Non-Profit vs. Not-for-Profit: A Full Comparison Guide

Is there a difference between non-profit vs. not-for-profit organizations? You’ve probably heard people use those terms interchangeably, and they sound like the same thing. Despite the misleading names, not-for-profits and non-profits aren’t the same.

In this guide, we’ll explain the fundamental differences between non- and not-for-profits and provide specific examples. You’ll also learn important information about both types, including funding sources, tax exemptions, volunteer compensation, and positive impacts.

What Are the Main Differences Between Non-profit and Not-for-Profit Groups?

At first glance, not-for-profit organizations (NFPOs) and non-profit organizations (NPOs) appear similar. And they are. Both can use volunteers and gather fundraising to progress their cause, and neither pays any financial or material profit to team members or owners.

1. Legal Structure, Oversight, and Governance

A non-profit can have a separate legal entity, but not-for-profits can’t. For example, an NP could become a limited liability company, corporation, trust, or unincorporated association.

Both types of organizations typically have a board of directors. Their main responsibilities are things like general oversights, decision making, long-term strategy development, logistics, and more. Further down in the group are the managers and employees who take care of daily operations.

Paid employees aren’t a part of not-for-profit groups, only volunteers are. However, both paid and unpaid workers may join a non-profit.

2. Day-to-Day Operations and Activities

When comparing a non-profit and not-for-profit, how do their daily workloads and activities differ? Let’s simplify things: Not-for-profits are generally recreational and function more like social clubs. Non-profits run like traditional for-profit businesses, but their profits only go toward the mission or people they help.

However, NFPs have stricter requirements than NPs and may only accept limited membership. Most are relatively small clubs or associations with mutual interests, hobbies, or passions.

A non-profit usually has large activities and fundraisers. The goal is to raise awareness and provide financial support for big-picture political, environmental, economic, or social issues.

3. Ultimate Mission and Purpose

The overall reason for existence is another area where these groups differ. Call it their mission, goal, objectives, or whatever you want — they’re fundamentally different.

Non-profits only exist for the greater good of the public, such as helping those in need, increasing access to clean drinking water, or building schools. Basically, they want to generate enough money to complete the mission at hand while supporting their beneficiaries. Although they operate in the same way as a for-profit business, their fundraising efforts aren’t for bettering the lives of owners or members.

On the other hand, not-for-profits don’t have to help the public. While they can, their missions may also include other objectives, but those goals don’t include earning profits for the owners.

4. Distribution of Profits

Based on the names of both groups, it’s logical to assume that neither makes more money than it spends to operate. But the terms “non-profit” and “not-for-profit” are misleading. Non-profits must generate revenue to keep operating, which is true for almost any organization. The difference is that all that money is purely for furthering the mission.

It’s the same with a not-for-profit. All the members, directors, and officers must use that income to fund the hobbies or activities related to their objectives.

What Are the Sources of Funding for NPs and NFPs? How Do They Earn Money?

Like any regular business, not-for-profits and non-profits must raise money to pay for daily expenses and overhead. But the manner and method of earning are different:

Non-profit income sources include fundraising activities, membership dues, private donations, sponsorships, and grants.

Not-for-profits also earn from membership dues, grants, and fundraising, but their income also comes from sales revenue.

As we’re already talking about money, let’s take a quick detour into accounting. Non-profit organizations have much higher standards as to how they use their money. They’ve got to justify where and how they’re spending their funding. NFP rules are far more lax and don’t require any public reporting or accountability.

Real-life Examples of Non-profit and Not-for-Profit Organizations

Below we’ve outlined real-life examples of both groups so you can better understand how each type works.

Not-for-Profit

• Trade organizations
• Recreational sports teams
• Social clubs
• Professional associations
• Social advocacy groups
• Private and public foundations

Non-profit

The Internal Revenue Service (IRS) officially recognizes over 20 different types of NPOs, although we’re only going to list a few:

• Civil or social welfare leagues
• Labor organizations
• Voluntary employee benefit associations
• Charities
• Private foundations
• Cancer research groups

How Do Tax Exemptions Work for Non-profits and Not-for-Profits?

