Difference Between Non-Profit and Not for Profit

Edited by Diffzy | Updated on: July 16, 2022

       

Difference Between Non-Profit and Not for Profit Difference Between Non-Profit and Not for Profit

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Introduction

Institutions are basically of two types: profit-making institutions and non-profit institutions. The main aim of profit-making institutions is to make a profit and distribute this profit among employees. Non-profit institutions are set up for charity purposes. The profit made by these institutions is used for the welfare of people.

Non-profit and not-for-profit organizations are two types of non-profit. They do not work for their profit, and the same is distributed among people in the form of charity purposes. However, most people consider both of them the same. They are different from each other. Their working style and the method of making strategies don’t match at all.

Non-profit vs. Not for profit

Non-profit organizations work for the people's welfare. They set up schools, colleges, hospitals, orphanages, old age homes, etc for the society. People make donations to the institutions. The institute makes use of this donation in various ways. However, the motto always is the same, to benefit people. The most important source of income for these institutions is donations collected from individuals, fundraising, charity functions, governmental support, sponsorship, merchandise sales, etc. These organizations are accountable for trustworthiness, honesty, and accountability among people.

Not-for-profit organizations are similar to non-profit organizations. They too work for the welfare of people, but their method of working is different from each other. They do not earn for their owner. Instead, all money directly gets transferred to the treasury of the institutions. It is directly used from there for charitable purposes. The source of income in these institutions is earning and donating. These institutions work as for-profit institutions when it comes to making a profit. The only difference is that this profit is used for charitable purposes.

Difference between non-profit and not for profit in tabular form

Table: Non-profit vs. Not for profit
Parameter of comparison
Non-profit
Not-for-profit
Definition
Non-profit organizations are set up with charitable goals
They do distribute all their profit to charity but they also fulfill their financial goals
Scope
wide
less
Legal entity
Have separate entity
Do not have a separate entity
Area of working
Charity, school, colleges, hospitals, religious purposes
Associations, sports clubs, women’s club
Scale
Larger
smaller
Tax exemption
Exempted from tax
May or may not be exempted from tax
Charter
Receives at the state level
Receives either at the state or national level
Source of revenue
Donations, fundraising
Donations and profits

What is non-profit?

A non-profit is a type of organization that is built for social services. It does not aim to gain profit. The extra money which the organization makes by fundraising gets deposited back into the organization. The employee does not receive any payment for their work. They are generally volunteers or employees who join the organizations of their own will.

Non-profits organizations work on the donation of people and work for the benefit of people. A few examples of their work are by opening a school, church, community kitchen, old age homes, orphanages, etc. They rely on the funds given by people. Also, these organizations are accountable to people who raise funds for them, provide funds, work as a volunteer, as organizational heads, and other people who are involved in works related to the organizations.

Non-profit organizations are recognized by the government and often get exempted from tax-paying. The funds deposited in these organizations are free from tax-paying. Thus, the funds deposited in these organizations are one of the best ways to get exempted from the tax.

The working of these organizations is based on the propagation of trustworthiness, honesty, and accountability among people. It helps to create awareness and promote people for selfless charity. Volunteering in these organizations promote children to do something for the society without expecting anything from it.

How do these organizations raise funds?

The most important source of income for these organizations is donations. However, the amount of donations is not the same everywhere. These donations are mostly made by individuals, corporate businesses, governmental organizations, sponsorship, services, charity functions, merchandise sales, and investments. The NPO has developed as a new source of income for these organizations. Funding fluctuates every year, and the government funding is minimal thus, these organizations must think about another source of income. Though, these organizations are not for profit. But they need a minimal amount of money to continue their charity work. So, they have started to explore new options for charity funding. For example, they have started to target people who can make donations regularly.

Management

people have a lot of misconceptions about non-profit organizations. For example, organizations are managed and owned by volunteers. These volunteers do not aim to make a profit. The truth is that these organizations are managed by a group of paid staff. The organizational head had to manage the difference between paid staff and unpaid volunteers. The next is that the main aim of these organizations is not to make a profit. But these bodies do some businesses need to meet their expenses.

Indeed, non-profit organizations are not handled like for-profit organizations. But they too have to behave like a business institution along with ensuring public welfare. Non-profits need to establish a relationship between the business area and public welfare, profit-making strategies, and selfless work. To perfectly manage these institutions, the bodies need to focus on donation groups and make a strong relationship with them. For this, they must work on donation-making strategies.

Tax exemption

Non-profit organizations are exempted from tax-paying. For this, they must register themselves with the government bodies. The government set up certain criteria to assign these organizations as tax-exempted institutions. Thus, it can be said that not all institutions get the opportunity of being exempted from tax. However, in India, most non-profit organizations are exempted from the tax. They first take the permission to open up a non-profit organization. They are granted permission along with tax exemption benefits. Thus, it can be said that all non-profit organizations in India are exempted from paying tax.

Problems

Even if these organizations are meant only for public benefits, they must face multiple challenges.

