Definition§
Nonprofit organizations (NPOs) are entities formed to pursue a social cause or advocate for a shared point of view. Unlike for-profit organizations, nonprofits aim to further their mission without distributing profits to owners or shareholders. Instead, any surplus revenues are reinvested into the organization’s goals.
Types of Nonprofits§
Charitable Organizations§
These are 501(c)(3) organizations primarily aimed at charitable, educational, religious, or scientific purposes.
Foundations§
Private and public foundations support charitable activities either by funding other nonprofits or engaging directly in their own programs.
Social Advocacy Groups§
These organizations focus on influencing public opinion and policy regarding specific social issues.
Membership and Trade Associations§
These include professional associations and trade groups that provide support and resources to their members.
Special Considerations§
Tax Exemption§
One of the key features of nonprofits is their eligibility for tax-exempt status, often under section 501(c) of the Internal Revenue Code in the U.S. This status exempts the organization from federal income tax and sometimes from state and local taxes as well.
Governance§
Nonprofits are generally governed by a Board of Directors who do not profit from the organization’s activities. The Board sets policies, oversees the implementation of the mission, and ensures compliance with relevant laws.
Examples§
Amnesty International§
A global movement focusing on human rights advocacy.
Médecins Sans Frontières (Doctors Without Borders)§
Provides emergency medical aid in conflict zones and underserved areas.
The Wikimedia Foundation§
Hosts some of the world’s largest collaboratively edited reference projects, including Wikipedia.
Historical Context§
Nonprofits have existed for centuries, often rooted in religious and charitable activities. They have significantly evolved over time, especially with growing public awareness and the formalization of their structures through legislation.
U.S. Context§
In the United States, the Revenue Act of 1913 marked a significant legislative milestone by granting tax-exempt status to charitable institutions. Over the 20th and 21st centuries, the scope and impact of nonprofits have grown exponentially.
Applicability§
Community Impact§
Nonprofits play a crucial role in addressing societal needs that are often overlooked or underserved by government and for-profit sectors.
Advocacy§
They serve as the voice for marginalized populations, advocating for public policies and social reforms.
Comparisons§
For-Profit vs. Nonprofit§
- Purpose: For-profit entities aim to generate profit for owners and shareholders, while nonprofits aim to further a social cause.
- Revenue Use: Profits in for-profits are distributed to owners/shareholders; nonprofits reinvest surpluses into their missions.
- Tax Status: For-profits are subject to corporate taxes; nonprofits are usually tax-exempt.
Nonprofit vs. Not-for-Profit§
While both terms are often used interchangeably, not-for-profits generally refer to organizations that do not distribute profits (e.g., hobby clubs), whereas nonprofits have a formal tax-exempt status and serve a broader social purpose.
Related Terms§
- Philanthropy: The desire to promote the welfare of others, typically manifested through donation of money to good causes.
- Volunteerism: The practice of offering time and skills for community service without monetary compensation.
- Corporate Social Responsibility (CSR): Corporate initiatives to assess and take responsibility for the company’s effects on environmental and social wellbeing.
FAQs§
Do nonprofit employees get paid?
Can a nonprofit make a profit?
How is a nonprofit funded?
References§
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U.S. Internal Revenue Service. “Applying for 501(c)(3) Tax-Exempt Status.” IRS Website.
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Salamon, L.M. “America’s Nonprofit Sector: A Primer.” The Foundation Center, 2012.
Summary§
Nonprofit organizations play an essential role in society by addressing various social causes without seeking profits. Governed by a Board of Directors, funded by donations and grants, and often tax-exempt, these organizations strive to make a positive impact on communities locally and globally. Whether through advocacy, direct aid, or public policy influence, nonprofits remain vital components of societal development and wellbeing.
