Non profit organizations (NPOs) are sometimes referred to as non-business entities. We find this term somewhat mislea
ding as these organizations are in business, the business of helping people. They just don’t collect a profit while doing so. Employees, though, still do often collect paychecks.
Most such organization are usually dedicated to furthering a pet cause or advocating to bring about a particular point of view. Economically speaking, a nonprofit organization uses excess revenue to further achieve its goal, rather than giving the “profit” to shareholders as dividends. This is frequently referred to as the distribution constraint. The choice to adopt a non-profit structure will often have significant taxation implications; for example, where the nonprofit seeks income tax exemptions, charity status and so forth.
The phrases not for profit and non-profit are not differentiated consistently across jurisdictions which use the term. In common parlance, they are equivalent in idea, though various jurisdictions enact meaningful accounting and legal differences.
The NPO landscape is varied, though most have come to associate NPOs with being essentially equivalent to charitable organizations. Although charities often constitute a high profile or obvious aspect of the sector, there are a great many other types of nonprofit structures out there. Generally speaking, they have a tendency to take the form of being either community-serving or member-serving. Member-serving organizations include mutual societies, cooperatives, credit unions, industry associations, service men’s clubs and bodies – organizations that benefit a specific group of folks i.e. the particular members or users of the business in question.
Typically, community-serving organizations make their primary focus providing services to the surrounding community. Community, though, can be taken anywhere from the extremely local to a global perspective, think Re
d Cross for the latter. Such organizations often deliver vital services, programs or projects such as dev
elopment and aid, medical research, health and education etc. Many nonprofits seek to make a positive impact for both the community and their members. E.g., imagine a grassroots support group whose aim is to deliver a lifeline to people that have specific conditions or diseases, while those afflicted are also potentially considered to be its members.
One thing all NPOs agree on is the idea that furthering their cause is of much greater importance than making a return on capital, though this doesn’t mean proper management and a keen eye for finances aren’t needed to ensure that resources are spent effectively and to ensure the organization is around for years to come.
Though NPOs create technical profits, the profits are retained and usually spent on its self-preservation, enlargement, or various other strategies to maximize impact. NPOs have a board of directors. Many pay personnel, including management, whereas others prefer to stay lean through using unpaid volunteers and professionals who are willing to give their time to a worthy cause. Some countries actually require a nominal salary as a way of building a contract between executives and the organization.
Designation as a nonprofit will not mean that the business does not plan to make money, but instead that the business does not have any ‘owners’ and that the cash noticed in the procedure of the business will never be used to profit any owners.