What is Non-Profit Organization?

What is Non-Profit Organization?

A non-profit organization also known as a nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in contrast with an entity that operates as a business aiming to generate a profit for its owners. A nonprofit is subject to the non-distribution constraint: any revenues that exceed expenses must be committed to the organization’s purpose, not taken by private parties. A wide array of organizations are nonprofit, including most political organizations, schools, business associations, churches, social clubs, and consumer cooperatives.

Non-Profit organizations are tax-exempt, meaning that they do not pay income tax on the income that they receive. The revenues earned by a non-profit organization are mainly from donations from individuals and corporate organizations, as well as from fundraising activities.

The donations are tax-deductible for the individuals or corporations that contribute, and the organization is not required to pay taxes on the monies. NPOs are accountable to the donors, volunteers, founders, and the community, and the projects they undertake help build public confidence in the organization.

Difference Between Profit and Non-Profit Organization

Comparison Profit Organization Non-Profit Organization
Meaning A legal entity, which operates for earning profit for the owner, is known as a For-profit or Profit organization. A non-profit organization is a legal entity, which operates for serving society as a whole.
Motive Profit motive Service Motive
Form of organization Sole proprietorship, Partnership firm, or company Club, Trust, Public hospitals, society, etc.
Management Sole proprietor, partners, or directors, as the case may be. Trustees, committees, or governing bodies.
Source of revenue Sale of goods and services. The donation, subscription, membership fee, etc.
Commenced through Capital contributed by the owners. Funds from donation, subscription, government grant, and so on.
Financial Statement Income statement, Balance Sheet, and Cash flow statement Receipt & Payment A/c, Income & Expenditure A/c, and Balance Sheet.
Money earned over and above Profit is transferred to a capital account. Surplus is transferred to the capital fund.