Professional Documents
Culture Documents
organization
The key aspects of nonprofits are accountability, trustworthiness, honesty, and openness to
every person who has invested time, money, and faith into the organization. Nonprofit
organizations are accountable to the donors, founders, volunteers, program recipients, and the
public community. For a nonprofit that seeks to finance its operations through donations, public
confidence is a factor in the amount of money that a nonprofit organization is able to raise. The
more nonprofits focus on their mission, the more public confidence they will have. This will
result in more money for the organization.[1] The activities a nonprofit is partaking in can help
build the public's confidence in nonprofits, as well as how ethical the standards and practices
are.
Statistics in the United States
According to the National Center for Charitable Statistics (NCCS), there are more than 1.5 million
nonprofit organizations registered in the United States, including public charities, private
foundations, and other nonprofit organizations. Private charitable contributions increased for the
fourth consecutive year in 2017 (since 2014), at an estimated $410.02 billion. Out of these
contributions, religious organizations received 30.9%, education organizations received 14.3%,
and human services organizations received 12.1%.[4] Between September 2010 and September
2014, approximately 25.3% of Americans over the age of 16 volunteered for a nonprofit.[5]
Mechanism of money-raising
Nonprofits are not driven by generating profit, but they must bring in enough income to pursue
their social goals. Nonprofits are able to raise money in different ways. This includes income
from donations from individual donors or foundations; sponsorship from corporations;
government funding; programs, services or merchandise sales, and investments.[6] Each NPO is
unique in which source of income works best for them. With an increase in NPO's within the last
decade, organizations have adopted competitive advantages to create revenue for themselves
to remain financially stable. Donations from private individuals or organizations can change
each year and government grants have diminished. With changes in funding from year to year,
many nonprofit organizations have been moving toward increasing the diversity of their funding
sources. For example, many nonprofits that have relied on government grants have started
fundraising efforts to appeal to individual donors.
Nonprofit and not-for-profit are terms that are used similarly, but do not mean the same thing.
Both are organizations that do not make a profit, but may receive an income to sustain their
missions. The income that nonprofit and not-for-profit organizations generate is used differently.
Nonprofit organizations return any extra income to the organization. Not-for-profits use their
excess money to pay their members who do work for them. Another difference between
nonprofit organizations and not-for-profit organizations is their membership. Nonprofits have
volunteers or employees who do not receive any money from the organization's fundraising
efforts. They may earn a salary for their work that is independent from the money the
organization has fundraised. Not-for-profit members have the opportunity to benefit from the
organization's fundraising efforts.[7]
In the United States, both nonprofits and not-for-profits are tax-exempt under IRS publication
557. Although they are both tax-exempt, each organization faces different tax code
requirements. A nonprofit is tax-exempt under 501(c)(3) requirements if it is either a religious,
charitable, or educational based organization that does not influence state and federal
legislation. Not-for-profits are tax-exempt under 501(c)(7) requirements if they are an
organization for pleasure, recreation or another nonprofit purpose.[7]
Management
A common misconception about nonprofits is that they are run completely by volunteers. Most
nonprofits have staff that work for the company, possibly using volunteers to perform the
nonprofit's services under the direction of the paid staff. Nonprofits must be careful to balance
the salaries paid to staff against the money paid to provide services to the nonprofit's
beneficiaries. Organizations whose salary expenses are too high relative to their program
expenses may face regulatory scrutiny.[8]
A second misconception is that nonprofit organizations may not make a profit. Although the
goal of nonprofits isn't specifically to maximize profits, they still have to operate as a fiscally
responsible business. They must manage their income (both grants and donations and income
from services) and expenses so as to remain a fiscally viable entity. Nonprofits have the
responsibility of focusing on being professional, financially responsible, replacing self-interest
and profit motive with mission motive.[9]
Though nonprofits are managed differently from for-profit businesses, they have felt pressure to
be more businesslike. To combat private and public business growth in the public service
industry, nonprofits have modeled their business management and mission, shifting their raison
d’être to establish sustainability and growth.[10]
Setting effective missions is a key for the successful management of nonprofit organizations.[11]
There are three important conditions for effective mission: opportunity, competence, and
commitment.[11]
Functions
NPOs have a wide diversity of structures and purposes. For legal classification, there are,
nevertheless, some elements of importance:
Management provisions
Some of the above must be (in most jurisdictions in the USA at least) expressed in the
organization's charter of establishment or constitution. Others may be provided by the
supervising authority at each particular jurisdiction.
While affiliations will not affect a legal status, they may be taken into consideration by legal
proceedings as an indication of purpose. Most countries have laws that regulate the
establishment and management of NPOs and that require compliance with corporate
governance regimes. Most larger organizations are required to publish their financial reports
detailing their income and expenditure publicly.
