When it comes to organizations that aim to make a positive impact on society, the terms “nonprofit” and “not-for-profit” are often used interchangeably. However, there are distinct differences between these two types of organizations. In this article, we will explore the differences between nonprofit and not-for-profit organizations, their goals, and how they operate.
What is a Nonprofit Organization?
A nonprofit organization, also known as a 501(c)(3) organization, is a type of organization that is formed to benefit the public in some way and is exempt from paying federal income taxes. These organizations are typically focused on a social cause or mission, such as providing aid to those in need, promoting education, or supporting the arts.
Goals of Nonprofit Organizations
The primary goal of a nonprofit organization is to make a positive impact on society. This can be achieved through various means, such as providing services to those in need, raising awareness for a cause, or advocating for change. Nonprofit organizations are not driven by profit, but rather by their mission to create social impact.
How Nonprofit Organizations Operate
Nonprofit organizations rely on donations, grants, and fundraising efforts to support their operations and achieve their goals. They are typically governed by a board of directors, who are responsible for overseeing the organization’s activities and ensuring that it stays true to its mission.
Nonprofit organizations are also required to file annual reports with the IRS, which detail their financial activities and ensure transparency. These reports are available to the public, allowing donors and stakeholders to see how their contributions are being used.
What is a Not-for-Profit Organization?
A not-for-profit organization is a type of organization that is formed for the benefit of its members. These organizations are typically social or recreational clubs, such as sports teams, hobby clubs, or social clubs. Not-for-profits are sometimes known as a 501(c)(7) organizations, although there are several tax-exempt codes they can fall under.
Goals of Not-for-Profit Organizations
The primary goal of a not-for-profit organization is to provide a service or activity for its members. These organizations are not focused on creating social impact, but rather on providing a benefit to their members. For example, a sewing club might host a fundraiser in order to establish a scholarship, or even to give the funds away to a charitable cause, but the main goal of the not-for-profit is still to serve its members wishes in some way, not the public.
How Not-for-Profit Organizations Operate
Not-for-profit organizations are funded by membership fees and dues, as well as fundraising efforts. They are sometimes governed by a board of directors, steering committee, etc.
Unlike nonprofit organizations, not-for-profits are not required to file annual reports with the IRS. However, they may still choose to do so for transparency purposes.
Key Differences Between Nonprofit and Not-for-Profit Organizations
While both nonprofit and not-for-profit organizations have similar structures and goals, there are some key differences between the two.
Tax Exemption
One of the main differences between nonprofit and not-for-profit organizations is their tax-exempt status. Nonprofit organizations are exempt from paying federal income taxes, while not-for-profits are not. This means that donations made to nonprofit organizations are tax-deductible for the donor, while donations made to not-for-profits are not. There are a few exceptions to this, so if a not-for-profit asks for donations, simply ask if your donation is tax deductible. They should know or be able to find out.
Focus on Social Impact
As mentioned earlier, the primary goal of a nonprofit organization is to create social impact, while the primary goal of a not-for-profit organization is to provide a benefit to its members. This difference in focus can also impact the types of activities and services that each type of organization provides.
Reporting Requirements
Nonprofit organizations are required to file annual reports with the IRS, while not-for-profits are not. This means that nonprofit organizations are subject to more scrutiny and must ensure transparency in their financial activities.
Examples of Nonprofit and Not-for-Profit Organizations
Examples of Nonprofit Organizations
- American Red Cross: This organization provides disaster relief, support for military families, and blood donation services.
- World Wildlife Fund: This organization works to protect endangered species and their habitats.
- Habitat for Humanity: This organization builds and repairs homes for those in need.
Examples of Not-for-Profit Organizations
- Rotary International: This organization is a global network of community volunteers who work to improve the lives of others.
- Alpha Gamma Delta: This and other sororities and fraternities are typically classified as 501c7 social club organizations.
- Sierra Club: This organization is a grassroots environmental organization that works to protect the planet.
Which Type of Organization is Right for You?
If you are considering starting an organization with a social mission, it is important to understand the differences between nonprofit and not-for-profit organizations. Consider the following factors when deciding which type of organization is right for you:
- Your goals: If your primary goal is to create social impact, a nonprofit organization may be the best fit. If your goal is to provide a service or activity for a specific group of people, a not-for-profit organization may be a better choice.
- Tax-exempt status: If you want to offer tax-deductible donations to your donors, a nonprofit organization is the way to go.
- Reporting requirements: If you are comfortable with the additional reporting requirements of a nonprofit organization, it may be the best option for you.
Conclusion
While nonprofit and not-for-profit organizations have similar structures and goals, there are distinct differences between the two. Nonprofit organizations are focused on creating social impact and are tax-exempt, while not-for-profits provide a benefit to their members and are generally not tax-exempt. Understanding these differences can help you determine which type of organization is the best fit for your goals and mission.
