Posted by Dennis Jao

Everything You Need To Know About Not-For-Profit Entities.

Everything You Need To Know About Not-For-Profit Entities.

What are Not-for-Profit Organizations (NFPOs)?

These organizations focus on specific social causes and use the money they earn or receive through donations to cover their operation costs and pursue their objectives. In contrast to for-profit organizations, the surplus funds left after covering their prices don't go to the founders of NFPOs, but rather to advocate further for their cause.

Since most NFPOs function as charitable institutions, i.e. they are funded through donations, they are excluded from tax payment. A good percentage of NFPOs are devoted to social objectives in research, religion, education, science and other fields.


Types of Not-for-Profit Organizations (NFPOs)

There are three major types of NFPOs:

  1. Organizations For Social Advocacy 

These are NFPOs created to promote a particular political or social cause. They usually set up fundraising, among other attempts to enlighten the masses about whichever cause is being promoted and encourage them to assist their cause.

Social advocacy organizations acquire funds through public donations, dues of members and corporate establishments donations in support of their objective. They are categorized under 501 (c)(4) of the US IRS for tax reasons.

  1. Trade Institutions

These are organizations created to improve their members' business conditions. They are funded through dues of members and fees from their coaching programs. Trade organizations consist of commerce Chambers, health workers corporations and real estate groups.

  1. Foundations

Wealthy individuals fund most foundations with the aim of financing nonprofits supporting a particular social objective. They are mandated to contribute a specific amount of their earnings to preserve their prestige. In the US, foundations are restrained from aiding political causes, although they are allowed to donate to institutions involved with politics.

Foundations can be either public or private. Private foundations are founded by individuals, a family or an establishment. Specific payout requirements are to be met by foundations, and the grants they pay out yearly must be listed out.

Public foundations, however, are foundations that get funded by various sources like individuals, organizations or other charities. They use this capital to sustain their activities.


How do you Start Not-for-Profit Organizations?

Starting a NFPO is not limited to specific individuals. If you notice a want in the social areas of education, religion or science, you can start one based on this need. After identifying this need, do more research on the problem and its solution. 

With this, come up with a good business plan that outlines the problem, your objectives and the various ways you plan to attain those objectives. It should also include your mission statement, estimated budget, organizational plan and financial resources development.

After this, set up a directorate of directors and solicit for volunteers to run the daily operations of your organization. When this is done, register your NFPOs in your state, record the 501(c)(4) tax-free status with the IRS, and pursue tax-exempt validation at all levels.

NFPOs vs NPOs

Non-profit is frequently used interchangeably with not-for-profit, but they have different meanings. This is because they vary in size, purpose, and how they use their funds. Although both organizations don't share their profits among their members.

Organizations that are non-profit go for bigger causes that are more organized in the economic, social, environmental or political fields. They also may be founded for the promotion of educational, cultural or religious objectives. UNICEF and Red Cross are good examples of organizations that are non-profit.

But NFPOs go for smaller pursuits within the community regarding religion, science, education and public security. They include clubs, religious groups, trade organizations, welfare societies and others.


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Dennis Jao
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