Nonprofit vs. not-for-profit: Which is right for you?

What's the difference between a nonprofit and a not-for-profit? Are they the same thing?

While they're often used interchangeably, nonprofits and not-for-profits are actually two distinct types of organizations. Each has its own organizational structure, goals, and ways of supporting its employees. Plus, they're viewed as two distinct groups by the IRS (Internal Revenue Service), which offers each its own unique code to achieve tax-exempt status.

Whether you're looking to start your own nonprofit, filing for tax-exempt status, or making a donation to a nonprofit organization, it's helpful to know the differences between a nonprofit and a not-for-profit. Below, we dive into the nonprofit vs. not-for-profit debate, including the not-for-profit definition and nonprofit vs. not-for-profit examples so you can understand both. 

What is a nonprofit organization?

A nonprofit organization (NPO) is an organization that raises money to accomplish an altruistic mission (like helping those in need)—and there are about 1.3 million of them in the United States!

In all, there are more than 30 types of nonprofits (i.e., tax-exempt organizations), each within different sections of the tax code. Some of the most well-known types of nonprofit organizations include:

• Section 501(c)(4): These include social welfare organizations, homeowners associations, and volunteer firefighter organizations.
• Section 501(c)(5): This section is made up entirely of labor unions.
• Section 501(k): This includes childcare organizations.
• Section 501(c)(3): Finally, the most common type of organization within the United States code falls under "charities," which includes most charitable nonprofits, private foundations, trusts, and religious groups.

✅ Pros of starting a nonprofit

• Helps create a positive impact
• Creates community engagement
• Can rely on several funding sources and staff

❌ Cons of starting a nonprofit

• Often relies on the donations of individuals or corporations
• Must follow legal reporting requirements
• Can be an administrative burden

⭐ Popular nonprofit examples: Habitat for Humanity, Meals on Wheels

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What is a not-for-profit organization?

A not-for-profit (NFPO) is an organization that, like a nonprofit, doesn’t seek to turn a profit. However, unlike a nonprofit, a not-for-profit doesn't have to exist for the sole purpose of improving society.

While a nonprofit exists for a specific charitable purpose, a not-for-profit can exist to benefit the interests of its members. 

✅ Pros of starting a not-for-profit

• Serves personal interests
• Can help create a positive impact 

❌ Cons of starting a not-for-profit

• Relies on volunteers
• Follows different tax code
• Can not have a separate legal entity

⭐ Common not-for-profit example: An amateur running club may raise funds to cover race entry fees, pay for gas, provide airline miles to travel for races, or even host its own holiday party. These costs could be paid through a fundraiser (such as sponsoring a 5K race), but they're mostly paid through fees and dues of its members.

Nonprofit vs. not-for-profit: 4 key differences

While nonprofits and not-for-profits are different, they do have a few things in common. Mainly, both do not include running for-profit businesses (generating profits). Business entities, or for-profit companies, are typically run by business owners, and pay taxes just like any other for-profit corporation. 

To better understand nonprofits vs. not-for-profits, let’s dig further into the few key differences between the two:

1. Differences in purpose 💪

Both nonprofits and not-for-profit organizations aim to raise funds—but for different purposes.

💛 Nonprofits: Charitable organizations exist to do good for the sole purpose of providing a public benefit. Nonprofits are founded to keep people within our communities safe, healthy, and well-fed, to protect our environment and the species that live in it, or to advance public safety, creating a future for the children in our communities.

🎉 Not-for-profits: Not-for-profits, on the other hand, can exist for the pure enjoyment of their members. A NFPO can be a sports club, social group, trade organization, college social club (like fraternities and sororities), or a social advocacy group.

2. Differences in goals and objectives 🏆

💛 Nonprofits: Each year, nonprofits typically develop a strategic plan to help set goals for accomplishing their mission. For example, they may set a goal to feed more families, help more low-income students apply for a four-year university, or lobby for new bills to combat climate change.

🎉 Not-for-profits: Conversely, a not-for-profit will likely set goals that serve their personal interests. For example, a soccer league will aim to raise funds to attend an out-of-state tournament.

3. Differences in staff and organizational hierarchy 👯

💛 Nonprofits:  A nonprofit will require an employed staff to accomplish its mission. As a startup, it might rely on founders and a group of volunteers to accomplish its goals. However, as it scales, it will need full-time staff, a board of directors, and an executive team.

🎉 Not-for-profits: A not-for-profit relies completely on its ability to recruit volunteers. There are no paid staff—instead, people simply volunteer their time for the sake of the organization.

4. Differences in nonprofit status 📝

When it comes to filing with the IRS, there are several similarities between nonprofits and not-for-profits. For example, both types of organizations will need to follow similar steps to achieve tax-exempt status, such as:

• Documenting their articles of incorporation
• Establishing their bylaws
• Creating a bank account
• Getting an EIN number

However, there are several key differences between nonprofits and not-for-profits under the Internal Revenue Code. 

💛 Nonprofits: Most charitable organizations will have 501(c)(3) status. As a 501(c)(3) organization, donations are tax-deductible.

🎉 Not-for-profits: Many not-for-profit organizations are filed as "social clubs" under 501(c)(7), which has strict guidelines as to how it can raise funds to cover operational costs and other expenses. Plus, the funds raised are not tax deductible. 

Nonprofit vs. not-for-profit: How to choose the right one for you 

When it comes to deciding which kind of organization is right for you, be sure to consider your goals and available resources. 

Nonprofits’ sole purpose is to help make the world a better place—whether the objective is to provide aid and relief to disaster zones or help clean up a local city or town. With a nonprofit, your organization can receive charity status, allow for tax-deductible donations, and raise funds through various fundraising activities and initiatives. 

Plus, you can bring in all the help you need: board members, full-time staff, and even volunteers. If your goal is to make a positive impact in the world of your community, creating a nonprofit might be the perfect fit.

However, if you’re a sports organization or social club, for example, looking to raise money to pay for membership perks, social gatherings, or the like, running a not-for-profit is most likely a better choice. Though these kinds of organizations can apply for tax-exempt status, they don’t get the benefits of tax-deductible donations—plus, they have to rely on the generosity of volunteers to get their work accomplished. 

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Whether you're raising funds as an NPO or NFPO, there are lots of tools and resources available to help make your organization a success (without breaking the bank).

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Ready to see how Givebutter can help you raise more for your mission? Launch your free account and get started today. 

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