Non-Profit vs Not-For-Profit Comparison
People often interchange Non-profit vs Not-for-profit to refer to organizations that do not redistribute profits or funds to owners or shareholders. In the U.S., the term “non-profit” is used more common. However, not-for-profit is rising in popularity as some organizations want to emphasize that their main objectives do not include making a profit. Rather than revealing how to use those profits, the public sees this term “non-profit” as the organization makes no profits at all. But most non-profits and not-for-profits do make profits. Instead, reinvest the profits back into the organization.
Similarities between Non-profits and Not-for-profits:
- Both serve the needs of the community.
- Both make income, but reinvest all earnings back into the organization to continue operations and to support their causes.
- Although both have a staff consisting of mostly volunteers, they also hire and pay some higher-level employees within the organizations.
- Both can become incorporated at the state level in the United States; this provides financial and legal security for employees within the organizations.
- Neither pays dividends to stockholders.
Differences between Non-profits and Not-for-profits:
1. What kinds of activities take place?
Non-profits usually carry out larger, more organized activities that focus on environmental, social, political, or economic missions. For example, American Red Cross, United Nations Children’s Fund (UNICEF), and the American Heart Association are non-profits.
Not-for-profits often carry out smaller group activities that focus on sports, hobbies, or special interests. Examples include amateur sports leagues, clubs, or associations.
2. Does the organization have a charter?
Non-profits classify as non-corporate associations that typically have a national or state charter to provide members with financial and legal protection separate from the legal entity of the organization. Furthermore, non-profits commonly function as official bodies with a charter and governing board of representatives.
Most often, not-for-profits are non-chartered organizations. Furthermore, not-for-profits commonly bring together a group of people with similar interests without forming a legal entity or governing board.
3. Does the organization qualify for tax-exempt status?
Non-profits normally qualify for tax-exempt status in the United States. Since non-profits are organized like a business, they expect to earn a profit. As a result of the profit, they both support their mission and keep operations going. This profit does not support any individual member of the organization.
Not-for-profits usually cannot qualify for tax-exempt status in the United States. Since the IRS clearly specifies that organizations for smaller group activities that focus on sports, hobbies, or special interests do not qualify as a business entity, a not-for-profit cannot qualify for tax-exempt status.
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You need to correct the last paragraph on this page. In the paragraph:
Not-for-profits usually cannot qualify for tax-exempt status in the United States. The IRS clearly specifies that organizations with a focus on The IRS specifically states that organizations for smaller group activities that focus on sports, hobbies, or special interests do not qualify as business entities, and therefore cannot qualify for tax-exempt status.
You need to finish the second sentence: “The IRS clearly specifies that organizations with a focus on . . .”
A focus on what?
Many non-profits and not-for-profits have zero volunteers and entirely paid staff. Think of hospitals and many universities, for instance. There is no need for a non-profit to have volunteers at all.
many civic organizations and those organizations that serve a specific industry are not-for-profit and consist entirely of volunteers, There are no paid employees, at least not at the local level.
Terrible article
“Not-for-profits usually cannot qualify for tax-exempt status in the United States. Since the IRS clearly specifies that organizations for smaller group activities that focus on sports, hobbies, or special interests do not qualify as a business entity, a not-for-profit cannot qualify for tax-exempt status.”
So I guess section 501c7 is just an illusion? I’m not sure when people started conflating 501c3 with “nonprofit”, and 501c(x) with “not-for-profit”, but it really should stop as it only complicates what are already confusing topics…
“…not sure when people started conflating 501c3 with “nonprofit”, and 501c(x) with “not-for-profit” POINT WELL SPOKEN MIKE. I’m going through a disclosure statement at this moment that purports the organization to be nonprofit and the auditor statement clearly states not-for-profit. I doubt if the public really gives a darn (nor should they?) but it only confuses those of us who are tax accountants (Enrolled Agent) in our attempt to explain the difference to members of the organization. again, RIGHT ON MIKE!
As a follow up note on Mike Saltafor reference to section 501c7 – log on to:
https://wagenmakerlaw.com/blog/social-club-q-section-501c7-tax-exempt-organizations
Thank you for the shared information.
What is most important was left out of this entire article. “Non Profits” are LEGAL entities either Incorporated and Organized under LAW. These entities are given recognition after application to the Federal government for tax exempt status under title 26 of the IRC specifically subchapter 501(c) for the most part.
ALL “NOT-FOR-PROFITS” are Unincorporated Organizations or Associations (in other words non-legal but rather EQUITABLE entities) that have roots in statutes long before the Federal Government was even in existence. They function for the most part under the jurisprudence of Equity, not Law. The Federal Government had to carve out a status for them as State Chartered entities to recognize the tax exempt status grandfathered in well before subsection 501(c) was even written. In fact their roots go back far before this country was even founded.