What are the similarities and differences between profit and non profit organization?

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What is a nonprofit?
What is a not-for-profit?
Nonprofits vs. not-for-profits: similarities and differences
Purpose and mission
Tax treatment
Nonprofits and not-for-profits vs. for-profit entities
Switching organizational types
Nonprofit or not-for-profit to for-profit
For-profit to nonprofit
Final thoughts
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What is the similarity between profit and non profit organization?
What is the difference between profit organization and non profit organization?

As their names indicate, nonprofit and for-profit businesses vary greatly in some aspects of their operation and most definitely in the overall purpose of their existence. As the Houston Chronicle's James Green writes, "While the aim of for-profit organizations is to maximize profits and forward these profits to the company's owners and shareholders, nonprofit organizations aim to provide society's needs. Non-profit organizations have no owners. Instead of maximizing profits, which means maximizing revenues while minimizing costs, they are more concerned with ensuring the revenue is greater than costs. This ensures that the nonprofit can still provide society's needs." Another key element that makes a nonprofit organization different than a for-profit is that the company's income is never to be distributed to any owners "but is to be recycled back into the nonprofit corporation's public benefit mission and activities."

Besides these basic differences in organization and purpose, there are several more technical areas worth mentioning when discussing the differences between nonprofits and their for-profit counterparts. While for-profit organizations are responsible for paying taxes based on their net income, nonprofit organizations are exempt from paying income tax. Since a nonprofit's goal is to make the world a better place and invest time, resources, and funds into the community, the government credits nonprofits with benefits in this way. While nonprofits are not required to pay taxes on net income, they are responsible for state and property taxes.

Another difference between a nonprofit and for-profit organization is that a for-profit will put together an income statement each quarter. Income statements are prepared in order to assess a company's financial performance four times each year. Instead of income statements, nonprofit organizations will typically provide its donors and the general public a statement of activities which will include all revenues, expenses, and plus net assets. The other resource a nonprofit depends on is a quarterly balance sheet listing the owner's equity. Since nonprofit organizations do not operate with owners at the helm, they will typically produce a document which shows the organization's liabilities and assets known as a statement of financial position.

Business professionals desiring to make a difference in the world will often take positions in nonprofit organizations, and many times find the best way to influence and direct meaningful work is pursuing a career in nonprofit management. With so many of the best business schools in the country now offering online Master's in Nonprofit Management, it has never been easier to find a degree that offers convenience and excellent training in this field. The College of Humanities and Sciences at the University of Montana now delivers an impressive 36-credit hour online Master's of Public Administration with a Nonprofit Administration Track. This program has been designed to "prepare students for administrative careers in nonprofit agencies by satisfying the knowledge and skill requirements of both pre-career and mid-career students." Electives within this high-quality degree include Introduction to Nonprofit Administration, Advocacy and Public Policy, Nonprofit Board Management, Nonprofit Grant-writing, and Nonprofit Marketing and Social Media.

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This is just one example of a stellar online graduate degree with a focus in nonprofit work. Business leaders desiring to make a difference will find that working for a nonprofit organization can be a satisfying career move.

To the outsider, the terms “nonprofit” and “not-for-profit” are often used interchangeably. Despite their similarity in name, they are distinct types of organizations, with different tax treatments, governance rules, and missions.

What is a nonprofit?

A nonprofit organization is a business that receives tax exemption from the US Internal Revenue Service (IRS) if its mission and purpose is to advance a social cause and offer a public benefit. This can vary depending on the type of nonprofit in question, but generally speaking, qualifying organizations will have a religious, charitable, scientific, public-safety-oriented, educational, or animal-welfare-related focus. These organizations do not pay income tax, property taxes, or sales tax. Nonprofit organizations can include charitable foundations, most colleges and universities, houses of worship, and research institutions. Nonprofits are sometimes also referred to as non-stock corporations, or 501(c)(3) organizations—depending on the subsection of the tax code’s Section 501 that provides for their tax-free status.

Nonprofits are similar to for-profit businesses in that they should maximize their revenues; however, nonprofits are prohibited from distributing profits they generate toward anything other than advancing the organization. That means no profit distributions may be made to its owner(s). To ensure this requirement is met, nonprofits must make their financial and operating information and data public so that potential donors can see where their gift might go.

What is a not-for-profit?

Not-for-profit is a broad term for organizations that do not generate profit for their owners. All money generated by the not-for-profit business must be reinvested back into running it. Unlike nonprofits, not-for-profits are not required to operate specifically for the benefit of the public or the advancement of a social cause. A not-for-profit can simply operate to serve the goals or special interests of its members. For example, recreational sports clubs can operate as a not-for-profit.

