Is there a difference between 'nonprofit' and 'not-for-profit'?
Summary:
Both terms are frequently used and frequently seen. There is no firmly established distinction, though some people have strong preferences between them.
Answer:
In a message to NONPROFIT on 5/3/98, Larry Holmes
(ldholmes@kingwoodcable.com) wrote:
What is the difference between a nonprofit and a not-for-profit?
Elliott I. Alvarado (eia1957@aol.com) replied:
Several replies to this query are correct in the notion that there is no
perceived difference between the two terms. Legal statutes even refer to
the
two terms as being synonymous. But the *practical* legal definition (as
established by the wise and beneficient people at the IRS) does make a
distinction.
"Not-for-profit" refers to an activity, for example, a hobby (like fishing).
"Nonprofit" refers to an organization established for purposes other than
profit-making. Note here that nonprofit does not necessarily mean
"charitable."
For example, a "nonprofit" organization can be an association of people who
like fishing (though the activity does not have to be not-for-profit).
Legal folk and academicians tend to use the "nonprofit" term, whilst fund-
raisers (such as the National Society of Fund Raising Executives) tend to
use
the "not-for-profit" term. Generally, this does not cause problems since
everyone within the sector knows what everyone else means.
There is some feeling that "not-for-profit" more appropriately describes the
organizations in this sector to the general public. IMHO, I feel that the
use
of this term in this manner introduces a layer of complexity on top of the
"legal" defintion that only serves to confuse the general public. For this
reason, I prefer to use the "nonprofit" term when I speak of organizations
that operate without purpose of profit.
Also note that the use of the term "non-profit" with the dash in between the
letters. There is no implied or distinctive definition attached to this word
(as far as I know). I have noticed the use of this term to introduce
concepts
or explain technical aspects of organization when an audience is *not*
familiar with nonprofit operations.
Everyone has a preference. But not everyone can cite a reference...
My reference is the Great Wizard of Legal Stuff:
Bruce Hopkins, author of the Nonprofit Legal Dictionary and other
works.
(NOTE: Hopkins' Dictionary is out of print. You can order his
href="http://www.amazon.com/exec/obidos/ASIN/0471585076/internetnonprofi">
Starting and Managing a Nonprofit Organization from Amazon.Com
using this link. Your purchase will generate a small royalty which will be
used to maintain this site. -- PB 2/7/99)
-elliott
Roger Hughes (rahughes@PRIMENET.COM) wrote in ARNOVA-L in
January of 1999:
It's interesting to read people's take on the "corruptible sector",
the
intrustion of for-profit groups into traditional nonprofit "work,"
and
related matters. For my taste, we make too much of distinctions
between
nonprofits and for-profits, and were I to venture a guess about some
distant future, I would predict that the distinction will eventually
become
operationally, if not legally, meaningless.
As the CEO of a health "conversion" foundation, I spend a fair
amount of
time talking with my trustees and commununity members about terms
like
'accountabiliy,' 'public interest' and the 'law' governing such
things. My
board wants to know not only what is legally permissible for our
organization in carrying out its mission of helping disadvantaged
populations access health care and address important public health
issues,
but also what is the "right thing to do" given the circumstances of
our
genesis from a hospital system to a health public charity. The
spurious
conflation of the legal with the ethical, which many (but not all)
lawyers
seem predisposed to gloss with their profession's cynical world
view, is
often reduced to a sidebar in the more immediate discussion of how
we can
be most effective in being a "catalyst for community health," a
statement
of intent that we take seriously. As the person charged with
directing
this operation on behalf of a community board, I first look at the
outcome
we want to achieve, and then consider what relationships with other
groups
-- nonprofit and for-profits alike -- might hold promise for the
best
results. I and others judge these groups on the basis of their
track
records, their "folklore" in the community and their respective
fields, an
assessment of both individual and organizational character and,
quite
frankly, the political and social exigencies of the moment. As it
turns
out, tax status is not always the defining element.
No one holds a monopoly on ethics, and certainly not on good
judgment.
