Not all businesses are run to make money. In fact, many business are run as non-profit organizations, meaning that while people who work for the organization are compensated, profits made from business are funneled back into the company or donated. Generally, non-profit businesses are operated with a particular goal in mind, such as promoting a cause. Several differences between for-profit and non-profit businesses exist, besides the fact that only one is designed to earn a financial profit.
Once the main difference between non-profits and for-profit groups is that the former isn't required to pay most taxes. This tax exemption means that the non-profit business, if certified by the federal government as a 501(c)3, doesn't have to pay federal and state income taxes, sales taxes or use taxes. In addition, people who donate money or goods to the organization are allowed to write off these contributions as a deduction on their taxes.
The funding structure is very different in a non-profit business than it is in a for-profit business. A for-profit business is generally funded through investments. These investments may take the form of people purchasing a portion of the company or of lenders loaning the company money and charging interest. In contrast, a non-profit business is funded primarily by donations and grants. These non-profits are eligible for many grants unavailable to for-profit businesses.
Another difference between the two types of organizations is the ownership of their respective assets. In a for-profit business, the business' owners, including its shareholders, own its assets. If the business were to dissolve, assets would be distributed among these parties. However, no one owns a non-profit business -- all assets belong to the non-profit. When a non-profit dissolves, its assets cannot be taken into possession by employees, but must be donated to another non-profit business.
As their names imply, for-profit businesses are operated with the goal of turning a profit, while non-profits are not. However, this difference in purpose also affects the way in which money is distributed within the business. Whereas profits derived from a for-profit enterprise are disbursed to shareholders, a non-profit organization is legally required to use the money to support the organization's stated purpose. For example, a gay rights group must use all its funds to support the advancement of gay rights.
- Gaebler.com: Nonprofit Versus For-Profit
- Internal Revenue Service (IRS). "Publication 557," Page 3. Accessed Aug. 26, 2020.
- National Center for Charitable Statistics. "The Nonprofit Sector in Brief." Accessed Aug. 26, 2020.
- Internal Revenue Service (IRS). "Publication 526: Charitable Contributions," Page 3. Accessed Aug. 26, 2020.
- Internal Revenue Service (IRS). "Form 1023 and 1023-EZ: Amount of User Fee." Accessed Aug. 26, 2020.
- Harvard Business Review. "Should Your Business Be Nonprofit or For-Profit?" Accessed Aug. 26, 2020.
Michael Wolfe has been writing and editing since 2005, with a background including both business and creative writing. He has worked as a reporter for a community newspaper in New York City and a federal policy newsletter in Washington, D.C. Wolfe holds a B.A. in art history and is a resident of Brooklyn, N.Y.