Not-for-Profit: Definition & Meaning
There are a number of different reasons as to why you may start a business.
It could be in a field that you have a passion for, you may have spotted a gap in the market that you feel you can fill, or you may just want to gain some independence in your career. But the one thing that tends to be a common theme is that you want to make a profit.#
However, there is a certain type of business structure that goes against this particular grain. This is known as a not-for-profit.
But what exactly is a not-for-profit?
Read on as we take a closer look at the definition, the different types, who can start them, and an example of a not-for-profit company.
Table of Contents
- Any money earned in a not-for-profit organization must get used to cover running costs and put back into organizational pursuits.
- There are high levels of compliance that not-for-profits must maintain. This must get done with the state agency in charge of regulating charitable organizations.
- Directors, officers, and members of the organization never receive any funds.
- Several nonprofits and for-profit organizations use similar business strategies. They also implement various management techniques to keep operations efficient.
What Does Not-for-Profit Mean?
A not-for-profit organization is a type of business structure where the owners don’t earn a profit. Any money that’s earned through business operations, or if it’s donated, is put back into organizational pursuits.
More often than not, money earned is funneled back into business operations to help keep things running smoothly. No directors, officers, or members of the business receive any distributed income.
Some of the most common business types in the not-for-profit sector include charities or other public service organizations. These organizations are often tax-exempt, meaning they’re not required to pay similar taxes as other businesses.
Types of Not-for-Profits
Not-for-profit organizations can range in type and it can depend on the main goals. Here are some of the most common not-for-profit organizations you can find.
- Charitable organizations
- Social advocacy groups
- Civil leagues
- Local employee associations
- Social welfare organizations
- Trade and professional associations
- Social and recreational clubs
- Fraternal societies
- Employee beneficiary associations
- Domestic fraternal societies and associations
- Teacher’s retirement fund associations
- Cemetery companies
- State-chartered credit unions and mutual reserve funds
- Employee-funded pension trusts
- Veterans organizations
- State-sponsored organizations
- Religious and apostolic associations
- Cooperative hospital service organizations
As well, there are other types of nonprofit corporations that can get formed. These could be for religious and charitable organizations, rescue squads, or sports clubs for example. Some well-known nonprofit organizations in the United States include:
- The Salvation Army
- The American Red Cross
- The United Way
For-Profits vs Not-for-Profit
Even though not-for-profits put any profits back into the business, they share some similarities to for-profit organizations. For example, many larger organizations require full-time employees, directors, and managers who need to get paid. Whereas some not-for-profit organizations strictly use volunteers.
Essentially, both for-profits and not-for-profit organizations aim to achieve their objectives in similar ways. This is why various management techniques and business tactics work well in both industries. However, a for-profit business can take part in a wide range of business activities but a not-for-profit must be exclusively for public safety, scientific, or religious purposes.
Non-profit vs Not-for-Profit
Nonprofits and not-for-profits share many similarities but serve two distinct purposes. A not-for-profit is a fairly broad term for a business that does not generate profits for its owners. There’s no specific purpose or cause that a not-for-profit must follow, providing a bit more flexibility.
Nonprofit organizations, on the other hand, must have some type of public safety, religious, charitable, scientific, or educational focus. As well, nonprofits can often get referred to as non-stock corporations or 501(c)3) organizations.
A non-profit works similarly to a for-profit business by increasing revenue. But the non-profit can only use these profits to advance the organization. No profits are distributed to owners.
Who Can Start Not-for-Profit Companies?
There really isn’t a limit on who can start a not-for-profit as almost anyone can get it up and running. But not every organization will qualify for 501(c)(3) status. This status is only for charitable organizations.
A not-for-profit can be a social welfare organization, a social club, a civil league, a business league, or even a labor organization. These types of not-for-profit would be considered tax-exempt, but wouldn’t qualify for 501(c)(3) status.
Example of Not-for-Profit
In the United States, the Salvation Army is a good example of a not-for-profit organization. Any profits that the business earns are put back into the business to help push forward operational goals.
The Salvation Army focuses on working with those who have found themselves in difficult times. This includes the young, the elderly, drug addicts, blind and disabled people, and offenders. It also executes initiatives to provide food and shelter for the homeless.
A not-for-profit is a business that does not distribute profits to its owners. Instead, any profits are put directly back into the business. This helps the business achieve its objectives and keeps operations running smoothly.
There are many different types of not-for-profits. These can range from charitable organizations, sports clubs, foundations, civil leagues, and more. Charitable not-for-profit organizations will need to qualify for 501(c)(3) status. If an organization doesn’t have 501(c)(3) status, it’s considered to be tax exempt.
FAQs About Not-for-Profit
Can a Not-for-Profit Make Money?
The simple answer is yes, a not-for-profit can make money. There can be times when there is a surplus of money at the end of a fiscal year. Yet, any money earned must get put back into organizational operations.
Why Would Someone Set Up a Not-for-Profit Business?
Someone might decide to create a not-for-profit business if they want to generate revenue to support their community or a cause they care deeply about.
What Is the Purpose of Not-for-Profit Organizations?
Not-for-profit organizations are created for social, educational, charitable, religious, or scientific purposes.
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