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A nonprofit organization (abbreviated "NPO", or "non-profit" or "not-for-profit") is an organization whose primary objective is to support an issue or matter of private interest or public concern for non-commercial purposes. Nonprofits may be involved in an innumerable range of areas relating to the arts, charities, education, health care,politics, religion, research, sports or some other endeavor.

For-profit distinctionEdit

Most experts consider the legal and ethical restrictions on the distribution of profits to owners or shareholders as what fundamentally distinguishes nonprofits from commercial enterprises. The use of the term 'not-for-profit' rather than 'nonprofit' has been debated within the field. While there are definitive preferences for one term or the other there is no broadly considered consensus. [1]


Nonprofits generally do not operate to generate profit, a characteristic widely considered to be defining of such organizations. However, a nonprofit organization may accept, hold and disburse money and other things of value. It may also legally and ethically trade at a profit. The extent to which it can generate income may be constrained, or the use of those profits may be restricted. Nonprofits therefore are typically funded by donations from the private or public sector, and often have tax exempt status. Private donations may sometimes be tax deductible.

Additionally, a nonprofit organization may have members as opposed to shareholders.

Nature and goalsEdit

Nonprofit organizations often are charities or service organizations; they may be organized as a not-for-profit corporation or as a trust, a cooperative, or they may be purely informal. Sometimes they are also called foundations, or endowments that have large stock funds. Most foundations give out grants to other nonprofit organizations, or fellowships to individuals. However, the name foundations may be used by any not-for-profit corporation -- even volunteer organizations or grass roots groups. A nonprofit may be a very loosely organized group, such as a block association or a trade union, or it may be a complex structure such as a university, hospital, documentary film production company or educational book publisher.

In many countries applying Germanic or Nordic law (e.g. Germany, Sweden, Finland), nonprofit organizations typically are voluntary associations, although some have a corporate structure (e.g. housing cooperatives). A voluntary association usually is founded upon a principle of one person–-one vote. A large, nation-wide organization usually is organized as a league: the local level has a town- or county-level association with natural person membership, these associations being members of the national association. This is perceived to give the local level the maximal autonomy, while it also protects the organization from the financial blunders of any single association. The organization of such leagues (e.g. trade union or a party) may be extremely complex. Often there are separate laws regulating usual, "idealist" associations (anything from a sports club to a trade union), political parties and religious denominations, restricting each type of organization to its chosen field.

Legal aspectsEdit

Most countries have laws which regulate the establishment and management of nonprofit organizations, and which require compliance with corporate governance regimes. Most larger organizations are required to publish their financial reports detailing their income and expenditure for the public. In many aspects they are similar to business entities though there are often significant differences. Both nonprofit and for-profit entities must have board members, steering committee members, or trustees who owe the organization a fiduciary duty of loyalty and trust. A notable exception to this involves churches, which are often not required to disclose finances to anyone, not even its own members if the leadership chooses.

Formation and structureEdit

In the United States, nonprofit organizations are normally formed by incorporating in the state in which they expect to do business. The act of incorporating creates a legal entity enabling the organization to be treated as a corporation under law and to enter into business dealings, form contracts, and own property as any other individual or for-profit corporation may do.

Nonprofits can have members but many do not. The nonprofit may also be a trust or association of members. The organization may be controlled by its members who elect the Board of Directors, Board of Governors or Board of Trustees. Nonprofits may have a delegate structure to allow for the representation of groups or corporations as members. Alternately, it may be a non-membership organization and the board of directors may elect its own successors.

A primary difference between a nonprofit and a for-profit corporation is that a nonprofit does not issue stock or pay dividends, (for example, The Code of the Commonwealth of Virginia includes the Non-Stock Corporation Act that is used to incorporate nonprofit entities) and may not enrich its directors. However, like for-profit corporations, nonprofits may still have employees and can compensate their directors within reasonable bounds.

Tax exemptionEdit

In many countries, nonprofits may apply for tax exempt status, so that the organization itself may be exempt from income tax and other taxes, and (in some cases) so that financial donors may claim back any income tax paid on donations, or deduct from their own tax liability the amount of the donation.

Only limited types of tax exempt, non-profit organizations offer to donors the advantage of deductions for the amount donated.

For a United States analysis of this issue, see 501(c).

In the United States, after a recognized type of legal entity has been formed at the state level, it is customary for the nonprofit organization to seek tax exempt status with respect to its income tax obligations. That is typically done by applying to the Internal Revenue Service (IRS), although statutory exemptions exist for limited types of nonprofit organizations. The IRS, after reviewing the application to ensure the organization meets the conditions to be recognized as a tax exempt organization (such as the purpose, limitations on spending, and internal safeguards for a charity [1]), may issue an authorization letter to the nonprofit granting it tax exempt status for income tax payment, filing, and deductibility purposes. The exemption does not apply to other Federal taxes such as employment taxes. Additionally, a tax-exempt organization must pay federal tax on income that is unrelated to their exempt purpose.[2] Failure to maintain operations in conformity to the laws may result in an organization losing its tax exempt status.

