Non-Profit vs Not-For-Profit Comparison
People often interchange Non-profit vs Not-for-profit to refer to organizations that do not redistribute profits or funds to owners or shareholders. In the U.S., the term “non-profit” is used more common. However, not-for-profit is rising in popularity as some organizations want to emphasize that their main objectives do not include making a profit. Rather than revealing how to use those profits, the public sees this term “non-profit” as the organization makes no profits at all. But most non-profits and not-for-profits do make profits. Instead, reinvest the profits back into the organization.
Similarities between Non-profits and Not-for-profits:
- Both serve the needs of the community.
- Both make income, but reinvest all earnings back into the organization to continue operations and to support their causes.
- Although both have a staff consisting of mostly volunteers, they also hire and pay some higher-level employees within the organizations.
- Both can become incorporated at the state level in the United States; this provides financial and legal security for employees within the organizations.
- Neither pays dividends to stockholders.
Differences between Non-profits and Not-for-profits:
1. What kinds of activities take place?
Non-profits usually carry out larger, more organized activities that focus on environmental, social, political, or economic missions. For example, American Red Cross, United Nations Children’s Fund (UNICEF), and the American Heart Association are non-profits.
Not-for-profits often carry out smaller group activities that focus on sports, hobbies, or special interests. Examples include amateur sports leagues, clubs, or associations.
2. Does the organization have a charter?
Non-profits classify as non-corporate associations that typically have a national or state charter to provide members with financial and legal protection separate from the legal entity of the organization. Furthermore, non-profits commonly function as official bodies with a charter and governing board of representatives.
Most often, not-for-profits are non-chartered organizations. Furthermore, not-for-profits commonly bring together a group of people with similar interests without forming a legal entity or governing board.
3. Does the organization qualify for tax-exempt status?
Non-profits normally qualify for tax-exempt status in the United States. Since non-profits are organized like a business, they expect to earn a profit. As a result of the profit, they both support their mission and keep operations going. This profit does not support any individual member of the organization.
Not-for-profits usually cannot qualify for tax-exempt status in the United States. Since the IRS clearly specifies that organizations for smaller group activities that focus on sports, hobbies, or special interests do not qualify as a business entity, a not-for-profit cannot qualify for tax-exempt status.
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See Also:
Cost Center
Margin vs Markup