It's just as easy to hand out the goodies under the table in a
nonprofit as
it is in a for-profit, and to wear a sackcloth in either. I once
recommended a grant to a nonprofit organization working with
disadvantaged
inner city youth whose executive director subsequently brought a
Jaguar and
apparently disappeared off the face of the Earth. I once used a
fiscal
agent organization that used grant funds to hire a private
contractor in a
drug therapy program whose directors were paid obsence fees for zero
work,
as I found out later. It wasn't the tax status that tripped me up,
but
poor judgment, lack of credible information, glib talk and the usual
quotidian distractions of life. Of course, if that were all there
was to
my odd career as a grant maker, then I wouldn't still be around
today;
suffice it to say that I've learned to worry less about tax and
organizational definitions as I've gained more experience in the
ambiguity
and final irony of human affairs. Basically, I'd do business with
the
Devil himself if I thought he was in a weak moment where he might
actually
consider doing some good somewhere.
Most of the people on the ARNOVA list appear to be academics, and no
doubt the
preoccupation with categories, regulations and history has some
practical
as well as theoretical import. But when it's all send and done,
some of us
prefer to make it up as we go along. I used to have "pure" thoughts
about
distinctions between nonprofits and for-profits, boards and staff,
theory
and practice, and all sorts of other dualisms, but it's hard to find
the
energy for that kind of clarity in the fuzzy illogic of practical
human
affairs. It's possible to do business on both sides of the street
at once
and prosper. Anyway, that's my experience.
Richard Flyer (rflyer@earthlink.net) added the next day:
As a former director of a CBO in San Diego, CA I can report that in
1994 we created (as
many non-profits are doing in the last several years) a "food
cooperative" grocery store in a low-income neighborhood that was a
C-Corporation, and wholly owned by the non-profit. I spoke directly
with the regional manager of the IRS in Fresno about it at the time
and all they cared about was to distinguish the for-profit store
part
(pay tax on income) and the non-profit.
The non-profit controlled 100% of the shares of the for-profit. The
idea was to vest shares and thus actuall ownership of the store to
the
employees through time as revenues increased.
We did this as a way to increase community ownership in an area that
was
historically dominated by "outside" (non-resident) ownership.
GOING FURTHER
There are other models that totally break down any distinction
between
non-profit and for profit.
The cooperative ownership model. Pioneered in Europe in the 19th
century it is still alive and going strong through thousands of
worker-owned and consumer-owned cooperatives like credit unions.
This
form of business has a social mission (to benefit the members) and
necessarily a business consciousness because they need to survive
economically.
The social investment movement and the social business movement.
The
U.S. organization World Share (and its many SHARE affiliates) have
explored harmonizing the social mission aspects and the business
aspects.
The fact of the separation of "non-profit" and "for-profit" sectors,
in
my opinion, has to do with the schizophrenic consciousness of people
who
are "just trying to make money" and those "who want to do good
works."
As a former director of another organization in the late 90's, the
San
Diego Food Bank, I realized that the best thing we could do for
hungry
people (beyond giving them emergency food) was to find ways to help
them
to get money so that they could buy food without having to go to a
food
distribution organization---basically, I wanted to put the food bank
out
of "business." The way that I choose to do this was to help people
start microenterprises and restructure our organization to be
"entrepreneurial", to become an employer and a job training
organization.
Back to the mental split. Until there are leaders of
organizations/business who make the conscious leap and can reconcile
and
harmonize these two areas, there will not be any innovations that
can be
profound enough to reverse the polarazation between the rich and
poor on
the planet.
We need to bring a "spiritual" (read: loving, sharing,
compassionate,
etc.) consciousness to business and at the same time bring an
"entrepreneurial" conscioussness to social organizatioins--- at some
time in the future the distinctions will vanish--- and humamity will
have evolved an entirely new form of organization that will finally
put
an end to local/global poverty so that we can get around to building
a
truly global civilization.
ARNOVA-L is sponsored by the Association for Research on
Nonprofit Organizations and Voluntary Action --
http://www.arnova.org/
Posted with permission of the authors, 1/16/99 -- PB
Posted 5/3/98, revised 2/7/99, 1/20/00 -- PB