Also in the United States, individual states and localities offer nonprofits exemptions from other taxes such as sales tax or property tax. Federal tax-exempt status does not guarantee exemption from state and local taxes. These exemptions generally have separate application processes and their requirements may differ from the IRS requirements. Furthermore, even a tax exempt organization may be required to file annual financial reports (IRS Form 990) at the state and federal level.

Religious Entities in U.S.Edit

Because the First Amendment guarantees freedom of religion, religious non-profit entities like churches are subject to less rigorous federal filing and reporting requirements than many other tax-exempt organizations.[3] Depending on the state in which they are located, they may also be exempt from some of the inspections or regulations governing non-religious groups performing the same services.[2]

CanadaEdit

In Canada, nonprofit organizations which take the form of charities must generally be registered with the Canada Revenue Agency. Other organizations which are classified as nonprofit organizations in Canada under paragraph 149(1)(l) of the Income Tax Act, such as clubs, societies or associations that are organized and operated exclusively for social welfare, civic improvement, pleasure, recreation or for any other purpose except profit, are subject to separate regulations and are not regarded as charities in the technical sense.

United KingdomEdit

In England and Wales, nonprofit organizations which take the form of charities must generally be registered with the Charity Commission. In Scotland the Office of the Scottish Charity Regulator serves the same function. Other organizations which are classified as nonprofit organizations in the U.S., such as trade unions, are subject to separate regulations, and are not regarded as charities in the technical sense.

Issues faced by nonprofitsEdit

Capacity building is an ongoing problem faced by nonprofits that rely on external funding to maintain their operations, largely because nonprofit organizations have little control over their source(s) of revenue. Increasingly in the United States, many nonprofits rely on government funds to support their operations, often through grants, contracts, or customer-sided subsidies, such as vouchers or tax credits. Some nonprofits may also rely primarily on support from charitable foundations and donations. Changes in these sources of revenue may influence the reliability or predictability with which the organization can hire and retain staff, sustain facilities, or create programs. Increasingly, there are few sources of revenue that allow nonprofits to develop their organizational capacities.[citation needed]Founder's syndrome is an issue organizations face as they grow. Dynamic founders with a strong vision of how to operate the project try to retain control over the organization, even as new volunteers want to expand the project's scope and try new things.

In 2006, the Nonprofit Congress was launched to bring nonprofit organizations together to tackle the top issues that they all face. Through the launch of a Declaration for America's Nonprofits, over 100 town hall meetings across the US, and a National Meeting of delegates from across the country, three top priorities for the sector were identified and ratified. These top priorities are Advocacy and Grassroots Community Activities, Nonprofit Organizational Effectiveness focusing on Accountability and Best Practices and Leadership, and Public Awareness and Support of the Sector. State delegations have formed action plans and will continue work to address these priorities moving forward.

ExamplesEdit

The largest nonprofit organization in the United States (and the world) is the Bill and Melinda Gates Foundation, which has an endowment of approximately $60 billion ($27 billion from the Gateses and $30 billion from Warren Buffett in Spring 2006). The second largest is the Howard Hughes Medical Institute, which has an endowment of approximately $14.8 billion. Elsewhere in the world, the largest nonprofit organization is probably the British Wellcome Trust, which is a "charity" in British usage. Note that this assessment excludes universities, at least a few of which have assets in the tens of billions of dollars.

Some nonprofits which are particularly well known, often for the charitable or social nature of their activities conducted over a long period of time, include Amnesty International, the Better Business Bureau, Carnegie Corporation of New York, the Red Cross and Red Crescent organizations, UNESCO, IEEE and WWF.

However, there are also millions of smaller nonprofit organizations that provide social services or the arts to people throughout the world. There are more than 1.6 million nonprofits in the United States alone. For more see Wikipedia articles on non-profit organizations

On the InternetEdit

Many nonprofit organizations use the .org top-level domain when selecting a domain name to differentiate themselves from more commercially focused entities which typically use the .com space. In the traditional domain categories as noted in RFC 1591, .org is for "organizations that didn't fit anywhere else" in the naming system, which implies that it is the proper category for noncommercial organizations if they are not governmental, educational, or one of the other types with a specific TLD. It is not specifically designated for charitable organizations or any specific organizational or tax-law status, however; it encompasses anything that does not fall into another category. Currently, no restrictions are enforced on registration of .com or .org, so you can find organizations of all sorts in either of these domains, as well as other top-level domains including newer, more-specific ones which may fit particular sorts of organizations such as .museum for museums. Organizations might also register under the appropriate country code top-level domain for their country.

Organizations with local, regional, or national chapters might give them subdomain addresses in a hierarchical structure, such as florida.example.org for the Florida chapter, and miami.florida.example.org for the Miami group within the Florida chapter. However, in some cases local chapters register separate domains such as miamiexample.org, which can produce inconsistency in the naming structure; if they do not coordinate their naming, another chapter might get an inconsistent name such as example-fortlauderdale.org.

See alsoEdit

LawsEdit

External linksEdit

FootnotesEdit

  1. includeonly>Alvarado, Elliott I.. "Nonprofit or Not-for-Profit--Which Are You?", Nonprofit World, November/December 2000, pp. 6-7.
  2. includeonly>Henriques, Diana B.. "Religion Trumps Regulation As Legal Exemptions Grow", NY Times, 8 October 2006, pp. A1.
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