Some organizations aim to make money and others don't. The difference between for-profit and nonprofit organizations is a legal distinction. While both types must be registered with the government in some fashion, nonprofits also must meet certain criteria to qualify for all of the possible benefits of that status -- such as exemption from federal income tax.
A for-profit organization is simply a business that sells goods or services for money and uses that money to enrich its owners. These businesses can run the gamut from retail stores to consulting firms. Income may be reinvested into the business, particularly in its early stages, but the ultimate goal is to pass along at least some of the money to owners or stockholders.
Types of For-Profits
A for-profit business commonly takes one of three legal types. The first, an unincorporated organization, is typically a small, one-person or one-couple business. The individual and business are considered the same legal entity, so business income may be mixed with personal income, for instance. The second common type of business is a corporation. This status creates a distinction between the owners and the company itself, protecting ownership from personal liability for company actions. The third common type is a limited liability company, or LLC. This blends the first two types, taking advantage of features such as the corporation's protection of personal assets and the unincorporated business's ownership structure.
While a nonprofit organization hopes to have income, it is not accumulating money for the benefit of its owners. Instead, it intends to turn that money around and use it for the benefit of the community. This can mean providing charitable donations or offering educational opportunities or community services. To be recognized legally as a nonprofit, an organization must be designated as such when it is established and must provide one of the services specifically listed in nonprofit laws, such as philanthropy or religious services.
Types of Nonprofits
Nonprofit organizations serve one of several purposes. Some groups provide aid, whether they're charities that help the downtrodden or foundations that make financial donations. They may offer spiritual or educational guidance, whether they're churches or colleges. They may even serve a select group of people, as in a trade association or advocacy agency. The crucial element is that they use their income for the betterment of society or at least one societal element. They are not out for profit, as a business normally is.
- Business Dictionary: For Profit Organization
- Free Management Library: Two Basic Types of Organizations
- Free Management Library: Legal Forms and Traditional Structures of Organizations
- Learning to Give: Nonprofit Organizations (Definition and Examples)
- Cornell University Law School: Non-Profit Organizations -- An Overview
Eric Strauss spent 12 years as a newspaper copy editor, eventually serving as a deputy business editor at "The Star-Ledger" in New Jersey before transitioning into academic communications. His byline has appeared in several newspapers and websites. Strauss holds a B.A. in creative writing/professional writing and recently earned an M.A. in English literature.