Difference Between A Nonprofit And A For Profit Business

January 16, 2014

There are many similarities between nonprofit organization and for profit businesses. You register both, a non profit and a for profit business, with your state. In this section we’ll outline some of the core differences between the two.

For a nonprofit, you have to show that you are a nonprofit by satisfying a few criteria. After you register your nonprofit with the state, you still have to get a nonprofit status with the IRS because as a nonprofit, one of the biggest benefits you have are some very big tax exemptions.

Another difference between nonprofits and for profit businesses is that some nonprofits can be categorized as charitable trusts. And charitable trusts can be donated to. That is an important nuance because typically, wealthy individuals donate money in order to get tax write-offs. So if a nonprofit is a charitable trust, one of the ways they are likely to raise money is from wealthy individuals who can make donations to them. Additionally, nonprofits are typically eligible for more types of grants and federal funding that for profit businesses can’t get as readily.

The challenge with nonprofits is that they are limited in strategies they can take on as a business because their focus needs to be on helping whatever cause they were established to help. So it is often more difficult for nonprofits to generate revenue through their own means than it would be for businesses that are for profit.

Another difference between nonprofits and for profit businesses is that for profit businesses are designed to distribute the profits to the company, or to its shareholders (the owners). In the case of non profits, while they are able to generate their own revenue, that revenue must go to supporting the longevity and sustainability of the nonprofit itself. Of course, that can be the same thing as paying the founders or employees of the nonprofit, which then becomes a very similar scenario as a for profit paying out extra revenue to its owners. So some of the differences between a nonprofit and for profit businesses can be a bit blurred at times.

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