A profit organization is a social arrangement which pursues collective goals, controls its own performance, and has a boundary separating it from its environment. Profit organization is a business which has a primary goal of making profit and a proposed goal such as helping the environment. An organization is defined by the elements that are part of it its communication, its autonomy, and its rules of action compared to outside events.
A non profit organization is a group organized for purposes other than generating profit and in which no part of the organization’s income is distributed to its members, directors, or officers. Non profit corporations are often termed “non-stock corporations.” They can take the form of a corporation, an individual enterprise (for example, individual charitable contributions), unincorporated association, partnership, foundation (distinguished by its endowment by a founder, it takes the form of a trusteeship), or condominium (joint ownership of common areas by owners of adjacent individual units incorporated under state condominium acts). Non profit organizations must be designated as nonprofit when created and may only pursue purposes permitted by statutes for non profit organizations. Non profit organizations include churches, public schools, public charities, public clinics and hospitals, political organizations, legal aid societies, volunteer services organizations, labor unions, professional associations, research institutes, museums, and some governmental agencies.
Major Differences Between Profit and Non Profit Organizations
- Profit – Both the organizations have to generate profit and pay their bills. In a for profit organization the profits that are not re-invested in the organization are distributed to the owners of the corporation as cash. In the case of a non profit organization the profits are used to provide goods or services to the group or groups the non profit was formed to help. A religious organization may use the profits to help its members or others obtain food, medical care, education, etc. A university may use its profits to provide free or low cost education to some or all of its students. The point is that the profits of a non-profit organization always go toward supporting some cause that society deems as good and beneficial and not into the pockets of the investors.
- Ownership – A for profit corporation is created when investors get together and transfer assets, money and/or talent to start the corporation. The corporation, which is actually a fictitious person in the eyes of the law, takes title and ownership of the assets, etc. and gives, in exchange for the assets, ownership shares in the company to those who contributed the assets. However, with a non profit, individuals come together and provide assets, money and/or talent to start the corporation. But, these people who create the corporation do not receive any legal ownership in the corporation and, further, have no guarantee that they will be able to retain control of the corporation once formed. All of the assets are now to be used to advance that cause or provide the service for which the non-profit business was created as determined by the corporation’s board of directors.
- Board of directors – In both cases the original board is created by the same people who started the corporation and, in both cases, directors are given fixed terms. Things change when it comes time to re-elect or replace these board members. In the case of a for profit corporation each share of stock entitles its owner to one vote and owners of multiple shares have multiple votes. It is possible for the person or group owning 51% or more of the stock to control both the board and the business with their controlling votes. In the case of a non-profit corporation there are no shares and thus no owners of shares to vote. When a board member’s term is up it is the remaining board members who decide to either re-elect that person to a new term or replace the person. (in organizations which have a defined membership, it is usually the members who elect the board but here each member only has one vote and membership does not give them an ownership right in the assets of the organization in the sense that they can sell it like a stock holder in a for profit corporation can sell their stock and the rights that go with it). It is the board of directors or members which makes the decisions and runs the corporation.