Meaning and Characteristics of Not-For-Profit Organization

Introduction: What are Not-for-Profit Organizations?

Not-for-profit organizations are entities made for special interests and they do not seek to earn profits from their activities. Not-for-profit organizations do not charge profits for distributions among their members and hence it is a unique type of business, learning which is knowledgeable and important for all who want to have a good grasp of economics. Not-for-profit organizations may or may not work for social causes. Non-profit organizations may earn a profit but it is used for development and promotional activities. This is also applicable to not-for-profit organizations.

A notable similarity between non-profit and not-for-profit organizations is that they can both be registered under Section 8 of the Indian Companies Act 2013.

Clubs, charitable trusts, membership organizations, and cooperative societies are good examples of not-for-profit organizations.

Characteristics of Not-for-Profit Organizations

Revenue Sources

Not-for-profit organizations have many ways of raising funds. They may get funds from the founders, charge the members a membership fee, or raise money from the public via donations. These organizations may also conduct fundraising events to raise funds for their services. These organizations may also ask for public donations when they work for a social cause.

Organizational objectives

Not-for-profit organizations may not always have social upliftment or issues as their primary objective. They may be formed to achieve a common and collective goal, such as establishing a sporting club in a community. Unless these organizations collect funds from the public, they are not answerable for their expenses.

Tax status

As the activities not-for-profit organizations are involved in are recreational in nature, they are not offered tax-exempt status. However, these organizations can request tax- exempt status if they work for social causes. In contrast to non-profit organizations, not- for-profit organizations’ donations made by members and the public are non-tax- deductible.

Accounting Procedures

The accounting method for not-for-profit organizations is not a matter of much concern unless they apply for tax-exempt status. These organizations, however, need to present the details of the expenses of funds to founders, members, and directors. When these organizations collect funds from the public, they need to publish details about the use of funds.

Legal Status

Not-for-profit organizations are not considered to be separate legal entities and legal actions affect the members, founders, and employees of such organizations. In case of dissolution, the not-for-profit organizations may be sold to recover the liabilities. Like non-profit organizations, the income earned through various activities of the not-for- profit organization can only be used in the organization’s activities. The earnings cannot be distributed among the members.

Staffing methods

In not-for-profit organizations, most employees charge a full salary and they work full- time in the firms. However, there may also be some volunteers who are interested in the cause of the organization. In any case, there are more salaries professionals in not-for- profit organizations than there are in non-profit ones.

Scope of activities

Most not-for-profit organizations have limited geographies under their purview because they work for a select niche. Hence, the geography covered by not-for-profit organizations is less than non-profit organizations.

Differences Between Non-Profit and Not-For-Profit Organizations

Although many people believe that non-profit and not-for-profit organizations are the same, there are some differences between the two. It is worthwhile to study the differences between non-profit and not-for-profit organizations when we study the meaning and characteristics of not-for-profit organizations.

Non-Profit Organizations	Not-for-Profit Organizations
Non-profit organizations work for charity, social welfare, or social development and some of them may also promote culture, religion, science, and arts.	On the other hand, not-for-profit organizations may or may not work for social causes. Non-profit organizations may earn a profit but it is used for development and promotional activities. This is also applicable to not-for-profit organizations.
Non-profit organizations are tax- exempted by the government. Non- profit organizations have to publish their financial reports. Usually, donations made to non-profit organizations are tax-deductible.	Whereas, only some not-for-profit organizations may earn this status.
Examples of non-profit organizations may include public charities, labor unions, public clinics, churches, museums, and public schools.	On the other hand, clubs, charitable trusts, membership organizations, and cooperative societies are good examples of not-for-profit organizations.

Conclusion

It is important to study non-profit and not-for-profit organizations together because they are closely limited in their definitions and scope of the study. Not-for-profit organizations do not charge profits for distributions among their members and hence it is a unique type of business, learning which is knowledgeable and important for all who want to have a good grasp of economics.

FAQs

Qns 1. In which domains do non-profit organizations work?

Ans. Non-profit organizations work for charity, social welfare, or social development and some of them may also promote culture, religion, science, and arts.

Qns 2. Give some examples of non-profit and not-for-profit organizations?

Ans. Examples of non-profit organizations may include public charities, labor unions, public clinics, churches, museums, and public schools. On the other hand, clubs, charitable trusts, membership organizations, and cooperative societies are good examples of not-for-profit organizations.

Qns 3. What is the difference in tax status between non-profit and not-for-profit organizations?

Ans. Non-profit organizations are tax-exempted by the government while some not-for- profit organizations may earn this status.