You’ve most likely heard the terms “charity”, “non-profit”, and even “not-for-profit” used for associations and organizations that support social, environmental, and sometimes, political causes. But all three terms refer to different kinds of entities.
However, the focus of this article is to explain what non-profit associations do, their essential services and how they differ from charities.
What is a Non-Profit Organisation?
A non-profit or not-for-profit organization is a tax-exempt entity that is organized to achieve mutual or public benefits that do not include generating profits for members of the board, owners, or investors.
Such an organization can be as informal as soup kitchens, labor unions, self-help groups, and local churches. They can be formed for religious, educational, art, or cultural purposes. Some of the more popular not-for-profit organizations include Red Cross, United Way, and Salvation Army.
Contrary to popular opinion, an organization in this category can indeed generate profits. However, any profit that is generated for non profits must be retained and used to support the goals of the organization. Such profits are used for the expenses, programs, and operations of the organization.
Shareholders and the trustees do not enjoy financial benefits from the association.
Non-profits may differ in size, structure, and purpose, but their characteristics are similar. Some of the characteristics of non-profit organizations are:
- They are organized and typically have a form of structure.
- They are private (not related to any government entity).
- Self-governing.
- Profits are not distributed.
- They are voluntary.
Classification of Non-profits
Non-profits may differ based on legal privileges or field of interest.
In terms of legal form, non-profit organizations may fall into one of the two main categories: 501(c)(3) or 501(c)(4). 501(c)(3)s are referred to as public benefit organizations while 501(c)(4)s are referred to as social welfare organizations. Many civic organizations and advocacy groups fall under the umbrella of social welfare organizations.
Even though both 501(c)s are exempt from Federal tax deductions, the IRS stipulates that donations made to 501(c)(4) organizations are eligible for tax deductions. 501(c)(4)s are also eligible for foundation or government grants and may be eligible for tax exemptions at the state or local level. Click here to learn more about tax exemptions for this class of organizations.
In terms of interest, non-profits can be grouped into one of the following categories:
- Arts
- Education
- Culture and Humanities
- Health
- International Foreign Affairs
- Public and Societal Benefit
- Human Service
- Religion
- Mutual Benefit
- Unclassified
Non-profit vs Not-for-profit Organizations
Non-profit and Not-for-profit are two terms that are often used interchangeably. However, they each refer to two distinct types of organizations.
One major difference between them is that while non-profit Organisations (NPO) need to offer some form of social benefit, Not-for-profit organizations (NFPO) don’t need to offer any kind of social benefit. They may simply exist just to serve their members instead of the larger society.
Essential Services of a Non-profit Organization
Now that you know what NPOs are, their different classifications, and how they differ from other closely related organizations, the next question is ‘what do non-profits do?’
For starters, the role and functions of non-profits vary based on the organization’s goal. So, there’s no unified set of roles that all NPOs fulfill.
For instance, the American Heart Association (https://www.heart.org/) generates revenue and raises funds for educational and medical research on the prevention of strokes and heart diseases. United Way, on the other hand, provides different people with the resources and materials that they need to enjoy productive lives.
However, irrespective of the primary and unique roles of an NPO, the general goal is to achieve a greater good.
With that being said, there are a few common activities that non-profits carry out that are essential to achieving their primary goal(s). These essential services include:
- Fundraising events to support the good that they promote. Many NPOs plan fundraisers to get sponsorship. So, before the event, the organizers will put out marketing campaigns and position the event to attract potential sponsors. Want to learn more about how non-profit organizations organize fundraisers and get sponsors? Click https://www.thebalancesmb.com/how-to-get-corporate-sponsors-for-your-event-4056533 to learn more.
- Linking people and communities together. This often involves building strong groups and member associations that share a common goal or purpose.
- Sensitizing and educating existing and potential donors. A lot of communication is often required to manage stakeholders and sponsors about the association’s goal. Sponsors receive regular updates about the activities and achievements of the organizations.
- Initiating and spearheading research activities. Depending on the field of interest, NPOs tend to conduct a lot of research and this often requires funds. These activities are funded with monies from fundraisers and donations from sponsors.
- Raising awareness. For many non-profits, public awareness is a key ingredient to achieving their goal. The more people know about it, the higher the chances of success.
- Identifying specific public needs that relate to the association’s objective.
All these essential services are run by donations received from donors. Profits are then generated from these donations, membership fees, and the proceeds from fundraisers.
However, recall that the profits are never paid to shareholders and trustees of the association.
Looking for ways to build a community for your NPO? There are great articles and guides on how to go about it. An example like “The five steps to community building” is a great piece that shares the steps for building a community for your non-profit.
Conclusion
A non-profit association is an organization that has received tax-exempt status from the IRS (Internal Revenue Service) because it promotes a social cause and provides mutual or public benefit.
Unlike not-for-profits that don’t necessarily have to further a common social good, non-profits have to support a social cause. NPOs are also classified based on their specific interest and their legal status. The legal status is what differentiates non-profits from charities. So, while all charities are non-profits, not all non-profits are charities.
Finally, irrespective of the goal of an NPO, there are a few essential roles that non-profits tend to fulfill. They include educating donors, public sensitization, fundraising, community building, and spearheading research activities.
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