A nonprofit organization (abbreviated "NPO", also "non-profit" or "not-for-profit") is a legally constituted organization whose primary objective is to support or to actively engage in activities of public or private interest without any commercial or monetary profit purposes. NPOs are active in a wide range of areas, including the environment, humanitarian aid, animal protection, education, the arts, social issues, charities, early childhood education, health care, politics, religion, research, sports or other endeavors.
For-profit distinction
Most experts consider the legal and ethical restrictions on the distribution of profits to owners or shareholders as what fundamentally distinguishes NPOs from commercial enterprises. The use of the term "not-for-profit" rather than "non-profit" has been debated within the field. While there are definitive preferences for one term or the other, there is no broad consensus. [1]
NPOs generally do not operate to generate profit, a characteristic widely considered to be defining of such organizations. However, an NPO may accept, hold and disburse money and other things of value. It may also legally and ethically trade at a profit or hold investments, usually restricted to use any funds resulting from such commercial enterprises, solely and exclusively for attaining the organization's aims. The extent to which it can generate income may be constrained in amount, methods or both, and the use of those profits may be restricted not only in purpose but in proportions regarding self-maintenance and achievement of purpose. NPOs therefore are typically funded by donations from the private, public sector, or both. NPOs can attain tax exempt status but such status is not inherent to its formation and must be specifically requested to the tax supervising authority. Donations may sometimes be tax deductible.
"Non-profits" are operated by either volunteers, paid staff or a combination of both, usually reserving the senior executive positions to paid personnel while the entry level and field positions are populated by volunteers. Recently, some paid positions have come under question as the salaries of top level executives were in the millions of dollars per year.[citation needed] Additionally, an NPO may have members or participants or beneficiaries or students etc. as opposed to customers in a for-profit organization. One should not generalize about the comparative cost of a "non-profit" versus "for profit" organization; there may be a lot of internalized profit in a non-profit organization.
Nature and goals
NPOs 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. A very similar organization called the supporting organization operates like a foundation, but: they are more complicated to administer, they are more tax favored, and the public charities that receive grants from them must have a specially determined relationship.
Most foundations give out grants to other NPOs, or fellowships and direct grants to participants. However, the name foundations may be used by any not-for-profit corporation — even volunteer organizations or grass roots groups.
Applying Germanic or Nordic law (e.g. Germany, Sweden, Finland), NPOs typically are voluntary associations, although some have a corporate structure (e.g. housing cooperatives). Usually a voluntary association is founded upon the principle of one-person-one-vote.