The Fast Facts of Non-Profit Organizations

What is a Non-profit Organization?

1. A non-profit organization is an entity that develops a business model which does not aim to earn a profit for individual purposes.

2. A non-profit organization will offer a product or service to a consumer base (typically a community), while refraining from accruing a profit for any needs that extend beyond the company’s ability to carry out its product or services. In simplistic terms, any profit and all monies earned by a non-profit is pumped back into the business so the entity can continue its intended function.

3. A non-profit organization does not distribute its funds or assets to owners or shareholders, but instead, uses its capital to help pursue community-based objectives.

4. Common examples of non-profit organizations include: Charities, public art organizations, and trade unions. In most instances, government agencies meet the criteria of a non-profit organization.

5. Non-profit organizations are exempt from income and property taxation in most countries.

6. The quantitative difference between a for-profit and a non-profit organization is realized in the business model’s ownership structure. For-profit entities can be privately owned and operated; as a result, the entities may re-distribute their taxable profits to shareholders or employees.

In contrast, a non-profit organization does not contain private owners; non-profit organizations possess controlling members of boards; these individuals cannot sell shares to investors or personally benefit from the company’s business model.

7. Although a non-profit organization can tangibly earn a profit (known as a surplus), such earnings must legally be retained by the organization for its self-preservations and its future role. All earnings may not benefit individuals or stake-holders of a non-profit organization.

Legal Aspects

1. Non-profit organizations exist for a multitude of reasons, but in general, the majority of functions aim towards the contribution of a societal benefit. The wide diversity of structures and subsequent purposes of a non-profit organization are legally classified based on a number of structural elements.

These classifications include the following categories: Supervision and management provisions, economic activity, representation, provisions regarding the amendments of the statutes or the underlying articles of incorporation, provisions for the dissolution of the entity, the tax status of corporate and private donors, the tax status of the general foundation, representation, and lastly, the not-for-profit’s general economic activity.


2. These above classifications, in adherence to local and federal law, must be expressed in the not-for-profit’s document of establishment.

3. The majority of countries possess laws which regulate the establishment and subsequent management of not-for-profits. These laws require compliance with corporate government regimes.

4. Larger not-for-profits are required by law, to publish their financial reports to detail their expenditures and income for the public.

5. In many aspects, a not-for-profit organization is similar to other business entities. Both forms of businesses must possess board members, committee members, or a trustee who offers the company a fiduciary duty. A notable exception to this relationship; however, involves churches, which are not required to disclose financial statements to anyone.

6. In the United States, a nonprofit organization is formed by incorporate in the state in which they expect to carry out their business function. This act creates a legal entity which enables the organization to be treated as a generic corporation under law and allows them to enter into business relationships to form contracts and own property.

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