Two Basic Types of Organizations: For-Profit (Business) and Nonprofit© Copyright Carter McNamara, MBA, PhD, Authenticity Consulting, LLC. Show
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NOTE: Many people would argue that a nonprofit organization is also a business organization, if they believe that a business is an organization that provides value to consumers and gets suitable value in return. For-Profit (Business) OrganizationsA for-profit organization exists primarily to generate a profit, that is, to take in more money than it spends. The owners can decide to keep all the profit themselves, or they can spend some or all of it on the business itself. Or, they may decide to share some of it with employees through the use of various types of compensation plans, e.g., employee profit sharing. (We’ll read later about the legal forms of a for-profit, including sole proprietorships, partnerships and corporations. More information is available back in the main category Understanding Organizations. Nonprofit Organizations(The following information, in large part, was developed by Putnam Barber, President of the Evergreen State Society in Seattle, Washington) A nonprofit organization exists to provide a particular service to the community. The word “nonprofit” refers to a type of business — one which is organized under rules that forbid the distribution of profits to owners. “Profit” in this context is a relatively technical accounting term, related to but not identical with the notion of a surplus of revenues over expenditures. Most nonprofits businesses are organized into corporations. Most corporations are formed under the corporations laws of a particular state. Every state has provisions for forming nonprofit corporations; some permit other forms, such as unincorporated associations, trusts, etc., which may operate as nonprofit businesses on slightly (but sometimes importantly) different terms. The Internal Revenue Service (IRS) gets involved because corporations are, in general, required to pay federal corporate income taxes on their net earning (another technical term, pointing to a slightly different way to the idea of a surplus of revenue over expenses). Section 501 of the Internal Revenue Code lists several circumstances under which corporations are exempt from these taxes. Section 501(c)(3) — the famous one — describes corporations (1) serving charitable, religious, scientific or educational purposes (2) no part of the income of which “inures to the benefit of” anyone. Tax-exempt nonprofit corporations can, and do, operate in all other particulars like any other sort of business. They have bank accounts; own productive assets of all kinds; receive income from sales and other forms of activity, including donations and grants if they are successful at finding that sort of support; make and hold passive investments; employ staff; enter into contracts of all sorts; etc. There are some specialized tax rules and accounting practices that apply to nonprofit corporations. If they are of a certain size, they are required to disclose many details of their operations to the general public and to state regulators and watchdog agencies using IRS form 990. This form shows any salaries paid to officers or directors and to the five highest-paid employees and contracts if any receive over $50,000 in the tax year (at the time of this writing in 1998). The form also requires the organization to divide its expenses into “functional categories” — program, administration and fund-raising — and report the totals for each along with the amounts expended on each program activity. To understand more about nonprofits, see Additional Perspectives on Nonprofit Organizations
For the Category of Organizational Development:To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources. Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.
What organization provides goods and services?A business can be defined as an organisation that provides goods and services to others who want or need them.
What is a company that makes a profit by selling goods?A retailer is the last link in the supply chain. These businesses purchase goods from manufacturers or distributors and then sell them to customers for a price that will both cover expenses and turn a profit.
What is the money a company earns from providing services or selling goods to customers?Revenue is the money earned by a company obtained primarily from the sale of its products or services to customers.
What is a business organization?business organization, an entity formed for the purpose of carrying on commercial enterprise. Such an organization is predicated on systems of law governing contract and exchange, property rights, and incorporation.
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An organization that provides goods and services while seeking to operate at a profit
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