Nonprofit organization
A nonprofit organization (NPO), also known as a nonbusiness entity[1] or nonprofit institution,[2] and often referred to simply as a nonprofit (not followed by a noun), is a legal entity organized and operated for a collective, public or social benefit, as opposed to an entity that operates as a business aiming to generate a profit for its owners. A nonprofit is subject to the non-distribution constraint: any revenues that exceed expenses must be committed to the organization's purpose, not taken by private parties. An array of organizations are nonprofit, including some political organizations, schools, business associations, churches, social clubs, and consumer cooperatives. Nonprofit entities may seek approval from governments to be tax-exempt, and some may also qualify to receive tax-deductible contributions, but an entity may incorporate as a nonprofit entity without having tax-exempt status.
Not to be confused with Non-governmental organization, Not-for-profit organization, or Charitable organization.
Key aspects of nonprofits are accountability, trustworthiness, honesty, and openness to every person who has invested time, money, and faith into the organization. Nonprofit organizations are accountable to the donors, founders, volunteers, program recipients, and the public community. Theoretically, for a nonprofit that seeks to finance its operations through donations, public confidence is a factor in the amount of money that a nonprofit organization is able to raise. Supposedly, the more a nonprofit focus on their mission, the more public confidence they will gain. This will result in more money for the organization.[1] The activities a nonprofit is partaking in can help build the public's confidence in nonprofits, as well as how ethical the standards and practices are.
There is an important distinction in the US between non-profit and not-for-profit organizations (NFPOs); while an NFPO does not profit its owners, and money goes into running the organization, it is not required to operate for the public good. An example is a sports club, whose purpose is its members' enjoyment.[3] The names used and precise regulations vary from one jurisdiction to another.
United States[edit]
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. Private charitable contributions increased for the fourth consecutive year in 2017 (since 2014), at an estimated $410.02 billion. Out of these contributions, religious organizations received 30.9%, education organizations received 14.3%, and human services organizations received 12.1%.[4] Between September 2010 and September 2014, approximately 25.3% of Americans over the age of 16 volunteered for a nonprofit.[5]
In the United States, both nonprofits are tax-exempt. There are various types of nonprofit exemptions, such as 501(c)(3) organizations that are a religious, charitable, or educational-based organization that does not influence state and federal legislation, and 501(c)(7) organizations that are for pleasure, recreation, or another nonprofit purpose.
There is an important distinction in the US between non-profit and not-for-profit organizations (NFPOs); while an NFPO does not profit its owners, and money goes into running the organization, it is not required to operate for the public good. An example is a club, whose purpose is its members' enjoyment.[3] Examples of NFPOs are credit unions, sports clubs, and advocacy groups. Nonprofit organizations provide services to the community; for example aid and development programs, medical research, education, and health services. It is possible for a nonprofit to be both member-serving and community-serving.
Fundraising[edit]
Nonprofit organizations are not driven by generating profit, but they must bring in enough income to pursue their social goals. Nonprofits are able to raise money in different ways. This includes income from donations from individual donors or foundations; sponsorship from corporations; government funding; programs, services or merchandise sales, and investments.[6] Each NPO is unique in which source of income works best for them. With an increase in NPOs since 2010, organizations have adopted competitive advantages to create revenue for themselves to remain financially stable. Donations from private individuals or organizations can change each year and government grants have diminished. With changes in funding from year to year, many nonprofit organizations have been moving toward increasing the diversity of their funding sources. For example, many nonprofits that have relied on government grants have started fundraising efforts to appeal to individual donors.[7]
Management[edit]
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.[8]
A second misconception is that nonprofit organizations may not make a profit. Although the goal of nonprofits is not specifically to maximize profits, they still have to operate as a fiscally responsible business. They must manage their income (both grants and donations and income from services) and expenses so as to remain a fiscally viable entity. Nonprofits have the responsibility of focusing on being professional, financially responsible, replacing self-interest and profit motive with mission motive.[9]
Though nonprofits are managed differently from for-profit businesses, they have felt pressure to be more businesslike. To combat private and public business growth in the public service industry, nonprofits have modeled their business management and mission, shifting their reason of existing to establish sustainability and growth.[10]
Setting effective missions is a key for the successful management of nonprofit organizations.[11] There are three important conditions for effective mission: opportunity, competence, and commitment.[11]
One way of managing the sustainability of nonprofit organizations is to establish strong relations with donor groups.[11] This requires a donor marketing strategy, something many nonprofits lack.[11]
Online presence[edit]
When selecting a domain name, NPOs often use .org, or the country code top-level domain of their respective country, or the .edu top-level domain (TLD), to differentiate themselves from more commercial entities, which typically use .com.
In the traditional domain noted in RFC 1591, .org is for "organizations that didn't fit anywhere else" in the naming system, which implies that it is the proper category for non-commercial organizations if they are not governmental, educational, or one of the other types with a specific TLD. It is not designated specifically for charitable organizations or any specific organizational or tax-law status, but encompasses anything that is not classifiable as another category. Currently, no restrictions are enforced on registration of .com or .org, so one can find organizations of all sorts in either of those domains, as well as other top-level domains including newer, more specific ones which may apply to particular sorts of organization including .museum for museums and .coop for cooperatives. Organizations might also register by the appropriate country code top-level domain for their country.
Alternative names[edit]
Some organizations offer new, positive-sounding alternative terminology to describe the sector. The term civil society organization (CSO) has been used by a growing number of organizations, including the Center for the Study of Global Governance.[35] The term citizen sector organization (CSO) has also been advocated to describe the sector – as one of citizens, for citizens – by organizations including Ashoka: Innovators for the Public.[36] Advocates argue that these terms describe the sector in its own terms, without relying on terminology used for the government or business sectors. However, use of terminology by a nonprofit of self-descriptive language that is not legally compliant risks confusing the public about nonprofit abilities, capabilities, and limitations.[37]