Nonprofit Organizations

A nonprofit, or not-for-profit, organization is one that does not aim to make a profit that will go back to its owners or shareholders. Instead, a nonprofit organization uses funds that it makes to pursue its aims and objectives. The main types of nonprofit organizations are charities, trade unions, trade associations and public arts organizations. Governments and government organizations can also be classified as nonprofit organizations under the above definitions, but they are considered a different type of organization and are treated differently from other nonprofit organizations. The term nonprofit can also include foundations that are funds that distribute money, either from the capital or the interest of the fund, to other organizations to help their activities. The largest of these funds is the Bill and Melinda Gates Foundation, which has an endowment of more than $38 billion.

The main difference between for-profit and nonprofit organizations can often be the ownership and the way funds are used. For-profit organizations have owners who benefit financially from the gains and surpluses that their organization has made. Nonprofit organizations do not have private owners but normally have a board made up of leaders who decide the best direction for the nonprofit organization to take but do not benefit in a financial way from the outcomes of their decisions. Any profit, or technically a surplus, that a nonprofit organization makes in a financial period must be reinvested into the organization, used to pay off previous debts or held in reserve to safeguard against future shortfalls. This money cannot be used for the financial benefit of the organization's board. Nonprofit organizations also generally receive some form of tax benefit from the government, including not having to pay sales tax, property taxes or federal income taxes; in addition, their donors receive tax benefits to increase the value of their income.

Nonprofit organizations are often run by a mixture of professionals, who can be highly paid, and volunteers. The professionals run the main office or branches of the nonprofit organization and dictate the direction of the organization whereas volunteers usually run the activities in the field. Seats on the board of nonprofit organizations are usually voluntary, and the chairman is nearly almost always a volunteer. Nonprofit organizations can also have trustees and patrons who are high-profile within their target community and honorary, unpaid positions to recognize those who raise a certain amount of money for the organization's cause.

One of the main issues faced by nonprofit organizations is the ability to raise funds to increase their operations. Because most, but not all, nonprofit organizations rely on external sources of financing to fund their activities, there is a certain level of unpredictability as to whether these sources of funding will continue or not. Therefore, they have to face uncertainty whether they will be able to retain staff in new positions, be able to afford capital investment for the long term and be able to start new programs. Other problems that may affect nonprofit organizations include "founder's syndrome," when a founder of a successful charity is unable to turn over long-term operation of the organization to the professional staff when they are trying to manage the charity in a different way. This can often lead to tension, high turnover rates and damaging internal politics.

Most countries give nonprofit organizations special tax privileges that help with funding. However, to get this funding, nonprofit organizations need to fulfill certain criteria to maintain this status. This includes making sure they create a set of audited accounts available to the public on request, although churches are exempt from this requirement. Nonprofit organizations are also required to have trustees and board members who are duty bound to provide the organization with their best advice.

Selected full-text books and articles on this topic

The Nature of the Nonprofit Sector
J. Steven Ott.
Westview Press, 2001
Understanding Nonprofit Organizations: Governance, Leadership, and Management
J. Steven Ott.
Westview Press, 2001
Nonprofit Boards That Work: The End of One-Size-Fits-All Governance
Maureen K. Robinson.
Wiley, 2001
A Corporate Form of Freedom: The Emergence of the Nonprofit Sector
Norman I. Silber.
Westview Press, 2000
Nonprofits in Urban America
Richard C. Hula; Cynthia Jackson-Elmoore.
Quorum Books, 2000
Nonprofit Nation: A New Look at the Third America
Michael O'Neill.
Jossey-Bass, 2002
Managing to Survive: Managerial Practice in Not-For-Profit Organisations
Alun C. Jackson; Frances Donovan.
Allen & Unwin, 1999
Improving Leadership in Nonprofit Organizations
Ronald E. Riggio; Sarah Smith Orr.
Jossey-Bass, 2004
Strategic Management for Voluntary Nonprofit Organizations
Roger Courtney.
Routledge, 2002
Effective Fund-Raising Management
Kathleen S. Kelly.
Lawrence Erlbaum Associates, 1998
Starting and Managing a Nonprofit Organization: A Legal Guide
Bruce R. Hopkins.
Wiley, 2005
The Complete Guide to Nonprofit Management
Robert H. Wilbur.
Wiley, 2000
The Charitable Tax Exemption
John D. Colombo; Mark A. Hall.
Westview Press, 1995
Nonprofit Management Education: U.S. and World Perspectives
Michael O'Neill; Kathleen Fletcher.
Praeger Publishers, 1998
Cost-Effectiveness in the Nonprofit Sector: Methods and Examples from Leading Organizations
Gerald L. Schmaedick.
Quorum Books, 1993
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