Nonprofit Vs

Nonprofit vs. Not-for-Profit vs. For-Profit: What's the Difference?
What is a nonprofit organization?
A nonprofit organization is one that qualifies for tax-exempt status because its mission and
purpose are to further a social cause and provide a public benefit. Nonprofit organizations
include hospitals, universities, national charities and foundations.
To qualify as a nonprofit, your business must serve the public good in some way. Nonprofits do
not distribute profit to anything other than furthering the advancement of the organization. As
such, you will be required to make your financial and operating information public so that donors
can see how their contributions are being used. An individual or business that makes a donation
to a nonprofit is allowed to deduct their donation from their tax return. The nonprofit, likewise,
pays no taxes on any money received through fundraising.
Similar to a nonprofit, a not-for-profit organization (NFPO) is one that does not earn profit for its
owners. All money earned through pursuing business activities or through donations goes right
back into running the organization.
However, not-for-profits are not required to operate for the benefit of the public good. A not-for-
profit can simply serve the goals of its members. A good example is a sports club; the purpose of
the club is to exist for its members’ enjoyment. These organizations must apply for tax-exempt
status including exemptions from sales tax and property taxes. That also means that money
donated by an individual to an NFPO cannot be deducted on that person’s tax return.
Nonprofit vs not-for-profit organizations
There are four key differences between a nonprofit and a not-for-profit:
 Nonprofits are formed explicitly to benefit the public good; not-for-profits exist to fulfill
an owner’s organizational objectives.
 Nonprofits can have a separate legal entity; not-for-profits cannot have a separate legal
entity.
 Nonprofits run like a business and try to earn a profit, which does not support any single
member; not-for-profits are considered “recreational organizations” that do not operate
with the business goal of earning revenue.
 Nonprofits may have employees who are paid, but their paychecks do not come through
fundraising; not-for-profits are run by volunteers.
What is a for-profit organization?
A for-profit organization is one that operates with the goal of making money. Most businesses
are for-profits that serve their customers by selling a product or service. The business owner
earns an income from the for-profit and may also pay shareholders and investors from the profits.
Whether you decided to start a for-profit, not-for-profit or nonprofit, the first steps to creating
your entity are the same. Start by filing for a business entity in the state in which you wish to run
your operations. Your business entity might be a corporation, LLC, sole proprietorship or
partnership. All of these entities can operate as for-profit, nonprofit or not-for-profit
organizations.
Can you change your legal entity?
Some businesses start as one type of legal entity and later decide to convert to another. This is
possible, but it’s a little complicated depending on the types of entities involved.
From nonprofit to for-profit
There are a few reasons why you may wish to change from a nonprofit to a for-profit. Maybe
you believe you can get better access loans or other funding by becoming a for-profit. Or maybe
you prefer to operate without the regulations that govern nonprofits.
Regardless, once you’ve carefully considered this option and all shareholders are in agreement,
you will need to notify the tax agency by writing a "statement of nonprofit conversion." This
statement will include:
 The reason for nonprofit termination;

 A certified copy of a liquidation plan;
 The fair market value of the organization;
 A list of all asset recipients if assets will be distributed.
From for-profit to nonprofit
Converting a for-profit to a nonprofit is a little more difficult, as the tax agency wants to
discourage businesses from making this move to avoid paying taxes. It can be done, however,
through a process that isn’t so different from starting a nonprofit from scratch.
“While you may be able to retain the for-profit organization name for use by your nonprofit, a
nonprofit organization requires you to use the money you raise to suit a purpose other than
distribution to shareholders or business owners, and it needs to fulfill the mission and goals of
the nonprofit,” explained Small Business Chronicle. “Transitioning to a nonprofit organization
requires you to do some planning prior to registering the nonprofit with the state in which it
operates.”
This transition includes writing a mission statement, establishing bylaws, and filing articles of
incorporation, among other things. It’s at the articles of incorporation step that you will need to
let the governing unit know you’re keeping the same name as your existing for-profit.
The legal entity that’s right for your business depends on your goals. As one entrepreneur, Jane
Chen, outlined in Harvard Business Review, there are pros and cons to each entity.
“A for-profit can raise money from private investors, for which it must give equity or dividends
to shareholders; ultimately, a return on investment is expected,” she wrote. “A nonprofit, on the
other hand, can seek donations from individuals, foundations and corporations. Such
stakeholders generally expect a ‘social return’ on capital.”
There’s no one-size-fits-all when it comes to establishing a legal entity for your business. And,
the good news is you can always change your entity as your business grows. Speak to an expert
who can help you choose an entity that optimizes your tax deductions while serving your
overarching goal.

Nonprofit Vs

Uploaded by

Copyright:

Available Formats

Nonprofit Vs

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Nonprofit Vs

Uploaded by

Copyright:

Available Formats

Nonprofit vs. Not-for-Profit vs. For-Profit: What's the Difference?

What is a nonprofit organization?

Nonprofit vs not-for-profit organizations

There are four key differences between a nonprofit and a not-for-profit:

What is a for-profit organization?

Can you change your legal entity?

From nonprofit to for-profit

 The reason for nonprofit termination;

From for-profit to nonprofit

You might also like