Non Profit vs For Profit: Everything You Need to Know
Non profit vs for profit can be differentiated in this way; a for-profit organization's primary goal is generating profit whereas a nonprofit does not focus on profit and instead is dedicated to the promotion of a cause or standpoint. 3 min read updated on February 01, 2023
Non profit vs for profit can be differentiated in this way; a for-profit organization's primary goal is generating profit whereas a nonprofit does not focus on profit and instead is dedicated to the promotion of a cause or standpoint.
A misunderstanding held by many people is that a nonprofit is not in a position to make a profit. This is not true. Like any business, the revenues must exceed the expenses to remain viable.
As a nonprofit, its main focus is pursuing a purpose or cause that is beneficial to the public.
Nonprofit organizations are not privately owned nor are they controlled by one person; they are owned by the public.
Any assets held by a nonprofit are dedicated to the purposes of the specified charitable, literary, religious, or educational organization. Other property or equipment and cash are not allocated to a single person nor can they be used for anyone's private benefit unless fair market compensation is paid to the nonprofit organization.
A board consisting of directors and trustees control the nonprofit with the sole purpose of ensuring the organization fulfills its goal/purpose.
The board members work as a group, not as individuals. The benefit of this governing format means no one individual can control a nonprofit.
Some states have rules in place governing the pay of the board of directors. In general, the board of director's members do not receive any compensation other than travel expense to and from board meetings.
A nonprofit organization must file annual information returns with state and local governments.
Nonprofits file Form 990 with the Internal Revenue Service (IRS), which reports the finances of the organization including the salaries paid the five non-officer employees earning the highest salaries.
Since a nonprofit is owned by the public, Form 990 must be made available at the organization's website or headquarters.
The State's Attorney General's Office has oversight of nonprofit organizations, which has the authority to take a nonprofit to court if necessary.
Differences Between Nonprofit and For-Profit Organizations
A nonprofit organization usually seeks out private sources for funding such as:
- Private donations of time and money.
- Government grants.
- Corporate sponsorships.
A for-profit organization relies on different methods for funding its operations and projects. Examples of funding sources include:
- Bank loans.
- Local investors.
- Sales generation.
- National or global investors.
Diversity of Audience
The focus of a nonprofit is to deliver a message about a service, action, or product. Because they are not directly delivering a product or service, their target audience must be diverse to encompass the general public, corporate sponsors, donors, and volunteers. The organization must be precise in considering each segment of its audience to get the most in results.
The for-profit organizations pinpoint and target specific audiences. Their goal is creating a base of consumers who will purchase goods or services to generate revenue. A for-profit has the ability to increase its offerings and its revenue by continually targeting new audiences.
Nonprofit organizations are generally led by a board of directors who do not have any financial ownership of the organization. A board of directors has no set limit on the number of people who may be involved. While the goal of a nonprofit is not monetary, the board does have leadership meetings to discuss many topics that include financial concerns. Other topics open for discussion at a board meeting include areas such as:
- The social climate
- Environmental concerns.
- Social and political policies.
- Upcoming projects.
- Organizational performance.
- Community concerns.
The for-profit organization is just the opposite, with leadership responsibilities allocated to a few select individuals. This may involve individuals of a privately held business or a large corporation. Leaders have a financial interest, or stake, in the organization's financial success and often receive incentives such as profit sharing or bonuses. These individuals are primarily concerned with profits and increasing the organization's revenue.
Nonprofit cultures are more community-oriented because financial gain is not the goal of those working for the organization. In contrast, for-profit cultures are driven by financial gain and focus on key performance indicators (KPIs).
Because a nonprofit is registered as a 501(c)3 organization, it can provide services as a public good that do not require a portion of the earnings to be paid to the government.
For-profit organizations do not benefit from tax exemptions and must pay applicable taxes.
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