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Non-Profit vs Not For Profit

Do you know the difference between Non-Profit companies and Not-For-Profit companies? Many people use the term interchangeably, however, there are a few distinct differences between the two...

There are three questions that you can ask yourself when trying to determine whether you’re working with a non-profit business or a not for profit business:

~What kind of activities take place?

Non-profits usually carry out larger, more organized activities that focus on environmental, social, political, or economic missions. For example, American Red Cross, United Nations Children’s Fund (UNICEF), and the American Heart Association are non-profits.

Not-for-profits often carry out smaller group activities that focus on sports, hobbies, or special interests. Examples include amateur sports leagues, clubs, or associations.

~Does the organization have a charter?

Non-profits classify as non-corporate associations that typically have a national or state charter to provide members with financial and legal protection separate from the legal entity of the organization. Furthermore, non-profits commonly function as official bodies with a charter and governing board of representatives.

Most often, not-for-profits are non-chartered organizations. Furthermore, not-for-profits commonly bring together a group of people with similar interests without forming a legal entity or governing board.

~Does the organization qualify for tax-exempt status?

Non-profits normally qualify for tax-exempt status in the United States. Since non-profits are organized like a business, they expect to earn a profit. As a result of the profit, they both support their mission and keep operations going. This profit does not support any individual member of the organization.

Not-for-profits usually cannot qualify for tax-exempt status in the United States. Since the IRS clearly specifies that organizations for smaller group activities that focus on sports, hobbies, or special interests do not qualify as a business entity, a not-for-profit cannot qualify for tax-exempt status.

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