Nonprofit and not-for-profit are different terms representing different organizations. A non-profit organization is a distinct valid body accepting donations. It is exempted from paying income tax because it is structured to offer charitable services.
These organizations have to make their operations universal, plus their financial status. This is to enable donors to know their funds have been used well.
A not-for-profit is an organization that operates and obtains interest but cannot divide the gains. Still, it cannot receive any grant because it is not a distinct establishment.
Besides, it is not tax-exempt more willingly; it has set out justification. Not-for-profit organizations are distinctive relief. They do not make gains from their proprietor.
Key Takeaways
- Nonprofit organizations operate to serve a public or community purpose, with any surplus income reinvested into the organization’s mission rather than distributed to owners or shareholders.
- The not-for-profit is a broader term that can encompass nonprofit organizations, informal groups, or activities that do not have profit as their primary goal.
- While the terms are often used interchangeably, the distinction lies in the scope and formality of the organizations, with nonprofit organizations typically having a more formal structure and specific legal status.
Non-Profit vs Not for Profit
The difference between Non-Profit and Not for Profit is their reason for formation. Deliberately, Non-Profits are built to serve the welfare of the public. In comparison, achieving the organizational aspirations of the owner abides by the, not for profits. Of which non-profits can own their autonomous authorized agency. On the other hand, not-for-profits do not possess any such jurisdiction.
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Comparison Table
| Parameter of comparison | Non-Profit | Not for Profit |
|---|---|---|
| Definition | They work to promote any charitable goal | They don’t distribute gains to owners but exist to meet the organization’s targets. |
| Scope | These organizations have a broad scope | They have a relatively less scope |
| Legal Entity | They have an independent legal entity. | They cannot have the position of a different legal entity |
| Type of Organizations | They are involved in charity, religion, education, science, art, or research. | Example of these organizations includes sports club, women club or and association. A group of people forms it. |
| Scale | Non-profits are larger than not-for-profit organizations | On the whole scale, they are smaller than non-profit organizations. |
| Employee Payment | They have volunteers and not full-time employees. | They have full-time employees whose salaries are paid first. The remaining revenues are put back into the business. |
| Charter | Non-profit organizations receive Charters at state levels | Non-for-profit organizations are not chartered either at the national or state level. |
| Accounting Standards | Non-profit accounting standards are strict. This is because they need to show how they spend the funding. | The accounting policies aren’t that tough because it is not a must for them to report revenues. |
| Sources of Revenue | They get their proceeds from donations, membership fees, fundraising and funds. | Deal, interest, gains, add to the money and are not grants. |
| Tax-Exempt status | Non-profit organizations fall under the tax-exempt status. It is because they operate as businesses and target to make profits. The gains help in running their operations and keeping their goals. They do not maintain any members. | The not-for-profit is not certified under any removal of a liability status in the US. Authorities define these organizations as small groups whose centre of attention is on any particular interest, like sports do not qualify as any business. |
What is Non-Profit Organization?
These are organizations that run without the aim of making a profit. They are given a tax-exempt level. They are often known as NGOs. In other words, they work for any form of charitable goal.
In India, non-profits are licensed under section 8 of the Indian Companies Act. They have limited liability.
The goals of these organizations are not limited to promoting art, science or other areas.
For an organization to be classified as a nonprofit, it should not prioritize dividends. It should work to achieve the objectives of the group and its charitable objectives.
These establishments have to promote some communal interest.
What is Not for Profit Organization?
Not-for-profit organizations do not give out gains to their owners and shareholders. It instead invests the profits back into the business and its enterprise.
Not-for-profit organizations include clubs such as sports clubs. These clubs host fundraising events to push up money for a particular reason.
Some organizations under this category are given tax-exempt status under section 501 (a) of the IRC (Internal Revenue Code). But the company needs to apply for 501 (c) (3) statuses from IRS to get this.
Not-for-profit organizations do not have to sell taxes or pay for the property. It invests the donations received and money raised back to business.
Main Differences Between Nonprofit and Not for Profit
- Not for profit are not tax-exempt and cannot form a separate legal entity. Non-profits have relief from tax and can form a discreet organization.
- Non-profit organizations have strict accounting policies. They have to explain where they have used the funding. Not-for-profits have reduced laws to accounting. They don’t have to report their revenues to the public.
- Non-profits operate for charitable reasons. Not for profit are groups formed because they have a common interest.
- Non-profit organizations increase their revenues through charity and fundraising. On the other hand, not-for-profits increase their revenues through sales and profits.
- Non-profit organizations employ a lot of people. Not-for-profit organizations are the opposite.
- Non-profit organization gains are used to offset expenses to meet the stated goals. No profits are used for personal gain. They have volunteers who execute the duties of the organization. Not-for-profit does not focus on making proceeds. It uses the revenue it gets to pay off the employees’ salaries. The remaining amount is invested back in business. It has no shareholders.
- Non-profit organizations are more common than not-for-profit.
- Non-profit provides the local community with helpful services compared to not-for-profit.
- https://www.nber.org/papers/w6810.pdf
- https://www.nber.org/papers/w8921
- https://pdfs.semanticscholar.org/9269/d324d2a63d93c6261c43499bf97fd4d6e99e.pdf
- https://www.tandfonline.com/doi/abs/10.1080/09645290801977017
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
