On the difference between nonprofit and not-for-profit

Excerpted from Donnie Maclurcan:

“Distinguishing between non-profit and not-for-profit in use of language is particularly important for two reasons: Firstly, because of the way the game is set up in the U.S. where not-for-profit entities are often called ‘non-profits’ and that these generally represent the old-school model of grant-dependent organisations rather than functioning enterprises. Secondly because of the hermeneutics – In my experience, when people are presented with the words ‘non-profit’ they understandably think ‘no-profits’. When I say ‘not-for-profit’, there seems much more leeway to understand the ability to make profit, just for it to not be privatised profit. In this sense you’re right: ‘not-for-distributable-profit’ or ‘not-for-the-purpose-of-profit’ would be better ways to describe such groups. That said, non-profit will always remain too (as an important sub-division of a not-for-profit world)! Not everything in the not-for-profit umbrella will involve enterprise. Think of a protest rally, for example, where there are no fees for participation and no donations are taken. This can still build social capital but is actually a non-profit activity and, if it were in Australia and the organising committee for the rally has any recorded minutes, then the entity could actually be considered an unincorporated association (i.e. a not-for-profit that is non-profit!).

I believe profit will remain an important driver in any economy moving forward – not because of the payoffs in terms of big salaries and bonuses, but in terms of sustainable business and what this means for the support of full employment, livelihoods and service provision. That is, profit will always remain an important indicator, for many not-for-profit businesses, of their viability and sustainability. The beauty here is that, for people who think small business is “the only answer”, they can take heart in many not-for-profit start-ups thinking more ‘small-business-like’!”

2 Comments On the difference between nonprofit and not-for-profit

  1. AvatarPatrick Anderson

    Where does profit come from, and what does it represent?

    What should be done with profit and who should control this value?

    If we can answer the first question, then maybe we can answer the second.

    There is a special case of property ownership where profit does not exist.

    When the consumer of some product is the owner of the sources of the means of that production and accepts the product as the return on investment, then the price he pays as a consumer is exactly the costs he paid as an owner, and so price == costs and profit == 0;

    This shows the origin of profit is the consumer’s lack of ownership in the means of production.

    And so we can create business that safely operates at zero profit without harming investors iff the consumers are the investors and owners.

    Crowd funding is a baby step in this direction…

    To answer the second question, imagine we sell the surplus of such a corporation to non-owners and collect a profit during that transaction.

    If we treat some % of that profit as an investment from the payer, then these late consumers slowly gain the ownership needed to also receive the product at cost as a result of their property ownership in the means of production.

  2. AvatarH Luce

    The distinction in terms of the law is simple: For-profit corporations are organized to either use earnings to increase their equity capital and thus cause the value of their issued stock shares to rise due to these retained earnings; to pay out a dividend on these shares, derived from the income that the company produces minus the cost of raw materials, the cost of labor, and other sundry expenses incurred; or a combination of both of these. Non-profit corporations do not issue shares, and do not pay dividends. It is possible for employees, executives, and directors of non-profit corporations to be paid very large amounts of money, though, and these amounts of money may dwarf the amount of money spent on the non-profit’s advertised mission. If a corporation spends all of its earnings for dividends, employee, director, and executive compensation, and for the other items listed on IRS Form 1120 – Corporate Income Tax – and retains no earnings, it can be said that that corporation is not running at a profit – even though executives may be getting multimillion dollar salaries. Corporations whose liabilities exceed their paid-in equity capital are known as “insolvent” or “bankrupt” corporations…

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