In many aspects, they are similar to corporate business entities though there are often
significant differences. Both not-for-profit and for-profit corporate entities must have board
members, steering-committee members, or trustees who owe the organization a fiduciary duty
of loyalty and trust. A notable exception to this involves churches, which are often not required
to disclose finances to anyone, including church members.[12]
In the United States, nonprofit organizations are formed by filing bylaws or articles of
incorporation or both in the state in which they expect to operate. The act of incorporation
creates a legal entity enabling the organization to be treated as a distinct body (corporation) by
law and to enter into business dealings, form contracts, and own property as individuals or for-
profit corporations can.
Nonprofits can have members, but many do not. The nonprofit may also be a trust or association
of members. The organization may be controlled by its members who elect the board of
directors, board of governors or board of trustees. A nonprofit may have a delegate structure to
allow for the representation of groups or corporations as members. Alternatively, it may be a
non-membership organization and the board of directors may elect its own successors.[13]
The two major types of nonprofit organization are membership and board-only. A membership
organization elects the board and has regular meetings and the power to amend the bylaws. A
board-only organization typically has a self-selected board and a membership whose powers are
limited to those delegated to it by the board. A board-only organization's bylaws may even state
that the organization does not have any membership, although the organization's literature may
refer to its donors or service recipients as 'members'; examples of such organizations are
FairVote[14][15] and the National Organization for the Reform of Marijuana Laws.[16] The Model
Nonprofit Corporation Act imposes many complexities and requirements on membership
decision-making.[17] Accordingly, many organizations, such as the Wikimedia Foundation,[18]
have formed board-only structures. The National Association of Parliamentarians has generated
concerns about the implications of this trend for the future of openness, accountability, and
understanding of public concerns in nonprofit organizations. Specifically, they note that
nonprofit organizations, unlike business corporations, are not subject to market discipline for
products and shareholder discipline of their capital; therefore, without membership control of
major decisions such as the election of the board, there are few inherent safeguards against
abuse.[19][20] A rebuttal to this might be that as nonprofit organizations grow and seek larger
donations, the degree of scrutiny increases, including expectations of audited financial
statements.[21] A further rebuttal might be that NPOs are constrained, by their choice of legal
structure, from financial benefit as far as distribution of profit to members and directors is
concerned.
Tax exemption
In many countries, nonprofits may apply for tax-exempt status, so that the organization itself
may be exempt from income tax and other taxes. In the United States, to be exempt from federal
income taxes, the organization must meet the requirements set forth in the Internal Revenue
Code. Granting nonprofit status is done by the state, while granting tax-exempt designation
(such as 501(c)(3)) is granted by the federal government via the IRS. This means that not all
nonprofits are eligible to be tax-exempt.[22] For example, employees of non-profit organizations
pay taxes from their salaries, which they receive according to the laws of the country. NPOs use
the model of a double bottom line in that furthering their cause is more important than making a
profit, though both are needed to ensure the organization's sustainability.[23][24] An advantage of
non-profit organisations registered in the UK is that they benefit from some reliefs and
exemptions. Charities and non-profits are exempt from Corporation Tax as well as the trustees
being exempt from Income Tax. [25]
In the U.S., "social welfare" nonprofits (IRS Section 501(c)(4)) are frequently used by politicians.
Their use has resulted in controversies for politicians such as Kwame Kilpatrick and Gretchen
Whitmer.[26]
Problems
Founder's syndrome
Resource mismanagement
Resource mismanagement is a particular problem with NPOs because the employees are not
accountable to anyone who has a direct stake in the organization. For example, an employee
may start a new program without disclosing its complete liabilities. The employee may be
rewarded for improving the NPO's reputation, making other employees happy, and attracting new
donors. Liabilities promised on the full faith and credit of the organization but not recorded
anywhere constitute accounting fraud. But even indirect liabilities negatively affect the financial
sustainability of the NPO, and the NPO will have financial problems unless strict controls are
instated.[28] Some commenters have argued that the receipt of significant funding from large for-
profit corporations can ultimately alter the NPO's functions.[29] A frequent measure of an NPO's
efficiency is its expense ratio (i.e. expenditures on things other than its programs, divided by its
total expenditures).
