What is a nonprofit?

A nonprofit organization (NPO) is an organization that uses surplus revenues to achieve its goals rather than distributing them as profit or dividends.

Although nonprofit organizations are permitted to generate surplus revenues, they must be retained by the organization for its self-preservation, expansion, or plans. NPOs have controlling members or a board of directors. Many have paid staff including management, whereas others employ unpaid volunteers and even executives who work with or without compensation (occasionally nominal). Where there is a token fee, in general, it is used to meet legal requirements for establishing a contract between the executive and the organization.

Designation as a nonprofit does not mean that the organization does not intend to make a profit, but rather that the organization has no owners and that the funds realized in the operation of the organization will not be used to benefit any owners. The extent to which an NPO can generate surplus revenues may be constrained or use of surplus revenues may be restricted.

Objectives & Goals

Functions

NPOs have a wide diversity of structures and purposes. For legal classification, there are, nevertheless, some elements of importance:

• Management provisions.
• Accountability and auditing provisions.
• Provisory for the amendment of the statutes or articles of incorporation.
• Provisions for the dissolution of the entity.
• Tax statuses of corporate and private donors.
• Tax status of the founders.

Some of the above must be, in most jurisdictions, expressed in the charter of establishment. Others may be provided by the supervising authority at each particular jurisdiction.

While affiliations will not affect a legal status, they may be taken into consideration by legal proceedings as an indication of purpose.

Most countries have laws which regulate the establishment and management of NPOs, and which require compliance with corporate governance regimes. Most larger organizations are required to publish their financial reports detailing their income and expenditure publicly. In many aspects they are similar to corporate business entities though there are often significant differences. Both not-for-profit and for-profit corporate entities must have board members, steering committee members, or trustees who owe the organization a fiduciary duty of loyalty and trust. A notable exception to this involves churches, which are often not required to disclose finances to anyone, including church members.