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The basics of a not-for-profit organization

On Behalf of | Feb 21, 2020 | Not-for-profit Law |

Nonprofit and not-for-profit organizations exist under the umbrella of the term “nonprofit,” but some consider the two slightly different. Both are organizations that do not turn a profit for employees or members. 

Many people believe that nonprofits and not-for-profits do not make any money, which is untrue. The National Center for Charitable Statistics, part of the Urban Institute, reports that the nonprofit sector contributed around $986 billion to the U.S. economy back in 2015. 

While their purpose may be noble, nonprofits do not function without funding. Not-for-profits are like for-profit businesses in that they still need responsible financial management. Each entity has an income with which to maintain itself. Both entities are tax-exempt under different tax codes. A 501(c)(3) is typically an educational, religious or charitable foundation that does not influence legislation, either on the federal or state level. This type of organization has employees and volunteers who do not receive any money from the nonprofit’s fundraising efforts. Instead, the organization pays employees with sources outside of fundraising efforts. A 501(c)(7) is generally geared more toward recreational pursuits or pleasure. When this type of entity has excess funds, it can use them to pay its working members, including money from fundraising campaigns. 

In New York, according to the Department of State Incorporation Guide, there are four types of not-for-profit corporations, categorized by purpose. Types A and B are the two most commonly formed. Type A includes organizations with fraternal, athletic or political purposes. Type B organizations focus on religious, scientific or charitable works, such as the prevention of cruelty to children and animals.