Nonprofit versus Not-for-Profit

Jul 28

The key differences between a nonprofit and a not-for-profit:

Nonprofits are formed explicitly to benefit the public good; not-for-profit organizations 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. The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.

To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure any private shareholder or individual. In addition, it may not be an action organization. Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170. The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.

To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, none of the organization's earnings may inure to any private shareholder or individual. The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific… and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged. The mission and purpose of a non profit are to further a social cause and provide a public benefit.

The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged.