Definition of Nonprofits vs. For Profits

by Anna Assad

Nonprofit and for-profit organizations are separated by more than just revenue goals. For-profit organizations are run for the benefit of owners or shareholders, and the main goal is to make money. Nonprofits are run to benefit society or help a specific cause or group of people while covering operating costs.

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Finances

Revenue from a for-profit business is distributed among the owners or other parties with ownership interests, such as shareholders. Some of the revenues are reinvested into the business to cover operating costs and expansion, but the main goal is to distribute profits to those holding ownership interests. Similarly, a nonprofit might generate money, and its revenue is used to cover expenses first, but excess profit goes back into the nonprofit organization to fund its services.

Services

Nonprofit and for-profit corporations provide different types of services. Nonprofits focus on helping clients in the organization's mission area. For example, a nonprofit dedicated to helping mothers with cancer may provide services relating to that mission, such as counseling and financial support to mothers who can't work because of cancer treatment. Nonprofits stay focused on providing services that meet the needs of clients, and straying too far from the organization's mission may result in a loss of funding or tax-exempt status. A for-profit corporation, on the other hand, focuses on providing products or services to customers in the most cost-effective way. The organization may branch out into several product and service areas to expand reach and maximize profit.

Taxation

For-profit entities are taxed on the profits made, although a profitable business may use legal ways to lessen its tax obligations. Conversely, nonprofits may qualify for tax-exempt status with the state and federal government. A nonprofit must apply to the Internal Revenue Service for tax-exempt recognition and comply with all filing requirements. State requirements for nonprofit tax exemptions vary, and not all states offer exemptions.

Dissolution

When a for-profit business dissolves, the assets usually belong to the owners or shareholders. The owners or other responsible parties follow the legal procedures to dissolve and distribute the company’s assets remaining after payment of debts and other liabilities. A nonprofit must follow similar procedures to wind down its operation, but since a nonprofit doesn't have owners or shareholders, its assets are usually distributed to other tax-exempt nonprofits.