What is the difference between a Non-Profit and a For Profit?
What is the difference?
A non-profit, or not-for-profit, is an organization that does not seek to earn profit for its owners. Rather, all of the money earned is used to keep the organization running and to meet its mission and goals, serving the greater good of the community. These entities, often with a focus on charitable causes, are usually exempt from paying taxes and do not flow profits through to their members. In addition, they are prohibited from paying dividends, as the goal of these entities is to put all funds toward the organization’s objectives while keeping it afloat. Any entity seeking tax-exempt status must request 501( c) (3) status from the IRS, which may only fall into certain categories such as religious, charitable, or public safety enterprises. Assets of a non-profit must be distributed to another non-profit if it is ever dissolved. Because non-profit organizations must comply with state agencies as well as federal requirements, it’s important to consider the amount of work involved in meeting these requirements before choosing to file as a non-profit organization. It’s also a good idea to consult with accounting and legal advisors before proceeding. (173 words)
Unlike a non-profit, which is exempt from taxes, for profit organizations are subject to taxation. While IRS code 501( c) (3) allows for non-profits to be excused from taxation, those organizations not registered as a 501( c)(3) are subject to taxes. For example, C corporations, often called “general for profit” corporations, are owned by shareholders and exist to create profit for those shareholders. These profits are defined as any revenue (or sales) that exceeds expenses (costs) and taxes incurred by the organization. The management of a company involved in for profit enterprises are therefore seeking to maximize those profits for its shareholders. Other for profit organizational structures include S corps and LLCs, among others. It’s important to consult with tax and legal professionals before choosing a for profit organization structure.
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