Not For Profit Organization Vs. Nonprofit Organization: What’s The Difference?

Business Terms

While nonprofit and not-for-profit sound like they’re interchangeable, they actually aren’t. If your group is labeled either a nonprofit organization or a not-for-profit organization, it means different things in terms of taxes and organizational structure.

There is a fair amount of overlap between the two, and not all of the rules are hard and fast. However, the main difference between nonprofit organizations and non for profit organizations has to do with their tax status.

Nonprofit organizations are tax-exempt, while not-for-profit organizations aren’t. This is likely because nonprofits have much stricter rules they must follow, such as disclosing their donations and how the money was spent, than not-for-profit organizations.

Key Takeaways:

Not For Profit Organization	Nonprofit Organization
Donations to a not-for-profit aren’t tax exempt.	Donations to a nonprofit are tax-exempt.
A not-for-profit is usually narrow in scope.	Nonprofit organizations are typically wide in scope.
These organizations focus on the needs or interests of their organizers.	A nonprofit is created to help benefit the greater good.
Examples are sports clubs, social advocacy groups, and unions.	Examples are food banks, organizations to raise awareness for illnesses, and environmental protection groups.

What Is a Not For Profit Organization?

A not-for-profit organization, like a nonprofit organization, isn’t created for the purpose of making a profit. However, most not-for-profit organizations are narrow in scope and aren’t focused on the greater good. These include organizations like sports clubs, unions, game clubs, and social advocacy groups.

Due to the fact that not-for-profit organizations aren’t tax-exempt, they’re allowed to participate in politics and make endorsements. The rules and regulations on them are less strict as well, such as not requiring them to make all of their revenue generations and spending public.

Not-for-profit organizations tend to be small and focused on one particular cause or group. Unlike nonprofit organizations, they don’t need to be run by a board, so a small collection of people can be in charge of a not-for-profit.

Despite their lack of tax exemption, some not-for-profit organizations can apply for some tax exemptions. However, their employees’ salaries are still taxed, and, most importantly, donors aren’t able to tax exemptions on their donations. This remains true even if the not-for-profit organization manages to acquire a tax-exempt status.

What Is a Nonprofit Organization?

Nonprofit organizations are set up in order to further the common good. Like a not-for-profit, its purpose isn’t to make money for its owners or organizers but to further a cause. Examples of nonprofit organizations are environmental protection organizations, groups raising awareness for an illness, and ones that look to solve a social issue, like hunger or disease.

Unlike a not-for-profit, a nonprofit has to be focused on a greater cause like the sort mentioned above. Due to the fact that they are focused on the greater good, they get more in the way of tax emotions. This is both for the organization itself and for its donors – they are able to claim their donations to a nonprofit as tax exempt.

Nonprofit organizations tend to be large entities with a wide reach, though that isn’t always the case. They are required to be run by a board, meaning that the organization has a number of different voices running it.

Due to their tax-exempt status, nonprofit organizations have much stricter rules they have to abide by. This includes reporting their revenue and donations, as well as how that money was used. Nonprofit organizations are allowed to use that money for operating expenses, such as rent and employees’ salaries; however, the money isn’t supposed to enrich the owners.

As with other tax-exempt organizations, nonprofits are forbidden from stepping into politics. There is a little wiggle room in that if they promote a particular cause, they can champion legislation that addresses it – within limits. Also, they can’t make endorsements or show a preference for a particular party or candidate.

Not For Profit vs. Nonprofit FAQ

Can a nonprofit organization turn a profit?

Yes, a nonprofit organization can turn a profit. It isn’t that nonprofits can’t generate money through services or sales; it’s just that it’s not their primary function.

The revenue typically isn’t taxed, and nonprofit organizations are obligated to roll any generated revenue back into their operations – be that operating cost or for the services they provide.
Can I make money working for a nonprofit?

Yes, you can get paid working for a nonprofit organization. That being said, due to the nature of nonprofits, the monetary compensation for working for one is generally low.

Most nonprofits are largely volunteer-based, meaning that managing to land a paid job at one is often difficult due to the fact that there are limited roles.

Most people who work for a nonprofit are dedicated to the nonprofit’s cause or find helping others or their community rewarding. For them, that makes up for the low salary.
Can nonprofits borrow and lend money?

Yes, a nonprofit organization can borrow and lend money. They are set up as a specific type of business and they are eligible under the IRS’s rules. However, most nonprofits are considered high-risk endeavors, so it may be difficult to find a bank willing to sign off on them.

Nonprofits can also lend money. Some community credit unions are nonprofit or not-for-profit, and they’re able to lend out money. Others work as a way to help entrepreneurs get their business ideas off the ground, and others work to try to help lower-income people avoid predatory loan practices, such as title loans.
Should a nonprofit be run like a business?

A nonprofit is organized like a business, so it should be run like one. Nonprofits aren’t focused on generating profits like a business is, but the same principles apply. They work to get funds in order to get goods and services to where the demand is.

The difference, in this case, is that the demand is more needed, and, most importantly, the recipients aren’t paying for the services. There are exceptions to the latter – some nonprofits instead do their best to offer needed goods or services at an affordable rate and can’t afford to give them away for free.
How do you get funding for a nonprofit organization?

There are several different ways to get funding for a nonprofit or not-for-profit organization.
- Philanthropy.
- Fundraisers.
- Donations.
- Business contributions.
- Running a store or other revenue-generating practice.

Business Terms

Never miss an opportunity that’s right for you.

Author

Di Doherty

Di has been a writer for more than half her life. Most of her writing so far has been fiction, and she’s gotten short stories published in online magazines Kzine and Silver Blade, as well as a flash fiction piece in the Bookends review. Di graduated from Mary Baldwin College (now University) with a degree in Psychology and Sociology.

Create Resume