People often interchange Nonprofit vs Not-for-profit. Both usually refer to organizations that do not redistribute profits or funds to owners or shareholders.
Hence it is easy to assume these two terms mean the same thing. However, nonprofits and not-for-profits are business structures with different tax implications, governance and functions.
Nonprofit organization’s mission and purpose are to further a social cause and provide a public benefit. So, nonprofit organizations include hospitals, universities, national charities and foundations.
Also, to qualify as a nonprofit, a business must serve the public good in some way. Nonprofits do not distribute profit to anything. Moreover, they merely further the advancement of the organization.
Therefore, NPOs are required to make their financial and operating information public. So, this creates transparency. In other words, donors can check the use of their contributions.
A not-for-profit organization does not earn profit for its owners. In other words, money might be earned through pursuing business activities or through donations.
But revenue goes right back into running the organization. However, not-for-profits are not required to operate for the benefit of the public good.
So, a not-for-profit can simply serve the goals of its members. Therefore, a good example is a sports club; the purpose of the club is to exist for its members’ enjoyment.
There is a distinct use of revenue that nonprofit and not-for-profit organizations produce.
Consider the United States. Even though both organizations are tax-exempt, each of them faces different tax code requirements. Suppose an NPO is either a religious, charitable, or educational organization.
Also, if it does not influence state and federal legislation, it is tax-exempt under 501(c)(3).
Now imagine a not-for-profit for pleasure, recreation or another nonprofit purpose. Therefore, they are tax-exempt under 501(c)(7).
The advantages of a nonprofit vs for-profit entity may not be as straightforward. A nonprofit has obvious tax benefits.
But the flexibility granted to for-profit organizations has the sway to raise money and attract the best talent. Moreover, nonprofits can advertise the supposed lack of a profit motive.
But unlike nonprofits, for-profits do not face public inspection and stringent legislation. Hence, there are several social entrepreneurs who are taking up hybrid organizations.
These businesses demand the public’s respect while strategizing like a for-profit business. So, the hybrid approach maintains a for-profit segment and incorporates a nonprofit into the business, or vice versa.
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