A nonprofit organization (NPO), also spelled non-profit organisation in British English and known as a non-business entity, nonprofit institution, not-for-profit organization (NFPO),Cabinet Office, Not-for-Profit Advice Services in England, Assets.publishing.service.gov.uk, accessed on 3 March 2025 or simply nonprofit, is a non-governmental entity that operates for a collective, public, or social benefit, rather than to generate profit for private owners. Nonprofit organizations are subject to a non-distribution constraint, meaning that any revenue exceeding expenses must be used to further the organization’s purpose.
Depending on local laws, nonprofits may include charities, political organizations, schools, hospitals, business associations, churches, foundations, social clubs, and cooperatives. In some countries nonprofit entities can obtain tax-exempt status and may also qualify to receive tax-deductible contributions; however, an organization can still be a nonprofit without having tax exemption. Key aspects of nonprofit organizations are their ability to fulfill their mission with respect to accountability, integrity, 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. Theoretically, 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. Presumably, the more a nonprofit focuses on their mission, the more public confidence they will gain. This may result in more money for the organization.
Fundraising
Nonprofit organizations 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, merchandise sales, and investments.Sacristán López de los Mozos, I., Rodríguez Duarte, A., & Rodríguez Ruiz, Ó. (2016). Resource dependence in non-profit organizations: is it harder to fundraise if you diversify your revenue structure?. Voluntas: International Journal of Voluntary & Nonprofit Organizations, 27(6), 2641–2665. With a significant increase in NPOs between 2000 and 2023 (approximately 1.5 million registered organizations in the United States alone) some 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.
Tax exemption In some countries nonprofits may apply for tax-exempt status. Tax exemptions have been justified by community benefit of some organizations. Studies argue that the community benefits of non-profits have been overestimated and can be negative compared to for-profit organizations when including the cost of the tax exemptions and costs due to financial mismanagement. The discretionary process of tax exemptions application can result in corruption or fraud.
In the United States, to be exempt from federal income taxes, the organization must meet the requirements set forth in the Internal Revenue Code (IRC). Granting nonprofit status is done by the state, while granting tax-exempt designation (such as IRC 501(c)) is granted by the federal government via the IRS. This means that not all nonprofits are eligible to be tax-exempt. For example, employees of non-profit organizations pay taxes from their salaries, which they receive according to the laws of the country. NPOs use the model of a double bottom line in that furthering their cause is more important than making a profit, though both are needed to ensure the organization's sustainability.The Nonprofit Handbook: Everything You Need to Know to Start and Run Your Nonprofit Organization (Paperback), Gary M. Grobman, White Hat Communications, 2008.
An advantage of nonprofits registered in the UK is that they benefit from some reliefs and exemptions. Charities and nonprofits are exempt from Corporation Tax as well as the trustees being exempt from Income Tax. There may also be tax relief available for charitable giving, via Gift Aid, monetary donations, and legacies.
Management Most nonprofits have staff that work for the organization, 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.
Some have the misconception that nonprofit organizations may not make a profit. Although the goal of nonprofits is not specifically to maximize profits, they still have to operate as a fiscally responsible business. They must manage their income (grants, donations, and income from services) and expenses so as to remain a fiscally viable entity. Nonprofits have the responsibility of focusing on being professional and financially responsible, replacing self-interest and profit motive with mission motive.Anheier, K. H. (2005). Nonprofit Organizations: An Introduction, New York, NY: Routledge.
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, some nonprofits have modeled their business management and mission, shifting their reason of existing 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. Nonprofit organizations need to motivate staff, maintain and communicate a vision, set a strategic direction, manage change effectively, and provide a safe working environment for employees, volunteers, and visitors. These issues are comparable to those affecting a commercial business but factors which place a nonprofit organization at risk have been identified such as lack of direction or clear purpose, over-centralized management and decision-making, and lack of engagement with staff.National Council for Voluntary Organisations (NCVO), Workforce Wheel: An outcomes tool to help you support and measure change in people management, first published (pilot edition) in June 2008, accessed online on 3 March 2025.
Political partisanship has been observed among the leadership of some nonprofit organizations.
Founder's syndrome
Founder's syndrome is an issue some organizations experience as they expand. Dynamic founders, who have a strong vision of how to operate the project, try to retain control of the organization, even as new employees or volunteers want to expand the project's scope or change policy.
Functions Some nonprofit organizations provide public goods that are undersupplied by government.Weisbrod, Burton, 1977. The Voluntary Nonprofit Sector: An Economic Analysis, Lexington Books, New York. 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 US 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 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 though there are often significant differences. Both non-profit and for-profit corporate entities must have board members or trustees who owe the organization a fiduciary duty 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, articles of incorporation, 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.
There is an important distinction in the US between and (NFPOs); while an NFPO does not profit its owners, and money goes into running the organization, it is not required to operate for the public good. An example is a sports club, whose purpose is its members' enjoyment. The names used and precise regulations vary from one jurisdiction to another. Nonprofits can have members, but many do not. The nonprofit may also be a trust or association of members. The organization may be controlled by its members who elect the board of directors, board of governors, or board of trustees. A nonprofit may have a delegate structure to allow for the representation of groups or corporations as members. Alternatively, it may be a non-membership organization and the board of directors may elect its own successors.