Also like nonprofits, not-for-profits must apply to qualify for tax-exempt status with the IRS. Money donated to the not-for-profit is not tax deductible.

Nonprofits vs. not-for-profits: similarities and differences

Nonprofits and not-for-profits both get tax-exempt status from the IRS. Their fundamental differences in scope and how each serves the broader community create differences in how they operate.

Purpose and mission

How they’re similar: Neither nonprofits nor not-for-profits operate with the goal of generating profits for ownership.
How they’re different: While not-for-profits can be formed and run solely to meet the goals of their members, nonprofits are driven by charitable purposes and must centrally seek to advance a social cause and to benefit the public good.

Liability

How they’re different: Nonprofits can operate as a separate legal entity, like a traditional corporation. The IRS treats not-for-profits as if they enjoy no legal separation from the members involved, similar to a general partnership. However, some states, like New York and Florida, allow not-for-profits to incorporate as their own legal entities while retaining some state tax exemptions.

Tax treatment

How they’re similar: Both nonprofits and not-for-profits are exempted from taxation by the IRS.
How they’re different: Donors to nonprofits can deduct their gifts on tax returns; individuals who give money to not-for-profits may not. The nonprofits themselves are also subject to stricter tax scrutiny—they are required to report revenues, whereas not-for-profits do not.

Revenues

How they’re different: Nonprofits run with the purpose of maximizing revenues for the causes they support; not-for-profits do not run with the goal of earning revenue and any money earned has to go back into the organization itself.

Employees

How they’re different: While nonprofits may have paid employees on staff—even a president or CEO—not-for-profits may not hire paid staff.

Nonprofits and not-for-profits vs. for-profit entities

Nonprofits and not-for-profits are not concerned with generating profits for owners, unlike for-profit ventures. With that said, nonprofits—perhaps counterintuitively—are more similar to their for-profit counterparts than are not-for-profits. Both nonprofits and for-profit organizations seek to maximize revenues. Whereas for-profits may distribute revenues above the profit line to shareholders, nonprofits must recycle those earnings back into the organization. Not-for-profit organizations simply seek to generate enough money to keep the lights on.

Switching organizational types

Some organizations may initially organize as a nonprofit or not-for-profit, but later decide to convert to a for-profit venture, or vice versa. The process for properly doing so will vary depending on the order.

Nonprofit or not-for-profit to for-profit

To convert from a tax-exempt organization like a nonprofit or not-for-profit to a for-profit venture, you will need to notify the IRS in writing with a “statement of nonprofit conversion.” The statement must include:

The reason for conversion.
A certified copy of a liquidation plan, which explains what will happen to the nonprofit’s assets upon conversion. Do you plan to distribute them upon distribution? Explain who gets what. Are you rolling assets into the for-profit venture? Make sure to incorporate them into your estimate of the organization’s fair market value.
A list of all asset recipients and the assets to be distributed.
An estimate of the fair market value of the organization.

For-profit to nonprofit

Converting a for-profit venture into a nonprofit is a bit more complicated than the other way around. The IRS makes this process more complex to discourage for-profit businesses from converting simply to avoid paying taxes. To execute the conversion, you will be required to:

Write a mission statement.
Write and adopt bylaws through a vote of an appointed board of directors. You may choose to adapt your existing corporate bylaws to reflect your new nonprofit mission, or completely rewrite them. You may also choose to roll existing board members into the new nonprofit, or appoint new ones.
File articles of incorporation with the state secretary of state office.
Follow certain state-specific rules for conversion. In New York, for example, you will need to create a separate nonprofit organization, then merge it with your for-profit venture into a single, new nonprofit organization.

Final thoughts

Nonprofits and not-for-profits are alike at their core—they both eschew the pursuit of profit above all else. But they are, at their root, distinct in purpose. If you’re seeking to form an organization for a simple, recreational purpose, a not-for-profit may be right for you; but if your goals are more ambitious, centered on the advancement of a social cause and public benefit, a nonprofit may be a more suitable choice.

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What is the similarity between profit and non profit organization?

Both serve the needs of the community. Both make income, but reinvest all earnings back into the organization to continue operations and to support their causes. Although both have a staff consisting of mostly volunteers, they also hire and pay some higher-level employees within the organizations.

What is the difference between profit organization and non profit organization?

Key Differences The nonprofit organization is built to serve society at large. Profit organizations can be in a company, sole proprietorship, or partnership. A nonprofit organization can be in trust, clubs, society, committees, etc. Profit organizations make a profit by directly/indirectly selling goods or services.