Not-for-Profit Vs. for Profit Organizations

For-profit and nonprofit organizations each have their own way of adding value to society.

Nonprofit organizations have missions to provide services that help mankind, and they put any profits they make back into their work. Businesses sell products, then share the profits with investors. Each type of organization is valuable to society.

Income

Income generated from a for-profit business can be used as business owners want. Nonprofits receive money mostly through grants and donations, and also through service and memberships fees. Grants and donations must be used as the donor intends.

Products and Services

For-profits are free to develop many new avenues of business to boost their bottom line. A nonprofit that wants to earn additional income must do so within the limits of its mission. For example, a nonprofit with the mission to help the homeless find jobs might start a drug-addiction program, but it couldn't use its funding to suddenly establish a Little League team. A nonprofit cannot receive income from a regularly carried-on trade or business not related to its mission or it can lose tax-exempt status.

Staffing

Businesses have paid staff and contractors. Nonprofits may also have paid workers, but many have volunteers who receive no compensation, sometimes offering reimbursement for items like travel and meals.

Regulation

Businesses must adhere to a range of regulations related to areas including labor, the environment, and health and safety. Nonprofits must also follow those same regulations, plus special rules for tax-exempt organizations. For example, businesses may lobby government, but nonprofits face restrictions in their lobbying activities.

Taxes

Businesses pay a wide range of taxes, including FICA, worker's compensation and state unemployment insurance, and they pay property and sales taxes on purchases not resold. Nonprofits pay similar taxes, but they are exempt from federal tax and may be exempt from state or local property, sales or income taxes.

References

• Idealist.org: How Alike Are Nonprofits and For-Profit Businesses?
• Grantmakers in the Arts: "Nonprofit-like"--Tongue Twister or Aspiration?

Resources

• Stanford Social Innovation Review: What What Business Execs Don't Know--But Should--About NPs