Do NPs and NFPs have different tax liabilities? IRS tax code subsection 501(c) refers to non-profits and their exemption status. An NPO must meet specific requirements to avoid paying federal taxes. An organization must:

1. Exist and operate solely for scientific, public safety, charitable, or religious purposes
2. Hand over all generated income (not including expenses) to people or groups who are lawful and legitimate charities

NPOs also get to avoid paying any property or sales taxes, although they do pay employee taxes for Medicare and Social Security. The IRS also requires NPOs to file yearly corporate tax returns like for-profit businesses. It’s a way for the IRS to verify that the money the NPO raises isn’t going toward any savings, investments, or profits but to benefit their overall mission.

Individuals who donate to a 501(c)(3) tax-exempt organization can write off the amount on their taxes, but the IRS doesn’t allow tax deductions for NFPO donations.

With NFPOs, the tax liability situation is slightly different, although they can be eligible for certain types of IRS exemptions. For example, an organization could apply for official 501(c)(3) status, but there’s no guarantee of approval.

Another option an NFPO can use to lower its tax obligations is incorporation. Upon successful registration, the NFPO still must comply with its specific state agency and policies about charitable groups.

Are Non-profit and Not-for-Profit the Same as Charitable Organizations?

The purpose of non-profits and not-for-profits sounds similar to that of philanthropic or charitable organizations. But are they the same? Well, no. Think of it like this: Every charity is a non-profit, but not all non-profits are charities.

Let’s break it down even further:

Non-profits only exist to benefit the greater good of the public, such as by improving literacy rates or helping those in need.

Not-for-profits can raise money to support virtually any cause, not just for the general public.

Charities, also known as foundations, strive to improve the quality of life for people and their communities. Most charities benefit religious or church associations, hospitals, medical research labs, and educational organizations.

How Does Each Group Compensate the Volunteers?

Do NPOs, NFPOs, or charities compensate their volunteers? That question can be confusing because the very definition of a volunteer is someone who gives their time freely without receiving any pay.

However, some non-profit volunteers do receive compensation or stipends. Beware, though. Should your NPO pay a volunteer money or valuable items in exchange for their work, the IRS could construe that as a payment and taxable income.

Thankfully, you have a few ways to avoid legal red tape and still show volunteers how much you’re grateful for the time and effort they put in:

• Free parking or transportation
• Discounts on goods or services
• Free room and board on the NPO’s premises
• Educational benefits
• Services that don’t create an additional cost
• Tax-free health and accident insurance
• Gift cards or event tickets

The Numerous Positive Impacts of NPO and NFPOs on Today’s Society

Our world is undeniably contentious, ever-changing, and steeped in uncertainty. Many populations in America struggle to obtain their basic needs — food, water, and shelter — let alone live in a comfortable, spacious house. Non-profits (and some not-for-profits) aim to address the many epidemic-level issues facing America. For example, NPOs and NFPOs:

• Drive growth, understanding, and awareness in the community
• Support economic development, success, and expansion
• Broaden access to different cultures, perspectives, and spirituality
• Improve the quality of life for impoverished populations
• Provide free or low-cost services in the community
• Instill a feeling of hope and promise in people
• Bring attention and awareness to important issues
• Foster a sense of community, family, and pride

The vital assistance many of these organizations provide communities often has far-reaching ripple effects. For example, a recent Johns Hopkins University study demonstrated that in just ten years (from 2007 to 2017), jobs in non-profits rose by 18.6%, which was three times more than for-profit employment growth. In 2016 alone, the non-profit sector was responsible for 5.6% of the country’s GDP, a staggering 1.047.2 trillion dollars.

What Type of Problems Do Both Types of Organizations Face?

Although we just focused on the various dissimilarities between NPOs and NFPOs, they do share some common obstacles:

• Limited access to government funding
• Pressure to show fast, clear-cut results
• Reaching the right audience
• Building awareness for their message
• Finding donors that provide steady funding

Support Your Local Non-profit Organization With Help from Easy Donation Pickup

When considering non-profit vs. not-for-profit organizations, their missions and objectives are the biggest differences. The former only aid the general public, whereas the latter have far more leeway regarding their beneficiaries. Both do important work, but it can help to know the difference should you ever want to get more involved.

Did we inspire you to support your local NPO or NFPO? If so, we hope this article gave you enough information to ensure you are putting your time and money in the right place. But remember: material donations can also go a long way toward helping a good cause.

Call Easy Donation Pickup now to make an appointment, and we’ll haul away your unwanted goods or items for a charitable donation. It’s that easy!

Call now at 855-628-8387 to schedule a pickup with Easy Donation Pickup, or book online right now.