The Basics Of Nonprofit Organizations

There are a lot of advantages to forming a nonprofit organization. But many people and businesses don’t know exactly what a nonprofit is, other than what they hear in the news. Should you form a nonprofit, and what differences are there between for profit businesses, and nonprofit businesses?

What a Nonprofit Can and Cannot Do

There are a lot of misconceptions about nonprofit businesses, and about what a nonprofit business is and what it is not.

One major difference is in who makes money when the company does well. In a normal for profit business, the business operates for the benefits of the shareholders. That means that when the company does well, the shareholders make some money based on their ownership share.

However, a nonprofit is different. In a nonprofit, it is the company that keeps the profit, with the ultimate intention of using the money to operate, pay expenses, or expand.

Certainly, nonprofits are legally allowed to make a profit. Many nonprofits, like large hospitals, or national companies like Red Cross or The United Way, have multimillion dollar budgets. Many nonprofits own property and buildings. That’s all fine, because the money used to build all of these things came from profits the nonprofit organization earned.

Salaries and Compensation

Officers and employees of a nonprofit can be paid well—in fact, many high ranking officials of large nonprofit businesses do quite well, salary-wise. However their salary cannot be based on the company’s profits, or dependent on the profits of the business, and the business cannot dedicate a disproportionate amount of its profit to paying an employee.

As you can see, starting a nonprofit doesn’t mean that you or the company has to be poor, or operate on a shoestring budget. You can, as the saying goes, “do well by doing well.”

Corporate Expenses

You must be very careful with corporate expenses when it comes to nonprofits—as most of a nonprofit’s money may come from donations or grants or government money, it is expected that any expense of the company has some relation to the good, benefit or operation of the company. It is not as easy to just have the company make your car payment, the way it may be with a for profit company. That’s not to say it can’t be done—there just needs to be a connection to expenses, and the mission of the company.

Nonprofits and Not For Profits

Note that there is a technical difference between a nonprofit and a not for profit business. A nonprofit benefits the public in general, or fulfills a need or mission that the general public may need. A not for profit is an organization that is still not in the business to make a profit, but it fills a private need. For example, a local archery club, or the local Toy Poodle club would be examples of not for profit businesses.

Call our Fort Lauderdale business law lawyers at Sweeney Law P.A. at 954 440-3993 for help with forming your new business.

Sources:

charity.lovetoknow.com/List_of_Nonprofit_Organizations

brytebridge.com/guide-to-nonprofit-not-for-profit-designation-differences/