What Is the Difference Between Non-Profit & Not for Profit?

by Mary Burgess; Updated September 26, 2017
A school is a nonprofit, while a social club is a not-for-profit.

The terms “nonprofit” and “not-for-profit” are often used interchangeably. Neither one makes a profit. Both are regulated differently from companies that do make a profit, and both are tax exempt. Despite the similarities, there are subtle differences. Nonprofits and not-for-profits use their incomes differently. Their memberships are different. From a banking perspective, there are differences. From a tax perspective, although both are tax exempt, the IRS has different requirements for granting tax exempt status.

Use of Income

Nonprofits and not-for-profits are not allowed to make a profit, but they might generate income. Any income generated by a nonprofit must be returned to the organization to accomplish the goals for which it was established. For example, a nonprofit with a goal of helping people in need may offer financial assistance to victims of a natural disaster. Any income generated by a not-for-profit may be distributed to its members. For example, a not-for-profit may pay trip expenses for a member who participates in fund raising.


The difference between a nonprofit and a not-for-profit can be in the organization’s membership. A member of a nonprofit could be an employee or volunteer, neither of whom benefits from the organization’s income. Employees of a nonprofit earn salaries that do not depend on the organization’s fund raising efforts. Volunteers, by definition, do not benefit from the organization’s income. A not-for-profit may have members who do benefit from the organization’s income. For example, a child who participates in fund raising efforts, such as selling candy, might benefit by having the organization pay his way to camp.

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For the purpose of opening accounts that do not incur a service charge, a bank may distinguish between nonprofits and not-for-profits. From a banking perspective, whether an organization has a legal existence separate from its membership is what determines the difference. A nonprofit typically receives a charter at a state or national level, so it has a separate legal existence from its members. A church is an example of a nonprofit. A not-for-profit does not have a separate legal existence from its members. A social club is an example of a not-for-profit.

Tax Exemption

IRS Publication 557, “Tax-Exempt Status for Your Organization,” indicates that both nonprofits and not-for-profits are tax exempt as long as they meet the requirements of the tax code for their type of organization. A public charity - a nonprofit - must meet 501(c)(3) requirements, which state that it must be organized and operated exclusively for one of several purposes, including religious, charitable and educational purposes. A social or recreation club - a not-for-profit - must meet 501(c)(7) requirements, which state that it must be organized for pleasure, recreation and other similar non-profitable purposes.

About the Author

Mary Burgess has over 30 years experience as a writer. She wrote manuals and online help for software products and edited educational documents for online courses offered by a nonprofit organization. Burgess has a Bachelor of Science in Latin from the University of Memphis.

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