We could answer this question using the commonly used ambiguous adjectives such as accountability, honesty, and openness. But we will not, simply because that complicates matters more. For laymen, understanding nonprofit organizations will never be possible until we explain it to them in their lingo! And that is exactly what we are going to do in this discussion. Once you are done reading this article, you will know the meaning, types, and basic purpose which a nonprofit organization serves. But honestly, there is a lot more on offer for you to understand than what we have just mentioned!
So, without further ado, let us start this discussion by exploring the meaning of a nonprofit organization.
What is Meant by a Nonprofit Organization?
What defines a nonprofit organization aptly? It raises money but doesn’t use it for benefiting the founders of the donors of the nonprofit. What purpose does it serve? Well, there are numerous ideas in which you might believe, and at some point in your life, you might want to do something for the betterment of society by putting these ideas into action. For materializing your dreams and goals which mostly concern social welfare, you will need funds. And to raise money for a venture of this nature, you will need a platform like a nonprofit organization!
Different Types of Nonprofit Organizations
At this point in the discussion, let us discuss a few types of nonprofit organizations. This will help in making things clearer! Now, the most common type of nonprofit organization is a charitable organization. But don’t think for a moment that there aren’t other types of nonprofits as well. There are faith organizations that engage in social welfare projects, there are art nonprofits that are more focused on assisting artists in a community only. However, as we mentioned earlier, charity organizations are the most common type of nonprofit. These organizations are committed to causes like education for all, access to basic healthcare amenities and poverty reduction, etc.
The Main Purpose of a Nonprofit Organization
Improving the quality of life. One cannot define the purpose of a nonprofit organization in simpler words than these. Let us explain the purpose of a nonprofit organization using the example of the novel coronavirus pandemic. People are dying in unprecedented numbers, to say the least. And that is not all. Millions have lost their jobs and those, on whom, families relied on for financial assistance. In chaotic times like these, nonprofit organizations are trying their best to provide relief to those who have suffered heavily because of the COVID-19 pandemic. We are sure that you must have come across campaigns run by charities that urge people to donate for providing financial assistance to those who have been hit by the COVID-19 pandemic. Well, that is just one purpose served, plenty of other ventures explain the purpose of nonprofits quite lucidly.
Structural Aspects of a Nonprofit
This is going to be one of the more complicated sections of this discussion, but we are going to try to break it down into simpler words for a better understanding. The first role that we wish to talk about in the hierarchy of a nonprofit is that of clients. For your understanding, you can think of clients as customers who are availing of the services offered by a nonprofit. Then, there is the board of the nonprofit which is comprised of individuals who are from the community and are expected to play an important role in the promulgation of the nonprofit’s agenda. Of course, there are usual suspects as well, for example, committees, staff, volunteers, and an executive director of affairs.
The Nonprofit v not-for-profit Debate
It stupefies us to see the most learned men and women of society use these two terms interchangeably without caring for their actual meaning. Yes, there IS a difference! And the difference lies in the usage of the profits made by these two organizations. You see, a nonprofit must return any extra income that is coming their way back to the organization. However, a nonprofit is free from such compulsions. Rather, not-for-profits can actually use this money to pay their members and staff. Also while we are on the subject, another stark difference between the two different organizational structures lies in the membership. In a nonprofit, volunteers and interns can work and play a key role in the development of a nonprofit while the opposite is observed in the case of a not-for-profit organization. Members of this type of setup can expect a certain amount of payment in return for their services. Well, we hope that the difference between the two rather confusing terms is clear to you now!
501 (c) nonprofits
Have you ever come across this term in a discussion about nonprofits? Well, if you have wondered about its meaning previously, now is the time you actually learn about it. A 501(c) (3) is a clause/portion of the US IRC, commonly dubbed as a tax category. What does it state? Well, the organizations on which this portion of IRC code is applicable are free from the burden of the tax. While the donations to these organizations are still tax-deductible, exemption from federal income tax remains applicable for the organizations falling under this category. It is imperative to note here that the 501 (c) organizations can make a profit but some of it will become subject to tax. Always good to know this nitty-gritty!
It is a topic that has many aspects. We wish we could talk a bit more about how nonprofits are structured in the 21st century, what principles guide their working. Alas, we have run out of the space and time we had saved up for this discussion! But still, we are sure that this rather comprehensive account of nonprofit organizations will have cleared some of the misconceptions that you might have had in your mind before you began reading this article. Well, on that optimistic note, we bid you farewell from this discussion!