All About Not for Profit and Nonprofit Organizations

If you ask people on the street what a nonprofit organization is, there’s a good chance you’ll get a different answer from every person that you ask. If you’re considering starting a business as a nonprofit, or you already own, run or manage a nonprofit, there are some things about no for profit companies that you should be aware of.

Profits or Not?

A nonprofit organization can make money, and even save it for emergencies, or a rainy day, but as a general rule, whereas a private, for profit company can use its money to amass wealth, or pay shareholders, a not for profit is generally supposed to use its funds to operate, expand and fulfill its mission.

A not for profit can have investments—for example, a mutual fund that will help the company pay its expenses for years to come—but it generally cannot simply have and hold securities for the sole purpose of paying dividends to investors, officers or managers.

Nonprofits Can and Do Make Money

Not for profits often have multimillion dollar budgets. Many nonprofits bring in, and spend, millions of dollars, and they pay their upper level officers handsome salaries. Many people who work as officers or employees of nonprofits make very good livings.

The law only requires that salaries be reasonable in comparison to the nonprofit’s overall budget, a restriction that doesn’t apply to private companies. If a private company wants to bankrupt itself by paying CEO bonuses, it can do that, whereas a not for profit can be running afoul of the law by doing the same thing.

Tax Issues

Nonprofits are often also called “tax exempt,” (or 501c(3) companies) which is because they are, and donors to these companies also get tax breaks. However, this is only if the not for profit engages in causes related to education, science, religion, literature, amateur sports, public safety, or the prevention of child or animal cruelty.

Nonprofits and Not for Profits

There is even a difference between “nonprofit” and “not for profit” companies. Nonprofits are limited to the tax-exempt missions listed above.

But a not-for-profit is generally an organization that does not necessarily benefit the public as a whole, but rather, the interests of its members, or of a smaller community. For example, a local pottery club, or an organization that gets to gather to discuss and hold community events, or a group to recognize a favorite sports star, could be not for profits.

And although there still may be some tax benefits to a not for profit as compared to a fully profit company, not for profit companies do not get the same tax exempt status as nonprofit organizations.

Consult with our West Palm Beach commercial litigation attorneys with questions, or if you have a question about forming your business or keeping it in legal compliance. Let our lawyers at Pike & Lustig, LLP, help you. Call us at 561-291-8298 to get a consultation.

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