The first of them is founder’s syndrome. When an organization has more than one founder, all heads put their brain to strategize the path for the organization. It creates a situation of conflict among the founders, and other members are not able to change any rule for the benefit of the people.

The next biggest problem in a non-profit organization is resource mismanagement. No one in an NPO is responsible for the resources present in the organization. When an employee launches a new project, it helps to gain publicity and attract new donors. But the resources in an NPO is limited and putting the resource into a wide project affects the other functions of the organization. This affects the stability of the institutions creating a serious resource scarcity to manage other charity work of the institution. It is one of the biggest problems faced by a non-profit institution.

The next major problem is the competition between employees of the public and private sectors than the non-profit employees. The reason behind this is that the private and public industries offer more to the employees in the form of higher wages, additional benefits, etc as compared to the non-profit organizations. The private and public organizations attract more employees than the NPO. Thus, these institutions lack newly minded employees. Even if someone joins these institutions driven by the motto of their life, they soon leave the job looking at employment instability. However, NPOs are working their best to provide stable employment to people to attract new employees.

What is not for profit?

Not-for-profit organizations are charitable institutions whose motto is to do charitable work for people. But they are not non-profit organizations. They are different from each other. Unlike NPOs, not-for-profit institutions deposit their profit to the organization which is later used for charitable functions. These non-profitable works might be opening up associations, women's clubs, sports clubs, singing clubs, and their funding. They also donate money to hospitals to provide medical facilities to poor people.

Like non-profit organizations, these institutions are not exempted from paying tax. They can apply to get exempted from tax. However, certain benefits are provided to these institutions. For example, if a church is opened up under a not-for-profit organization, the church doesn’t need to pay the property tax. The institution might work for donation purposes as well. It is not going to charge them any tax. And, these donations are sometimes sold in the market to get money for charitable work. However, they must pay taxes for the payroll of their employees.

The money comes to a not-for-profit organization in two ways. One is through donation, and the other is through earning. The not-for-profit institutions also manage businesses to support their financial needs. This helps the institution to build a constant source of income that cannot be affected by donations or any other conditions. It keeps on running without being disturbed by the problem of money.

The funds deposited in the institution never go through individuals like group members, directors, or officers. It is directly deposited in the organization’s treasure. It reduces the chances of fraud in the institution. Also, these bodies have to work under the state that regulates charitable organizations in their area.

The basic structure of a non-profit organization is quite similar to that of for-profit organizations. Both use the same strategies to increase their profit. The method of hiring employees is also the same in both ways. However, the profit is not shared between them. Instead, the profits are used for charitable purposes. They have to pay taxes for their payroll as well.

Unlike non-profit institutions, a not-for-profit organization can be organized by anyone. Suppose an idea came into the mind of a person. He started to work on that project, collect information, and do proper research. After then, the person may launch a not-for-profit organization. However, when an organization goes through this process of opening an institution, the organizational setup that it builds is considered a business. And, it is being taxed in the same way. If the institution wants to get a tax exemption, it may apply for it. But the process of getting tax redemption for a not-for-profit organization is not an easy task. Thus, not all institutions are granted this privilege.

No doubt, these institutions also have to face a lot of financial as well as physical problems. Staffing is one of the biggest measures to take care of. Wages of staff are lower as compared to for-profit organizations. Employees and aspiring students give more weightage to for-profit organizations. And job security is also lacking in these institutions making the aspirants vulnerable. Apart from this, institutions also have to face problems like boards, fundraising, leadership, and budgeting.        

Difference between non-profit and not for profit in points

  • Non-profits are institutions set up for charitable purposes. It works only for the welfare of people, not for its own benefits. However, the not-for-profit organization also focuses on gaining profit apart from charitable works.
  • A non-profit organization covers up a larger area, while a not-for-profit one covers up only a smaller area.
  • Non-profits work as separate entities. However, not-for-profits do not have any separate entity.
  • Tax exemption is an option for non-profits. Not-for-profit institutions can also avail of this after going through some procedures.
  • The area of working of a non-profit organization includes schools, colleges, hospitals, churches, etc. However, the area of working in a not-for-profit organization includes sports clubs, women’s clubs, associations, etc.
  • The source of revenue of non-profit organizations is donations, fundraising, sponsorship, sales, government support, etc. While the source of income for a not-for-profit institute is earnings and donations.

Conclusion

Though only at a basic level, a non-profit institution is different from a not-for-profit organization. Non-profit never focuses on gaining profit, but not-for-profit does. Non-profit is meant only for welfare people and focuses on all sections of society. Opening up orphanages as well as old age homes symbolizes its vivacity. However, not-for-profit not being a separate entity, it does work for benefit but remains mostly unrecognized by the people. Also, non-profit is more popular than not-for-profit organizations.

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"Difference Between Non-Profit and Not for Profit." Diffzy.com, 2022. Tue. 06 Dec. 2022. <https://www.diffzy.com/article/difference-between-non-profit-and-not-for-profit-131>.



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