Difference Between Non Profit and Not for Profit
A Non-profit organization is a separate legal entity which can accept donations and not required to pay income tax as they are created for the charitable purposes whereas the Not for profit organizations conducts operations earns profits but neither can they distribute those profits nor can they accept any donations as they are not a separate entity and are not tax-exempt rather they have specified purposes.
It is often assumed that non-profit and 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 these organizations is the purpose of their existence.
They 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 that 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. They 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 that pursues the organization’s objectives. These 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-exemptTax-exemptTax-exempt refers to excluding an individual's or corporation's income, property or transaction from the tax liability imposed by the federal, local or state government. These exemptions either allow total relief from the taxes or provide reduced rates or charge tax on some items only.read more, 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 taxes. 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 employeesPayroll Of Their EmployeesPayroll refers to the overall compensation payable by any organization to its employees on a certain date for a specific period of services they have provided in the entity. This total net pay comprises salary, wages, bonus, commission, deduction, perquisites, and other benefits.read more
Non-Profit vs Not for Profit Infographics
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Key Differences Between Non-Profit and Not for Profit
- Non-profit organizations work for charitable purposes while Not for profit are small groups that are formed for some common interest.
- 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
- 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
- Non-profit organizations are run by a large group of people in comparison to Not for profit organizations
- 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
- Charity, fundraising is the ways in which non-profit organizations can increase revenues, however, not for profit increase revenues by sales and profits
Comparative Table
| Particulars – Non Profit vs Not for Profit | Non Profit | Not for Profit |
|---|---|---|
| Definition | These are the organizations 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 | They 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 | These 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 | These organizations do not have full-time employees but have volunteers | These 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 are stringent as it has to show how they have spent the funding | Accounting policiesAccounting PoliciesAccounting policies refer to the framework or procedure followed by the management for bookkeeping and preparation of the financial statements. It involves accounting methods and practices determined at the corporate level.read more 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
The two 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 organizations are 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 both these 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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