3 Unique Characteristics of a Non-Profit
While it may be easy to assume that nonprofits are simply businesses that “do good,” the differences go much further.
The primary purpose of a non-profit is to serve a charitable, educational, social or religious mission, while the primary purpose of for-profit is to generate profits for its owners.
While there are many other characteristic differences, both big and nuanced, between a non-profit and a for-profit organization, we’ve distilled down the essence with the following three unique characteristics of a nonprofit.
Non-profits aren’t owned by the people who founded or operate them – they are (at their heart) owned by the public. Because of that, the traditional vision of founders having a large financial gain or “exit” from a sale or stock options is not available. All profits generated by the non-profit are reinvested into the organization instead of being distributed to individuals.
Non-profits are typically subject to more administrative and bureaucratic requirements than for-profit organizations. The key benefit of a non-profit organization is the tax-exemption status; and in order to maintain tax-exemption status, non-profit organizations are subject to regular reporting requirements.
Many non-profit organizations rely heavily on charitable donations, grants and memberships for funding. While there are many nonprofit organizations that operate profit-generating businesses as a primary source of funding (i.e. thrift stores, translation services, counseling, etc.), most non-profit organizations will typically rely on outside sources of funding like individual donations and grants from foundations, etc.
These differences are essential for those considering creating a non-profit. By understanding the differences between non-profits and for-profits, you can better set your non-profit up for success.