What is a Nonprofit Organization?
Start Your Nonprofit
Free Email Series
Learn the basics of starting a 501(c)(3) nonprofit with our
10-Day Nonprofit Startup Bootcamp
A nonprofit organization is a corporation, LLC, unincorporated association, or other legal structure formed for not-for-profit purposes. Its not-for-profit purpose is declared when the legal structure is formed. Obtainment of 501(c)(3) or other tax exemption does NOT define whether the organization is a nonprofit.
It is pretty easy to recognize a nonprofit because it is dedicated to an altruistic mission:
- A public charity such as supporting cancer research or endangered species
- A private foundation that endows grants to support public charities
- A religious organization such as a church
- A fraternal organization such as a homeowners’ association
Even though the organization is called a nonprofit, it should produce profits. (Profits are revenues minus expenses). The distinction between a for-profit and nonprofit is what the organization does with their profits. For-profit businesses distribute profits to their shareholders as a reward for investing in them. Nonprofit organizations reinvest their profits in the cause of the organization. Nonprofits do not pay dividends to investors, but may pay reasonable salaries to employees.
- A nonprofit is identified by its legal structure, not its tax exemption status.
- You can be a nonprofit organization so long as you are dedicated to committing your profits to the organization’s cause (not the financial benefit of the owners).
- You can be a nonprofit organization regardless of whether you apply for or ultimately obtain 501(c)(3) or other tax exemptions.