The organizations that function to serve for public cause and granted tax-exemption by the revenue authority are known as nonprofit organizations. We often come across this term and misunderstand it most of the time.
An NPO or nonprofit organization must provide goods and services for the public welfare; hence they are not driven by profit; instead, they are made primarily for charity, causes, cooperatives, trusts, religious or environmental purposes. Examples of nonprofit organizations are – Hospitals, schools, etc.
Let’s understand the term NPO in a broader sense –
How NPOs (Nonprofit Organizations) function?
To understand the term NPO in a better manner, it is vital to understand how this organization functions. The sole purpose of the organization is to serve the public; no matter it’s by producing goods or by delivering services.
Therefore, these organizations are granted tax-exemption. Moreover, the donations made to the organization are exempted from tax; hence the individual who receives and sends the money is not liable to pay any tax amount.
Any organization that wants to be recognized as an NPO must get the NPO status by proving their social purpose. Tax exemption is permitted to them based on the tax code set by the authorities. An organization should serve these causes to get the status of NPO –charitable, religious, public safety, education, scientific, health, and cruelty-prevention.
These organizations work for the development of the entire society and provide a way for the common good. These organizations work towards shaping the boldest dreams of the public and foster civic engagement. The role of the NPO gets more apparent to us when we are benefited directly by these organizations.
NPOs are seen in the form of charitable organizations.
Many charitable organizations around the world are intended to help the needy ones. From providing food and shelter to needy ones to educating poor children, charitable organizations serve several social causes. Hospitals, research institutions are part of charitable organizations.
The sole purpose of these organizations is to help the needy ones without garnering their profit from the product/service provided. These organizations are not only helped by the government authorities but also gain the right amount of donations from individuals/groups around the world.
Some of the most famous nonprofit organizations across the globe are-
Popular Nonprofit Organizations in the World
- Metropolitan Museum of Art
- American Civil Liberties Union Foundation
- Amnesty International USA
- Planned Parenthood Federation of America
- American Heart Association
- American Red Cross
- The New York Public Library
- Do Something
- American Museum of Natural History
- The Museum of Modern Art
- Doctors Without Borders, USA
- Wikimedia Foundation
- Center for Constitutional Rights
- ALSAC – St. Jude Children’s Research Hospital
- Natural Resources Defense Council
- National Geographic
- The Rotary Foundation of Rotary International
- People for the Ethical Treatment of Animals
- San Diego Zoo Global
- United Nations Human Rights
- American Society for the Prevention of Cruelty to Animals
- The Center for Strategic and International Studies
- Oxfam America
- Make-A-Wish America, etc.
Difference between Nonprofit Organizations & Not for Profit Organizations
These two terms are often confused for each other as people don’t know the thin line between them.
They are almost identical in terms of leverages that they get for tax-exemptions, but the significant difference lies in the purpose. A nonprofit organization works for the public cause, whereas not for profit organizations may not work for the public cause.
Both nonprofit, as well as not for profit organizations, do not focus on earning hefty profits or earning profit for the owner. The money that is earned through the functioning and donations is invested in running the organization.
Nonprofit organizations hold a paid staff most of the time, whereas not for profit organizations are run by volunteers.
Advantages of an NPO
The tag of NPO follows numerous advantages –
- Tax-exemption –The most significant advantage that an NPO has is the tax-exemption. Not only the organization is liable to it, but the donators who invest in the organization are also exempted from tax on those donations.
- Labour rules exemption –NPOs are exempted from many rules and regulations set for the organizations by the authorities.
- Government support –NPOs get massive support from the government in their functioning. The authorities legally support them at different stages.
- Recognition and public support –These organizations get recognized as a reputable organization in the society hence gain positive support from the public. The donations that they receive are a form of public support.
Disadvantages of an NPO
Yes, there are certain disadvantages of an NPO –
- Weak bureaucracy–Undoubtedly, NPO get tremendous legal support, but sometimes these organizations are caught up in weak bureaucracy. There are specific guidelines by the authorities to such organizations, violation of which can get the organization in trouble.
- No personal control –Every decision that is made by the organization is by its board of directors. The founder of the organization doesn’t get complete personal control over the functioning of the organization.
- Expenditure –Though the cost associated with the incorporation of the organization is often not too much, but sometimes these can act as an extra burden on the organization.
Tips for Nonprofit Organizations
- Have a clear objective of the functioning of the organization.
- Follow all the legal steps while incorporating to ensure no legal worries in the future.
- Form a proper leadership of the organization, which includes directors, staff, officers, and so on.
- Set compensation for these posts.
- Have a clear thought about fundraising.
- Seek support from the media.
- Adhere to the authorities’ guidelines and serve no wrong deeds.
These are the essential tips that every nonprofit organization should follow for the smooth functioning of the organization.
So, that was all about nonprofit organizations and the way they function.
We hope it would have guided you about the ways through which you can use NPOs to fulfilling your social causes.
Having any doubts about NPOs?
Want us to guide you in the creation of your Nonprofit Organizations? Feel free to share your details with us and M91 team will guide you in the process.