Competition for employees with the public and private sector is another problem that nonprofit
organizations inevitably face, particularly for management positions. There are reports of major
talent shortages in the nonprofit sector today regarding newly graduated workers,[30] and NPOs
have for too long relegated hiring to a secondary priority,[31] which could be why they find
themselves in the position many do. While many established NPOs are well-funded and
comparative to their public sector competitors, many more are independent and must be
creative with which incentives they use to attract and maintain vibrant personalities. The initial
interest for many is the remuneration package, though many who have been questioned after
leaving an NPO have reported that it was stressful work environments and implacable work that
drove them away.[32]
Public- and private-sector employment have, for the most part, been able to offer more to their
employees than most nonprofit agencies throughout history. Either in the form of higher wages,
more comprehensive benefit packages, or less tedious work, the public and private sectors have
enjoyed an advantage over NPOs in attracting employees. Traditionally, the NPO has attracted
mission-driven individuals who want to assist their chosen cause. Compounding the issue is
that some NPOs do not operate in a manner similar to most businesses, or only seasonally. This
leads many young and driven employees to forego NPOs in favor of more stable employment.
Today, however, nonprofit organizations are adopting methods used by their competitors and
finding new means to retain their employees and attract the best of the newly minted
workforce.[33]
It has been mentioned that most nonprofits will never be able to match the pay of the private
sector[34] and therefore should focus their attention on benefits packages, incentives and
implementing pleasurable work environments. A good environment is ranked higher than salary
and pressure of work.[31] NPOs are encouraged to pay as much as they are able and offer a low-
stress work environment that the employee can associate him or herself positively with. Other
incentives that should be implemented are generous vacation allowances or flexible work
hours.[35]
Online presence
Many NPOs often use the .org or .us (or the country code top-level domain of their respective
country) or .edu top-level domain (TLD) when selecting a domain name to differentiate
themselves from more commercial entities, which typically use the .com space.
Alternative names
Instead of being defined by 'non' words, some organizations are suggesting new, positive-
sounding terminology to describe the sector. The term 'civil society organization' (CSO) has been
used by a growing number of organizations, including the Center for the Study of Global
Governance.[36] The term 'citizen sector organization' (CSO) has also been advocated to describe
the sector – as one of citizens, for citizens – by organizations including Ashoka: Innovators for
the Public.[37] Advocates argue that these terms describe the sector in its own terms, without
relying on terminology used for the government or business sectors. However, use of
terminology by a nonprofit of self-descriptive language that is not legally compliant risks
confusing the public about nonprofit abilities, capabilities, and limitations.[38]
In some Spanish-language jurisdictions, nonprofit organizations are called "civil associations".[39]
See also
Community organization
Effective altruism
Fundraising
Mutual organization
Non-commercial
Non-governmental organization
Non-profit technology
Social economy
Voluntary sector
References
1. Ciconte, Barbara L.; Jacob, Jeanne (2009). Fundraising Basics: A Complete Guide. Burlington,
Massachusetts: Jones & Bartlett Learning. ISBN 9780763746667.
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Volunteering" (https://nccs.urban.org/publication/nonprofit-sector-brief-2018#giving) . Urban Institute
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6. Sacristán López de los Mozos, I., Rodríguez Duarte, A., & Rodríguez Ruiz, Ó. (2016). Resource
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ow-paid/5097543001/) . Detroit Free Press. Retrieved 19 May 2021. "incorporated in 2018 under
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notably for former Detroit Mayor Kwame Kilpatrick"
27. Block, Stephen R.; Rosenberg, Steven (Summer 2002). "Toward and Understanding of Founder's
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33. Cohen, R. (21 June 2010). "Nonprofit Salaries: Achieving Parity with the Private Sector" (https://web.archi
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34. Coffman, S. (23 December 2002). "Nonprofits Can Compete with Employee Benefits" (http://www.bizjourn
als.com/columbus/stories/2002/12/23/focus4.html?page=all) . Columbus Business First. Archived (htt
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3/focus4.html?page=all) from the original on 20 March 2021. Retrieved 10 December 2014.
35. Fox, T. (18 March 2014). "How to Compete with the Private Sector for Young Workers" (https://www.wash
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young-workers/) from the original on 20 March 2021. Retrieved 6 September 2017.
36. Glasius, Marlies; Kaldor, Mary; Anheier, Helmut, eds. (2005). Global Civil Society 2006/7 (https://web.archi
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38. Alvarado, Elliott I.: "Nonprofit or Not-for-profit – Which Are You?", page 6-7. Nonprofit World, Volume 18,
Number 6, November/December 2000.
39. Campetella, Andrea; González Bombal, Inés; Roitter, Mario (1998). "Defining the Nonprofit Sector:
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Further reading
Snyder, Gary R., Nonprofits: On the Brink : How Nonprofits have lost their way and some
essentials to bring them back (https://books.google.com/books?id=5OFFNw0a1dkC&printsec=
frontcover) , 2006.
External links
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title=Nonprofit_organization&oldid=1056315934"
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