Difference between Nonprofit and For-profit Organizations

February 13, 2017 by Editorial Team

Nonprofits and for-profits are different types of companies you could work for, intern for, volunteer in or even start for yourself. But do you understand the difference between them? You might say that is why you have an accountant, but knowing how to tell an NGO (or nonprofit) apart from a regular for-profit firm is pretty important. Here is why.

Descriptions

A nonprofit organization is one whose purpose is not that of making a profit through its activity. They usually take on a social cause for which they raise money from donations and fundraisers.

The internal form of organization can differ depending on its financial resources. For example, a local dog shelter can have both paid workers as well as volunteers. Types of nonprofit organizations include those for trade associations, animal protection, human rights, religious organizations, sports organizations and other types of private foundations.

A for-profit organization is one whose purpose is that of generating income through its activity. The income is then shared between owners, investors and employees. Also, for-profit organizations are liable for what they do with the income and they must pay taxes, according to their status.

As far as jobs are concerned, these types of organization employ a number of people and they have a clearly defined internal structure and procedures.

Comparison

The main difference between the nonprofit and for-profit organizations consists in the way in which the income is obtained and used. First of all, the nonprofit organization depends on donations it obtains from people who believe in the same cause. A for-profit organization, on the other hand, will obtain its profit from selling a product or a service. Furthermore, the income generated by the nonprofit organization must be used in work for the cause they represent. A for-profit organization can divide its profit between its investors, owners and employees.

Tax-wise, a nonprofit is exempt from taxes, while a for-profit organization is not. However, both need to account for how they spend the money they earn. The nonprofit organization must show that it uses the money for the cause it represents, while the for-profit organization must account for its income for proper taxation.

A nonprofit organization mainly relies on the work of volunteers, while some of them can afford to pay a minimum number of employees. On the other hand, a for-profit organization has paid employees.

Comparison Chart

Nonprofit OrganizationFor-profit Organization
Its income comes from donationsIts income comes from selling products and services
Has volunteers and a minimum of paid employeesHas paid employees
Its income must be used for the social cause it representsIts main purpose is the generation of profit
Does not pay income taxesMust pay income taxes