Guide to Nonprofit & Not-for-Profit Designation Differences

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Nonprofits and not-for-profits are two words that get used without much understanding and awareness of their essence. Some use this or that name interchangeably but there’s a difference between nonprofit and not-for-profit. 

Nonprofit organizations primarily focus on social welfare, while not-for-profit organizations tend to be educational institutions. If you’re unsure about your organization’s designation, check out this article for a rundown of what each type entails.

Understanding nonprofit

A nonprofit organization or foundation is devoted to supporting the development of a community’s viewpoint and does not act for financial gains. The difference between nonprofit and not-for-profit is that the nonprofit has no benefit to members, directors, nor beneficiaries, and income is never distributed to members or officers of its organization, but used to meet their targets and operate if required. It is a business or company which has been received by the Internal Revenue Service as a tax-exempt organization.

Nonprofits include hospitals, universities, and foundations. To qualify as a nonprofit, your company is expected to contribute towards some sort of good. The charity must meet the group objectives of the company and its charitable purposes rather than prioritizing dividend earnings. This goal could include but is not limited to, the promotion of commerce, art, science, or other fields.

The difference between nonprofit and not-for-profit is also evident when a nonprofit receives no tax liabilities on the funds that it receives from fundraising, as long as it creates public benefits. Furthermore, the operations and financial status must be available for public consumption so that the donors know their support was effective.

person trading for profit

Understanding for-profit

Differentiating not-for-profit vs. 501c3 may be tricky, but spotting a for-profit enterprise is relatively straightforward in that it operates to earn money through products or services offered to customers. The business owner earns a profit and may also pay the shareholders and investors. These entities can be corporate entities LLC, sole proprietorship, and partnerships.

The difference between nonprofit and not-for-profit is seen easily: for-profit businesses are like a conveyor belt. They take in money, work it to make profit and pay their shareholders/investors with that revenue whether it’s via dividends or just giving back the extra cash from salaries for example; there’s no shortage of ways they can do so!

Understanding not-for-profit

When a not-for-profit organization makes profits, it is to keep its mission. The difference between nonprofit and not-for-profit is somehow related to the not-for-profit’s financial activity, because just like for-profit, they’re not eligible for full tax exemption even though it has an important purpose in mind that benefits society as a whole.

A nonprofit’s main goal when they have earned any amount of wealth at all should always be investing what was brought in by selling goods/services back into communities so there are more opportunities available than ever before!

Nonprofit vs. Not-for-profit

The difference between nonprofit and not-for-profit impacts your taxes, corporate governance, and activities.

There are nonprofit resources available that exist for the sole purpose of giving for the public benefit while receiving donations without paying income tax or a state tax return. 

On the other hand, not-for-profit organizations conduct operations that make profits but cannot distribute those profits or accept any donations. It is not tax-exempt but has a purpose. 

The fundamental feature that separates these organizations is the purpose of their existence. They are not primarily involved in making profits so a priority was placed to first serve society.

NGO vs. Charity

NGO stands for non-governmental organization and is independent from government control. It is a broader term that typically refers to larger-scale organizations or entities that can operate without the government’s intervention, though they do sometimes rely on the government for funding. An example of this would be the United Nations and its origins in the ‘40s.

For-profit vs. Not-for-profit

Not-for-profit organizations function as charitable organizations or in scientific, religious, or public safety contexts. On the other hand, for-profit businesses can engage in much more than just science and beyond non-profit activities.

Diverse group of volunteers giving first aid kits

Now that you’ve read about the difference between nonprofit and not-for-profit, what are your thoughts? Do any of these legal entities seem like they would be a better fit than others? We can help answer this question!

Nonprofits and not-for-profit organizations both have a mission to help people. If these differences are still unclear, or if your organization is in to learn how best to incorporate as a 501c3 entity, we can walk you through all options with you from start to finish so that you can choose what’s best for your nonprofit needs. 

If you want guidance in selecting the right type of entity to form or if you need assistance with other aspects of starting up an organization, call us today!