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Difference Between Non-Profit and Not-for-Profit

Non-Profit vs Not-for-Profit

There are many organizations which work for charitable or educational reasons. The profit or surplus that these organizations earn are not distributed among the trustees and shareholders. The profit which is specifically called surplus in such organizations is retained for new programs, fresh expenses, and future operations. Organizations like these are called non-profit organizations. They are also called non-profits, NPOs, or not-for-profit organizations.

Some of the most important things about non-profit or not-for-profit organizations is that they are not privately owned. NPOs have boards and controlling members. These members do not benefit from any financial gains received by the organization. These members cannot sell the shares, etc. Many government organizations meet the criteria to be called NPOs, but in most countries government organizations are not considered NPOs.

Non-profit organizations receive a tax exempt status from sales tax and property taxes. The surplus that is earned goes into hiring new employees. Sometimes volunteers are hired who do not take any monthly salary also. The surplus is used in expansion of the program, new projects, and rewarding the employees working for them.

The not-for-profit organizations could be trusts, charities, trade unions, service organizations, or cooperatives. They could also be endowments and foundations. Foundations usually already have large funds. These foundations give out grants to non-profit organizations, or the money is received from donations.

Many rules and regulations have to be followed before the establishment of a not-for-profit organization. They need to comply with the corporate governance rules. Some organizations which are very large need to disclose their finances to the public.
Non-profit organizations are basically of two types: board-only and membership.

A board-only organization has a board which is self-selected. The power of the membership is limited and delegated by the board. They may not even consider the donors having membership of the organization. In a membership organization, the board is elected. These board members meet regularly and have the power to amend any bylaws they wish to amend.

It has been seen that such organizations are joined by employees who are very passionate about what they do, and this results in high achievements in the NPOs even though the financial gains might not be at par with other private firms. It has been observed that non-profits or not-for-profit organizations achieve their targets as effectively or better by using methods like accountability, internal management, monitoring performance, etc.

The term “not-for-profit” is a broad-based term which includes organizations such as: non-profits, charities, non-governmental organizations (NGOs), civil society organizations (CSOs), private voluntary organizations (PVOs), etc.
Non-profit and not-for-profit both qualify as 501(c)(3) corporations under the U.S. IRS Tax Code. The only difference may be their source of operating funds and business model.

Summary:
The organizations working for charitable or educational reasons whose surplus is not distributed among its shareholders or trustees but is retained for the future operations, programs, and expenses are called “non-profits” or “not-for-profits.” Non-profit and not-for-profit both qualify as 501(c)(3) corporations under the U.S. IRS Tax Code. The only difference may be their source of operating funds and business model.


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