What’s the Difference Between Nonprofit and Not-for-Profit Organizations?
15 December 2022
When you’re looking to work, volunteer, or donate, it helps to know if a company is not-for-profit or nonprofit. The category that an organization falls under affects the way it operates.
What’s the difference between nonprofit and not-for-profit organizations? Allow us to help you appreciate the important distinctions between the two.
What’s a Nonprofit Organization?
Nonprofit organizations operate to serve and promote the public good. They do not act for financial gain. They raise and receive donations, government grants, and endowments to further their causes.
They are devoted to supporting the development of a community through various means. Their work may entail building hospitals, schools, and universities as well as establishing foundations and charities. Examples of nonprofits include the Silicon Valley Community Foundation, the Bill & Melinda Gates Foundation, and the APJ Abdul Kalam Foundation.
Nonprofit organizations have a separate legal identity and are set up for social causes and public benefit which allow them to take advantage of tax exemptions. These organizations must disclose their financial and operating details so donors have an idea of how their contributions are being used or invested.
With nonprofits, the income generated isn’t distributed among members, owners, or founders. Instead, it is reinvested into its primary objectives. Any additional revenue goes to meeting its targets, ensuring smooth day-to-day operations, and extending its reach.
What’s a Not-for-Profit Organization?
Not-for-profit organizations work to benefit organizational objectives. Though they operate and earn profits, they don’t distribute profits or accept donations. Unlike nonprofits, they don’t get full tax exemption benefits even though they also serve society.
Examples of not-for-profits include the Azim Premji Foundation and the Vitiligo Research Foundation.
Not-for-profits do not operate for profit so their fees for rendering services and offering products tend to be lower than for-profit organizations. Any income generated through subscriptions, donations, membership fees, or grants is invested back into the organization’s primary purpose.
Not-for-profits also do not make money for their owners from the income they generate.
Main Differences Between Both Organizations
Now that you know how the two operate, let’s talk about the difference between nonprofit and not-for-profit organizations.
A nonprofit organization is dedicated to advancing public welfare and pays employees for their services. In contrast, a not-for-profit organization works for a social cause or some common interest, aiming to fulfill the objectives that its owners have set through volunteers.
Nonprofit organizations have separate legal identities. They can receive donations without needing to pay income tax on the money received. However, because they have to justify the use of their funds, their accounting tends to be stricter.
On the other hand, not-for-profit organizations do not have a legal identity. They make profits from distributing goods and services but do not get tax exemption benefits from their state government. However, because they don’t have to disclose revenues to the public, they tend to have more flexible accounting policies.
Both operate like a business, aiming to generate profit by serving society. Every penny of the revenue generated, whether through operations, donations, or services rendered, must be used to pursue the objectives of the firm.
What Kind of Organization is IMANA?
IMANA (Islamic Medical Association of North America) is a nonprofit organization founded in the fall of 1967. We have a long and rich history of providing humanitarian and medical relief to people from all walks of life.
We fall under section 501(c)(3) and are described as a charitable organization. Therefore, we’re given tax-deductible benefits that extend to our esteemed donors.
We provide healthcare providers with resources and advocate state-of-the-art medical care so that people around the world can have access to them.
What is the difference between nonprofit and not-for-profit organizations?
Both are nearly identical in terms of causes. They exist to serve the people and help society. However, they have 3 key differences:
- Nonprofits are separate legal identities while not-for-profits aren’t.
- Nonprofits are entitled to tax exemptions that not-for-profits don’t receive.
- Nonprofits have stricter accounting practices and must disclose their financials to the public.
Regardless of whether an organization is nonprofit or not-for-profit, they provide the public opportunities to help underserved sectors of society. Explore how you can get involved by visiting the IMANA website and our various initiatives for public welfare.