What is the Difference Between a Non-profit and Not-for-profit Organization?

What is the Difference Between a Nonprofit and Not-for-profit Organization?
While a nonprofit deals with the vital issues of the society, a not-for-profit deals with smaller groups and concentrates on hobbies and interests. For an in-depth understanding of the two, Buzzle will explain the difference between nonprofit and not-for-profit organizations.
BusinessZeal Staff
Last Updated: Jun 3, 2018
"The terms "nonprofit" or "not-for-profit" refer to organizations that have been chartered at the state level. Typically, this means they have filed some sort of formation document with the Secretary of State."
― Dave Richmond, Founding partner and President, Richmond Brothers, Inc.
Most organizations produce revenues and use them for their own purposes. Nonprofit organizations (NPOs) and not-for-profit organizations are among those that work towards proper service and earning revenues; however, the revenue earned is not used for personal gain. One of the prime misconceptions people have is that nonprofits and not-for-profits are the same. Well, in essence, let's say they are almost the same, yet there are certain subtle changes between the two. The latter is often referred to as a subset of the former in many countries. The nonprofit vs. not-for-profit comparison is enlisted in the subsequent paragraphs.
Nonprofit Organization
  • It is a large group with many people involved in achieving a higher goal.
  • Many issues that this organization targets are social and political.
  • The money earned by NPOs is used for the betterment of the organization.
  • A charitable organization may also be an NPO; however, the opposite is not true. An NPO does not necessarily operate as a charity.
Non-for-profit Organization
  • It is mostly a smaller group with less number of involved participants.
  • The group mostly concentrates on hobbies, public service, and other social interests.
  • The money earned may or may not be a large amount; however, whatever is earned is put back into the organization, improving it by various means.
  • Most of the not-for-profits are public service organizations, charities, and other voluntary businesses; in fact, apart from the profit exclusion, most not-for-profit organizations function similar to the for-profit organizations.
Factors of Differentiation
The legal differences between nonprofit and not-for-profit organizations account for a major distinguishable point. A couple of other differences are provided in the table below.
Nonprofit Vs. Non-for-profit
Nonprofit Non-for-profit
Mission
Its mission is to serve the society in general - this may involve charity or volunteer work. It also undertakes other large-scale activities that contribute towards general public service. Its mission is also to serve the society; however, its purpose is to contribute towards mainstream charity after the internal expense distribution.
Profits
It is not targeted towards earning profits. The revenue earned is used for funds and other expenses that contribute towards the goal of the organization. No profit is used for private gain. NPOs mostly have volunteers, not paid staff. It does not aim at making profit either. However, the difference here is that it comprises paid staff. Therefore, whatever revenue is earned, the salaries are given, after which the money is put back into the business. There are no shareholders though.
Legalities
It obligatorily receives charters at the state level. It has a separate, registered legal existence. Generally, it is not chartered either at the state or national level. The participant groups do not necessarily have a legal existence.
Revenue Sources
Membership dues, donations, program fees, fundraisers, etc. It mainly depends on grants and donations. Investment gains, investment income, merchandise sale, etc. It does not necessarily depend on donations; whatever money is earned, is given as a donation.
Tax Exceptions
A nonprofit is expected to make a profit, and the profit cannot be used for the benefit of the organization's members. The IRS states that nonprofits are exempted from tax (certain criteria have to be met). It is considered more of a business league by the IRS; hence, it does not qualify for any tax exemptions.
Accounting Standards
Accounting schedules are more rigid as it has to report how the funding was spent. It also ensures that the generated revenue is more than the cost. Accounting schedules for not-for-profits are slightly less structured as they do not have to compulsorily report as to how the money was spent. It does not obligatorily target at increasing revenues. Whatever is left over after expenses, goes to charity.
Examples
Scholarship funds, museums, etc. Fishing club, sports club, credit unions, etc.
Nonprofits and not-for-profits do have slight differences, but taking the larger picture into consideration, it can be stated that they both are devoted to humanitarian service and wellness of the society. The differences may or may not matter. As responsible citizens, it is of primary concern that we contribute to such organizations as well, to help improve the society, and at large, the world in which we live.