A nonprofit organization, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is dedicated to furthering a particular social cause or advocating for a shared point of view. In economic terms, it is an organization that uses its surplus of the revenues to further achieve its ultimate objective, rather than distributing its income to the organization's shareholders, leaders, or members. Nonprofits are tax exempt or charitable, meaning they do not pay income tax on the money that they receive for their organization. They can operate in religious, scientific, research, or educational settings.|
According to the National Center for Charitable Statistics (NCCS), there are more than 1.5 million nonprofit organizations registered in the United States, including public charities, private foundations, and other nonprofit organizations. Contributions to different charities reached $358.38 billion in 2014, which was an increase of 7.1% from the 2013 estimates. Out of these contributions, religious organizations received 32%, educational institutions received 15%, and human service organizations received 12%. Between September 2010 and September 2014, approximately 25.3% of Americans over the age of 16 volunteered for a nonprofit.
NPO's challenges primarily stem from lack of funding. Funding can either come from within the organization, fundraising, donations, or from the federal government. When cutbacks are made from the federal government, the organization suffers from devolution. This term describes when there is a shift of responsibility from a central government to a local, subnational authority. The shift is due to the loss of funds; therefore, resulting in changes of responsibilities in running programs. Because of this frequent challenge, management must be innovative and effective in the pursuit of success.
In the United States, both nonprofits and not-for-profits are tax exempt under IRS publication 557. Although they are both tax-exempt, each organization faces different tax code requirements. A nonprofit is tax exempt under 501(c)(3) requirements if it is either a religious, charitable, or educational based organizations that do not influence state and federal legislation. Not-for-profits are tax exempt under 501(c)(7) requirements if they are an organization for pleasure, recreation or another nonprofit purpose.
A common misconception about nonprofits is that they are run completely by volunteers. Most nonprofits have staff that work for the company, possibly using volunteers to perform the nonprofit's services under the direction of the paid staff. Nonprofits must be careful to balance the salaries paid to staff against the money paid to provide services to the nonprofit's beneficiaries. Organizations whose salary expenses are too high relative to their program expenses may face regulatory scrutiny.
While affiliations will not affect a legal status, they may be taken into consideration by legal proceedings as an indication of purpose. Most countries have laws that regulate the establishment and management of NPOs and that require compliance with corporate governance regimes. Most larger organizations are required to publish their financial reports detailing their income and expenditure publicly.
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. A nonprofit may have a delegate structure to allow for the representation of groups or corporations as members. Alternatively, it may be a non-membership organization and the board of directors may elect its own successors.
In many countries, nonprofits may apply for tax exempt status, so that the organization itself may be exempt from income tax and other taxes. In the United States, to be exempt from federal income taxes, the organization must meet the requirements set forth in the Internal Revenue Code. Granting nonprofit status is done by the state, while applying for tax-exempt designation (such as 501(c)(3), the charitable tax-exemption) is granted by the federal government in the form of the IRS. ... This means that not all nonprofits are eligible to be tax-exempt. NPOs use the model of a double bottom line in that furthering their cause is more important than making a profit, though both are needed to ensure the organization's sustainability.
Canada allows nonprofit organizations to be incorporated or unincorporated. They may incorporate either federally, under Part II of the Canada Business Corporations Act, or under provincial legislation. Many of the governing Acts for Canadian nonprofits date to the early 1900s, meaning that nonprofit legislation has not kept pace with legislation that governs for-profit corporations, particularly with regards to corporate governance. Federal, and in some provinces (including Ontario), incorporation is by way of Letters Patent, and any change to the Letters Patent (even a simple name change) requires formal approval by the appropriate government, as do bylaw changes. Other provinces (including Alberta) permit incorporation as of right, by the filing of Articles of Incorporation or Articles of Association.
A nonprofit can be created by two people to accomplish a common goal. The association can have industrial or commercial activities or both, but the members cannot make any profit from the activities. Thereby, worker's unions and political parties can be organized from this law.
In Japan, an NPO is any citizen's group that serves the public interest and does not produce a profit for its members. NPOs are given corporate status to assist them in conducting business transactions. As at February 2011, there were 41,600 NPOs in Japan. Two hundred NPOs were given tax-deductible status by the government, which meant that only contributions to those organizations were tax deductible for the contributors.