance; (k) poverty eradication; (l) health; (m) housing and settlement; (n) human rights; (o) HIV/AIDS; (p) information; (q) informal sector; (r) old age; (s) peace building; (t) population and reproductive health; (u) refugees; (v) disaster prevention, preparedness and mitigation; (w) relief; (x) pastoralism and the marginalized communities; (y) sports; (z) water and sanitation; (aa) animal welfare; and (bb) youth.”

Public Benefit Under Bermuda Law

According to the the Registrar General’s guidance on the Bermuda Charities Act 2014 (PDF):

The public benefit requirement can be broken down into three distinct aspects:

There must be an actual benefit to the public. 

Charities must serve the public or a sufficient section of the public, and must not unduly restrict access to its benefits. 

Private or personal benefits must be necessary or incidental to achieving charitable purposes.

“Charities must provide an actual ‘benefit’ to the public they serve, which is identifiable and is capable of being proved by evidence, if necessary, and is not based on personal views.” 

Bermuda charities law is also heavily influenced by UK charity law. As stated in the above guidance document: “This guidance deals with public benefit in general terms. It reflects the changes made in the law brought about by the Act. Any reference to the public benefit is understood as that term for the purposes of the law relating to charities in England & Wales.”

Conclusion

Despite the use of “public benefit” in varying contexts in the U.S., the term “public benefit” is widely used in other countries as the equivalent to charitable purposes benefiting a charitable class.

This article is for general informational purposes only and does not represent legal advice as to any particular set of facts. Please seek legal counsel as you deem necessary.

 

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Charitability

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