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How Is a Nonprofit Different from a For-Profit Business?

Getting Beyond the Myths

By

volunteers.jpg

Nonprofits fulfill their mission of serving society, often with volunteer help, such as these children helping out at a food bank.

Jeff Greenberg/Photolibrary/Getty Images

Question: How Is a Nonprofit Different from a For-Profit Business?

Answer: Here are some of the differences between a business and a nonprofit:

  • When you start a business, it is for the financial benefit of its owners and/or shareholders. Profit is the goal and the business pays taxes on that profit.
  • ​A nonprofit entity has a mission that benefits the "greater good" of the community, society, or the world. It does not pay taxes, but it also cannot use its funds for anything other than the mission for which it was formed.
  • Nonprofit organizations can and do make a profit, but it must be used solely for the operation of the organization or, in the case of a foundation, granted to other nonprofit organizations.
  • When a for-profit organization goes out of business, its assets can be liquidated and the proceeds distributed to the owners or the shareholders. When a nonprofit goes out of business, its remaining assets must be given to another nonprofit.

For even more differences, see What Are the Key Characteristics of a Nonprofit Corporation?

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