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Non Profit vs Not for Profit

Home » Corporate Finance » Business Ownership » Non Profit vs Not for Profit

By Tejswini Bhosale Leave a Comment

Non-Profit-vs-Not-for-Profit

Difference Between Non-Profit vs Not for Profit

It is often assumed that non-profit vs not for profit organizations do not make profits from their business activity. This is a misconception, these organizations do make profits like any for-profit organizations the only difference lies in the way these profits are used. The basic aspect that differentiates non-profit vs not for profit organizations is the purpose of their existence.

Non-profit vs Not for profit do not work only to earn profits rather their priority is to first serve the society

What is a Non-Profit Organization?

Non Profit organizations are business which is granted tax-exempt status. Also, donations made to these organizations are tax deductible to the entity who makes it. However, they have to make their operations and financial status open to the public so that the donors know that their contribution has been used effectively. Non-profits do not pay any income tax on the money they raise through donations and the money they receive in fundraising. They are also referred to as NPO’s

Non-profit can operate in religious, educational, public safety or research sectors or purposes. These organizations have to generate some public benefit.

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What is Not for Profit Organization?

Not for Profit organizations do not earn profits for its owners. All the earned money is donated to the not for profit organization which pursues the organization’s objectives. Not for profit organizations are typically charities or other types of public welfare organizations. They are not exempt from taxation but can apply for tax-exempt status. Donations made to these tax-exempt, not for profit organizations may be tax deductible for the donor

One thing to note here is that these organizations do not pay sales or property tax. For example, if a church is established as a, not for profit organization it will not pay property tax. It is accepts clothing as donations and sells it to use the money for the charitable purpose it will not pay property tax even if it’s using the church as a store. However, they have to pay taxes on the payroll of their employees

Non-Profit vs Not for Profit Infographics

Here we provide you with the top 10 difference between Non-Profit vs Not for Profit

Non-Profit-vs-Not-for-Profit info

Non-Profit vs Not for Profit – Key Differences

The key differences between Non-Profit vs Not for Profit are as follows –

  1. Non-profit organizations work for charitable purposes while Not for profit are small groups which are formed for some common interest.
  2. The profits earned are used in managing the expenses for meeting the goal and no profit is used for any personal gain. They do not have employees but volunteers working for them. Similarly, Not for profit does not aim at making profits, however, whatever revenue is earned is first used to pay off salaries are the remaining money is put back in business. There are no shareholders
  3. Since non-profit organizations have to justify where they have used the money accounting standards are much stricter. Not for Profit do not have to report revenues to the public and hence have less strict accounting policies
  4. Non-profit organizations are run by a large group of people in comparison to Not for profit organizations
  5. Non-profit organizations can form a separate legal entity and are tax-exempt on the other hand not for profit cannot form a separate legal entity and are not tax-exempt
  6. Charity, fundraising is the ways in which non-profit organizations can increase revenues, however, not for profit increase revenues by sales and profits

Non-Profit vs Not for Profit Head to Head Difference

Let’s now look at the head to head difference between Non-Profit vs Not for Profit

Particulars Non Profit Not for Profit
Definition  Non Profit organizations are the ones which work for promoting any charitable purpose Not for Profit organizations do not distribute its profit to the owners but are in existence to fulfill its organizational objectives
Scope Scope for these type of organizations is wide Scope for these type of organizations is comparatively less
Legal Entity Non profit can have a separate legal entity Not for profit cannot have the status of a separate legal entity
Type of Organizations These organizations are involved in art, science, charity, religion, educational or research purposes These organizations include women’s club, sports club or an association formed by a group for people
Scale Non-profit organizations are larger than not for profit organizations Usually, these organizations are smaller than non-profit organizations
Tax-exempt status Non-profit organizations fall under tax-exempt status in the US. These organizations run like a business and aim to earn profits. These profits help in both keeping their mission and running the operations. They do not support any member Not for profit organizations do not qualify under the tax-exempt status in the US. As defined by the authorities, small groups focusing on sports or any special interests do not qualify as any business entity and hence cannot be qualified under tax-exempt status
Employee Payment Non-profit organizations do not have full-time employees but have volunteers Not for profit organizations have full-time employees whose salaries are first paid and the remaining revenues are put back in the business
Charter It receives Charters at the state level It is not chartered either at the state or national level
Accounting Standards Standards for Non-profits are stringent as it has to show how they have spent the funding Accounting policies are less stringent as they do not have to compulsorily report revenues
Sources of Revenue Donations, fundraising, membership dues, and funds are the sources of raising money Gains, profits, sale add to the money and are not necessarily donations

Conclusion

Non-Profit and Not for Profit organizations are alike in certain ways, but as highlighted above there are a lot of key differences between them. The major similarity between them is that both non-profit vs not for profit organization is not working with the sole aim of earning profits.

An important thing to note is that a Non-Profit Organization may and can work as a Not for Profit Organization, but a Not for Profit Organization cannot function as a Non-Profit Organization

Looking at the broader picture non-profit vs, not for profit institutes do not work for profits and are devoted to serving humans and working for the improvement and wellness of the society. As responsible citizens, we should contribute and push such organizations to improve the society we live in.

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