What is the difference between non-profit and not-for-profit organizations?
Understanding the structure, goals, and needs of a new organization will be of great benefit when it comes to long and short term success.
Nonprofit and not for profits are two terms that sound familiar but in a real sense, they are quite different in terms of operation and management among other things.
The article provides the core difference between nonprofit and not for profit organizations with examples for easier understanding.
What Is a Non-profit Organization?
The nonprofit organization is a separate legal entity that accepts donations and they are exempted from taxation since they are created for charitable purposes.
However, they are required to make their operations and financial reports public so that donors can have a clue on how their contribution has been used effectively.
It is also denoted as NPO and there is a misconception that these organizations do not make profits. They do make a profit but it is used in a way of offering charitable activities with assistance.
What Is a Not for Profit Organization?
Not for profit organization is an organization that does not earn profits for their owners. The organizations are not exempted from taxation but they can still apply for tax exemption status.
The organization relies on donations and they are created for charitable purposes. Also, they do not pay sales or property taxes. They accept donations such as clothing which they sell to get money.
Comparison Chart: Nonprofit vs Not for Profit Organization
|Basic Terms||Nonprofit||Not for Profit|
|Meaning||Refers to organizations created for charitable purposes||Refers to organizations that do not earn profits for their owners but existence to pursue their goals|
|Legality||Separate legal entity||Do not have the status of separate legal entity|
|Type of Organization||Art, science, religion, education, charity, research centers||Sports club, women club, group associations|
|Scale||Relatively larger||Comparatively smaller|
|Tax-exempt status||Qualify||Do not qualify|
|Employee Payment||Have volunteers||Have full-time employees|
|Charter||Receives at the state level||Do not qualify|
|Accounting Standards||Have to show their financial records to the public||Do not need to disclose their financial records|
|Sources of Revenue||Membership, donations, fundraising||Gains, profits, sales|
Differences Between Nonprofit and Not for Profit Organization
- Nonprofit organizations work for charitable purposes whereas not for profit work for small group interests.
- Nonprofit make profits which are not used for personal gains whereas not for profit to do not aim at making profits.
- Nonprofit organizations have volunteered as a source of the workforce while not for profit have full-time employees.
- The accounting standards of nonprofit are stricter whereas those of not for profit are not strict.
- The main source of revenue for nonprofits are membership dues, donations and fundraising whereas not for profit are gains, profits, and sales
- The scope of operation for nonprofit is wider whereas that of not for profit is comparatively less.
- Nonprofit is separate legal entity and tax exempted unlike not for profit organizations.
- The scale of operation of nonprofit is large whereas that of not for profit is comparatively less.
- Nonprofit organizations receive charter at state level whereas not for profit do not receive charter either at the national or state level.
- Examples of nonprofit organization are educational, research, religion and science whereas not for profits are a sports club, women’s club, and group associations
Similarities Between Nonprofit and Not for Profit Organization
- Serve the needs of the community
- Reinvest their earnings into the organization
- Hire and pay employees’ salaries
- All are incorporated at the state level
- Do not pay dividends to shareholders
The core difference between nonprofit and not for profit is that nonprofit is a separate legal entity and it has tax exemption status unlike not for profit.