Nonprofit organizations are a legal entity organized and operated for a collective, public or social benefit. A nonprofit is subject to the non-distribution constraint: any revenues that exceed expenses must be committed to the organization’s purpose, not taken by private parties. Nonprofit entities generally seek approval from governments to be tax-exempt, and some may also qualify to receive tax-deductible contributions. Nonprofit organizations are accountable to the donors, founders, volunteers, program recipients, and the public community. 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.
Nonprofits must balance salaries paid to staff with money paid to provide services to the nonprofit’s beneficiaries. Nonprofit organizations must manage their income (both grants and donations and income from services) and expenses so as to remain a fiscally viable entity. Setting effective missions is a key for the successful management of nonprofit organizations. There are three important conditions for an effective mission: opportunity, competence and commitment.
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 board-only organization typically has a self-selected board and a membership whose powers are limited to those delegated to it by the board. The National Association of Parliamentarians has generated concerns about the implications for the future of openness, accountability, and understanding of public concerns in nonprofit organizations.
Difference between nonprofit and not for profit
Nonprofit and not-for-profit are terms that do not mean the same thing. Both are organizations that don’t make a profit, but may receive an income to sustain their missions. Nonprofit organizations return any extra income to the organization they generate. Not for-profits use their excess money to pay their members who do work for them.
Nonprofits are either member-serving or community-serving. Member-serving nonprofit organizations create a benefit for the members of their organization. Community-serving nonprofits focus on providing services to the community either globally or locally. It is possible for a nonprofit to be both member serving and community serving.