NonProfit Organization (NPO)
A nonprofit organization (NPO) (also known as a non-business entity) is an organization whose purpose is something other than making a profit. A nonprofit organization is often dedicated to furthering a particular social cause or advocating for a particular point of view. In economic terms, a nonprofit organization uses its surplus revenues to further achieve its purpose or mission, rather than distributing its surplus income to the organization’s shareholders (or equivalents) as profit or dividends. This is known as the non-distribution constraint. The decision to adopt a nonprofit legal structure is one that will often have taxation implications, particularly where the nonprofit seeks income tax exemption, charitable status and so on.
The terms nonprofit and not-for-profit are not consistently differentiated across jurisdictions. In layman’s terms they are usually equivalent in concept, although in various jurisdictions there are accounting and legal differences.
The nonprofit landscape is highly varied, although many people have come to associate NPOs with charitable organizations. Although charities do make up an often high-profile or visible aspect of the sector, there are many other types of nonprofit organization. Overall, they tend to be either member-serving or community-serving. Member-serving organizations include mutual societies, cooperatives, trade unions, credit unions, industry associations, sports clubs, retired serviceman’s clubs and advocacy groups or peak bodies – organizations that benefit a particular group of people, i.e. the members of the organization. Typically, community-serving organizations are focused on providing services to the community in general, either globally or locally: organizations delivering human services programs or projects, aid and development programs, medical research, education and health services, and so on. It could be argued many nonprofits sit across both camps, at least in terms of the impact they make. For example, the grassroots support group that provides a lifeline to those with a particular condition or disease could be deemed to be serving its members (by directly supporting them) and the broader community (through the provision of a service for fellow citizens).