Not-For-Profit Organization

Updated on March 27, 2024
Article byWallstreetmojo Team
Edited byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What is a Not-For-Profit Organization?

A Not-for-profit organization is set up for any social, religious, educational, or public service purpose wherein the motive is not to earn profits. However, any profits earned during business are donated to achieve the organization’s goals.

Key Takeaways

  • A Not-for-Profit organization is typically established for social, religious, educational, or public service objectives, aiming not to generate profits.
  • Any profits made during business are typically used to further the organization’s goals through donations or reinvestment.
  • Not-for-Profit organizations can be categorized into different types, including private and public charities, not-for-profits created by the government, and beneficiary societies and organizations.
  • Not-for-Profit organizations may enjoy benefits such as tax exemption, government grants, tax-deductible donations, personal satisfaction from contributing to a cause, and limited liability for its members or directors.

Explanation

The main purpose of setting up any business is to earn profits. But certain organizations are set up with the motive to provide service to their members or to the general public, which is called Not-for-profit organizations. These organizations need to apply forTax-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 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 status. This status grants exemption from most forms of taxation like sales taxSales TaxThe government levies sales tax on the consumption of various goods and services as the percentage added to the product and services from which the government earns revenue and does the company's welfare. In the United States, 38 different states have different taxes, from Alaska (1.76%) to Tennessee (9.45%).read more, property tax.

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Types of Not for Profit Organizations

#1 – Private and Public Charities

According to the Internal Revenue Service, this section applies to charitable, religious, educational, scientific, and literary testing for public safety to foster national or international amateur sports competition or prevention of cruelty to children or animals organizations. Most of these organizations are registered under section 501(c)(3) of the tax code. These are further classified into two categories, Private Charities and Public Charities. Private individuals run private charities, and Public foundations are run by larger groups such as schools, hospitals, and churches.

#2 – Not for Profits Created by Government

These organizations fall under section 501(c)(1) of the tax code. These organizations are ‘created by the act of Congress.’

#3 – Beneficiary Societies and Organizations

These are the small group of people working together to help their members and society, as a group of teachers providing free education.

Difference Between Not-for-Profit and For-Profits Organizations

Benefits

  1. Tax Exemption: These organizations are exempted from paying taxes; hence all the income is diverted to businesses to achieve their goals.
  2. Government Grants: It is one of the biggest sources of income since these organizations work to better society, getting government favors.
  3. Tax-Deductible Donations: The donations given by individuals to these organizations are often tax-deductible, so this is another incentive for the people to contribute to these organizations.
  4. Personal Satisfaction: Working for society and social welfare provide a sense of fulfillment and personal satisfaction to the people working for it.
  5. Limited Liability: It has limited liabilityLimited LiabilityLimited liability refers to that legal structure where the owners' or investors' personal assets are not at stake. Their accountability for business loss or debt doesn't exceed their capital investment in the company. It is applicable in partnership firms and limited liability companies.read more i.e., the board membersBoard MembersBoard members comprise the individuals whom the shareholders elect as their representatives. They are responsible for taking crucial corporate decisions regarding the company's policies, dividend payouts, top-level managers' recruitment or layoff and executive compensation.read more are not personally liable for any organization’s debts and liabilities.

Conclusion

Not-for-profit organizations are set up for a social cause. There is no profit-earning motive. Anyone who wants to serve society and has an idea can put up a business plan and decide how to achieve its objectives. Not-for-profit and Nonprofit are both set up for not working for profit. However, there are some differences. Nonprofit is a bigger term and includes not-for-profit organization.

Frequently Asked Questions (FAQs)

1. What is an environmental non-profit organization?

An environmental non-profit organization is a type of non-profit organization that focuses on environmental conservation, protection, and advocacy. These organizations work towards addressing environmental issues, such as climate change, biodiversity loss, pollution, and sustainable resource management, through education, advocacy, policy research, and community engagement.

2. What are non-profit organizations for healthcare?

Non-profit organizations for healthcare are organizations that are dedicated to providing healthcare services, advocating for healthcare policies and access, or promoting health and wellness within their communities. These organizations may include hospitals, clinics, community health centers, disease-specific foundations, medical research institutes, and advocacy groups that work towards improving the health and well-being of individuals and communities, often with a focus on underserved or vulnerable populations.

3. How much money can a Not-For-Profit organization have?

The amount of money a Not-For-Profit organization can have varies greatly depending on the organization’s size, mission, and financial activities. Some Not-For-Profit organizations may have significant financial resources, while others may have limited funds or operate with deficits.

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