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A nonprofit organization (NPO), also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in contrast with an entity that operates as a business aiming to generate a profit for its owners. A nonprofit is subject to the non-distribution constraint: any revenues that exceed expenses must be committed to the organization's purpose, not taken by private parties. An array of organizations are nonprofit, including some political organizations, schools, business associations, churches, social clubs, and consumer cooperatives. Nonprofit entities may seek approval from governments to be
tax-exempt Tax exemption is the reduction or removal of a liability to make a compulsory payment that would otherwise be imposed by a ruling power upon persons, property, income, or transactions. Tax-exempt status may provide complete relief from taxes, reduc ...
, and some may also qualify to receive tax-deductible contributions, but an entity may
incorporate Incorporation may refer to: * Incorporation (business), the creation of a corporation * Incorporation of a place, creation of municipal corporation such as a city or county * Incorporation (academic), awarding a degree based on the student having a ...
as a nonprofit entity without securing tax-exempt status. The key aspects of nonprofits are accountability, trustworthiness, honesty, and openness to every person who has invested time, money, and faith into the organization. Nonprofit organizations are accountable to the donors, founders, volunteers, program recipients, and the public community. For a nonprofit that seeks to finance its operations through donations, public confidence is a factor in the amount of money that a nonprofit organization is able to raise. The more nonprofits focus on their mission, the more public confidence they will have. This will result in more money for the organization. The activities a nonprofit is partaking in can help build the public's confidence in nonprofits, as well as how ethical the standards and practices are.


Statistics in the United States

According to the
National Center for Charitable Statistics The National Center for Charitable Statistics (NCCS) is a clearing house of data on the U.S. nonprofit sector. The National Center for Charitable Statistics builds national, state, and regional databases and develops standards for reporting on the ...
(NCCS), there are more than 1.5 million nonprofit organizations registered in the United States, including public charities,
private foundation A private foundation is a charitable organization that, while serving a good cause, might or might not qualify as a public charity by government standards. The Bill & Melinda Gates Foundation is the largest private foundation in the U.S. with ove ...
s, and other nonprofit organizations. Private charitable contributions increased for the fourth consecutive year in 2017 (since 2014), at an estimated $410.02 billion. Out of these contributions, religious organizations received 30.9%, education organizations received 14.3%, and human services organizations received 12.1%. Between September 2010 and September 2014, approximately 25.3% of Americans over the age of 16 volunteered for a nonprofit.


Mechanism of money-raising

Nonprofits are not driven by generating profit, but they must bring in enough income to pursue their social goals. Nonprofits are able to raise money in different ways. This includes income from donations from individual donors or foundations; sponsorship from corporations; government funding; programs, services or merchandise sales, and investments. Each NPO is unique in which source of income works best for them. With an increase in NPO's within the last decade, organizations have adopted competitive advantages to create revenue for themselves to remain financially stable. Donations from private individuals or organizations can change each year and government grants have diminished. With changes in funding from year to year, many nonprofit organizations have been moving toward increasing the diversity of their funding sources. For example, many nonprofits that have relied on government grants have started fundraising efforts to appeal to individual donors.


Nonprofit vs. not-for-profit

Nonprofit and not-for-profit are terms that are used similarly, but do not mean the same thing. Both are organizations that do not make a profit, but may receive an income to sustain their missions. The income that nonprofit and not-for-profit organizations generate is used differently. Nonprofit organizations return any extra income to the organization. Not-for-profits use their excess money to pay their members who do work for them. Another difference between nonprofit organizations and not-for-profit organizations is their membership. Nonprofits have volunteers or employees who do not receive any money from the organization's fundraising efforts. They may earn a salary for their work that is independent from the money the organization has fundraised. Not-for-profit members have the opportunity to benefit from the organization's fundraising efforts. In the United States, both nonprofits and not-for-profits are tax-exempt under IRS publication 557. Although they are both tax-exempt, each organization faces different tax code requirements. A nonprofit is tax-exempt under
501(c)(3) A 501(c)(3) organization is a corporation, trust, unincorporated association, or other type of organization exempt from federal income tax under section 501(c)(3) of Title 26 of the United States Code. It is one of the 29 types of 501(c) organizat ...
requirements if it is either a religious, charitable, or educational based organization that does not influence state and federal legislation. Not-for-profits are tax-exempt under
501(c)(7) A 501(c) organization is a nonprofit organization A nonprofit organization (NPO), also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public ...
requirements if they are an organization for pleasure, recreation or another nonprofit purpose.Burgess, M. (26 October 2017) What is the difference between nonprofit & not for profit?. Retrieved from https://bizfluent.com/info-7991949-difference-between-nonprofit-not-profit.html Nonprofits are either member-serving or community-serving. Member-serving nonprofit organizations create a benefit for the members of their organization and can include but are not limited to credit unions, sports clubs, and advocacy groups. Community-serving nonprofit organizations focus on providing services to the community either globally or locally. Community-serving nonprofits include organizations that deliver aid and development programs, medical research, education, and health services. It is possible for a nonprofit to be both member-serving and community-serving.


