Business & Work

A nonprofit is an organization created for a purpose other than making money. 

The goal of any nonprofit is to address a concern or provide a service without looking for a profit in return.

Some nonprofits are exempt from paying income tax. The most common form of income tax exempt nonprofits are called “501(c)(3)” organizations. The name comes from the Internal Revenue Code. 501(c)(3) organizations can also offer tax deductions for donations. 

Differences between a nonprofit and a for-profit business

Most nonprofits have several things in common:

• They are created for educational, charitable, religious, scientific, literary reasons, or other recognized "not-for-profit" purposes,
• They must be formed with the Secretary of State as a nonprofit corporation or a trust,
• They are not owned by any one person or group, and
• They are managed by a board of directors of at least three people.

Most for-profits have several things in common:

• They are created to make money for the owners,
• They can be a sole proprietorship, corporation, partnership, or limited liability company (LLC),
• They are owned by the person or group that started it, and
• They are managed by their owners.

Profits in nonprofit and for-profit businesses

Both kinds of organizations must make some money in order to pay the bills. The money that a nonprofit organization makes is used to pay all the costs of its programs and can be used for employee salaries. Any extra money is used to improve or expand those programs or hire additional workers. In a for-profit business the income is used to pay the costs of operating the business, but any extra income may be paid to the owners.