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What is a not-for-profit business?

What Is a Not-for-Profit Organization?

There are many organizations, charities and community centers that work to fulfill specific objectives or goals but not to earn a profit. These organizations are called not-for-profit organizations or nonprofits. Their primary goal is to offer services or products for little or no profit, and some may not earn any money for what they offer.

Types of Not-for-Profit Organizations

There are a number of different not-for-profit organizations, with some of them also taking advantage of 501(c)(3) status. Here are a couple of the different not-for-profit organization groups that may claim this status:

Social Organizations – These are mainly organizations whose primary objective is to improve or cater to social causes. Their earnings can either come from donations or profits earned by making and selling goods. However, all profits are used to provide services or to maximize the social cause that the organization was primarily founded. These organizations may help the homeless, provide free legal services for those who cannot afford them or help veterans find work.

Community Organizations – These groups are any voluntary organization. Some are small local groups, while others are large agencies that have branches all over the country. They might work for causes such as neighborhood improvement or promoting a cause like recycling.

The Difference Between Nonprofit and Not-for-Profit

Nonprofit and not-for-profit sound similar, and they often mean the same thing or are used interchangeably. However, the terms may be used to describe two different types of groups.

  • Are there available stock options?
  • Not-for-Profit
    No
  • Nonprofit
    No
  • What type of employees does the organization have?
  • Not-for-Profit
    Often volunteers with no private gain from fundraising income.
  • Nonprofit
    May have paid staff whose pay does not rely on the amount of fundraising income. Also, there are often paid volunteers.
  • Are the organizations tax exempt?
  • Not-for-Profit
    Yes, but they must receive tax exempt status at state and federal levels.
  • Nonprofit
    Yes, but they must receive tax exempt status at state and federal levels.
  • How are profits used?
  • Not-for-Profit
    Profits are retained by the organization to fund activities, hobbies and recreation related to their cause or goal. The activities are often done with the expectation of receiving little or no profits in return. Example: A not-for-profit sewing club might make clothes for fun, but then sell the clothes to raise money to cover material costs and workshop rent.
  • Nonprofit
    Profits are used to support the organization’s cause or goal. They can also be used to pay for employee salaries or administrative needs. Example: A nonprofit that helps educate lower class people may pay instructors and administrators.
  • What is the organization’s purpose?
  • Not-for-Profit
    To support some type of activity.
  • Nonprofit
    Often have a charitable, educational or religious purpose.
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