Management

A common misconception about nonprofits is that they are run completely by volunteers. Most nonprofits have staff that work for the company, possibly using volunteers to perform the nonprofit's services under the direction of the paid staff. Nonprofits must be careful to balance the salaries paid to staff against the money paid to provide services to the nonprofit's beneficiaries. Organizations whose salary expenses are too high relative to their program expenses may face regulatory scrutiny. A second misconception is that nonprofit organizations may not make a profit. Although the goal of nonprofits isn't specifically to maximize profits, they still have to operate as a fiscally responsible business. They must manage their income (both grants and donations and income from services) and expenses so as to remain a fiscally viable entity. Nonprofits have the responsibility of focusing on being professional, financially responsible, replacing self-interest and
profit motive In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods a ...
with mission motive. Though nonprofits are managed differently from for-profit businesses, they have felt pressure to be more businesslike. To combat private and public business growth in the public service industry, nonprofits have modeled their business management and mission, shifting their raison d’être to establish sustainability and growth. Setting effective missions is a key for the successful management of nonprofit organizations. There are three important conditions for effective mission: opportunity, competence, and commitment. One way of managing the sustainability of nonprofit organizations is to establish strong relations with donor groups. This requires a donor marketing strategy, something many nonprofits lack.


Functions

NPOs have a wide diversity of structures and purposes. For legal classification, there are, nevertheless, some elements of importance: * Management provisions * Accountability and auditing provisions * Provisory for the amendment of the statutes or articles of incorporation * Provisions for the dissolution of the entity * Tax statuses of corporate and private donors * Tax status of the founders. Some of the above must be (in most jurisdictions in the
USA The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America North America is a continent entirely within the Northern Hemisphere and a ...

USA
at least) expressed in the organization's charter of establishment or constitution. Others may be provided by the supervising authority at each particular jurisdiction. While affiliations will not affect a legal status, they may be taken into consideration by legal proceedings as an indication of purpose. Most countries have laws that regulate the establishment and management of NPOs and that require compliance with
corporate governance Corporate governance is the collection of mechanisms, processes and relations used by various parties to control and to operate a corporation. Governance structures and principles identify the distribution of rights and responsibilities among diff ...
regimes. Most larger organizations are required to publish their financial reports detailing their income and expenditure publicly. In many aspects, they are similar to corporate
business entities In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by its b ...
though there are often significant differences. Both not-for-profit and for-profit corporate entities must have board members, steering-committee members, or trustees who owe the organization a
fiduciary duty 300px, The court of chancery, which governed fiduciary relations in England prior to the ''Judicature Acts'' A fiduciary is a person who holds a legal Law is a system of rules created and law enforcement, enforced through social or governm ...
of loyalty and trust. A notable exception to this involves churches, which are often not required to disclose finances to anyone, including church members.


Formation and structure

In the United States, nonprofit organizations are formed by filing bylaws or
articles of incorporation Articles of incorporation, also referred to as the certificate of incorporation or the corporate charter, are a document or charter that establishes the existence of a corporation in the United States The United States of America (U.S.A. o ...
or both in the state in which they expect to operate. The act of incorporation creates a legal entity enabling the organization to be treated as a distinct body (corporation) by law and to enter into business dealings, form contracts, and own property as individuals or for-profit corporations can. Nonprofits can have members, but many do not. The nonprofit may also be a trust or
association Association may refer to: *Club (organization), an association of two or more people united by a common interest or goal *Trade association, an organization founded and funded by businesses that operate in a specific industry *Voluntary association ...
of members. The organization may be controlled by its members who elect the
board of directors A board of directors is a group of people who jointly supervise the activities of an organization An organization, or organisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling diffe ...
,
board of governors A board of directors is a group of people who jointly supervise the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organization, or a government agency. The powers, du ...
or board of
trustee Trustee (or the holding of a trusteeship) is a legal term {{Short pages monitor