Definition: Nonprofit organizations, also called not for profit organizations, are privately held entities that don’t provide financial benefits for their members or stakeholders. In other words, they are privately incorporated groups with a charitable purpose of not profiting from the activities they carry.
What Does Nonprofit Organizations Mean?
What is the definition of nonprofit organizations? Non-profits are created for many different purposes such as: cultural, economic, politic, religious, educational, among others. These organizations are granted tax-exempt status and all contributions made to them are tax deductible, as long as they are properly registered.
Normally, not for profits have both paid staff and people that volunteer for the cause of the organization. Even though they are not designed to profit from their activities they are financially active and can grow to be big institutions, as in the case of universities, hospitals, churches or even political parties. The funds to start a not-for-profit organization come from their own founding members or from a special contribution from a third party.
The following example will provide an illustration of this concept.
Example
Mrs. Clarkson is a retired teacher. She spent the last 25 years of her life teaching kids from 5 to 15 years old in different schools in the state of New York. She retired to work in a socially oriented project that she designed with some friends. The project’s objectives consist of helping poor kids living in her neighborhood by teaching them how to write and read. She wants to set up an organized institution to do it. According to our concept of non-profits, does this organization fit the criteria to be considered as such?
As we previously discussed, non-profit organizations are those created with no purpose of distributing profits among its stakeholders. This is the case for Mrs. Clarkson’s project. In this case, she can incorporate the organization to start developing the teaching programs and the institution will get financial contributions from either current members or third parties.
Summary Definition
Define Nonprofit Organizations: Nonprofit organization means a group or entity with a charitable purpose instead of a profitable one.
