Definition of a Non Profit Organization

Cheryl Cirelli
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The definition of a non profit organization is what sets them apart from other businesses and organizations. A non profit works for the good of a specific cause or group of people.

Definition of a Non Profit Organization

What makes a non profit organization unique is that it must be designated as such legally based on specific tax and charitable requirements. An organization cannot simply declare themselves exempt or a non profit without following proper legal protocol.

  • Legal status -The IRS designates organizations as 501(c)(3) entities.
  • Tax requirements - The 501(c)(3) status makes them exempt from federal and corporate taxes.
  • Charitable in purpose - Organizations are required to pass a screening and review to show their activities are charitable in nature.

Board of Directors

Most non profits are governed by a board of directors, usually volunteer, that oversee the staff. Upon forming, a set of bylaws is written to define the non profit organization in its mission and purpose and governing structure. The bylaws can be amended as needed, but the basic information should remain the same.

Revenue

Non profit organizations do not have shareholders or pay dividends like a for profit corporation. Their revenue must go toward specific charitable projects and must meet the organization's mission. There are certain limitations of how the money must be used and reported. Many non profit organizations receive support through government and foundation grants. They also rely on individual and corporate donations along with money raised from special events and fundraising endeavors.

Types of Non Profit Organizations

There are a great number of charities in existence at local and national levels. Many national organizations have local chapters, while others have one central headquarter location. Some have been in existence for decades, and other non profits may have formed out of necessity of the time. Non profits do not simply fall within one field or category.

Main Categories

Nearly all charitable organizations fall into one of the seven major categories associated with their mission.

  • Religious: These organizations typically follow the example or guidance of a religious figure, as in the Sisters of Charity, to help the less fortunate.
  • Scientific: A non profit like the Environmental Defense Fund raises money to support scientific research.
  • Educational: As the Bill and Melinda Gates Foundation does, these groups aim to better educational practices and ensure different populations have access to an education.
  • Arts: The Art Guild Foundation and similar organizations promote the arts in various ways.
  • Health care and public health: Agencies like the American Red Cross promote best practices in the medical field and make sure everyone has access to proper health care resources.
  • Prevention of animal cruelty: A non profit such as the World Wildlife Foundation or Animal Humane Society raises awareness about issues related to the harm of animals and provides services to protect animals.
  • Child welfare: Everything from providing childhood staples, like Toys for Tots, to helping prevent child abuse falls into this category.

Additional Types

While not always designated as such, the following may also be considered non profit on specific occasions.

  • Civic organizations and leagues
  • Labor organizations
  • Chambers of commerce
  • Boards of trade
  • Agriculture organizations
  • Legal service groups

Defining Factors

There is not one single definition of a non profit, but several factors that contribute to defining an organization as such. Most importantly, non profit organizations exist to support a charitable cause or mission rather than profit financially.

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Definition of a Non Profit Organization