Profit vs. Non-Profit by tallest1

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									                              Profit vs Non-Profit

For-Profit distinction
A business (also called a company, enterprise or firm) is a legally recognized
organization designed to provide goods and/or services to consumers.[1]
Businesses are predominant in capitalist economies, most being privately owned
and formed to earn profit that will increase the wealth of its owners and grow the
business itself. The owners and operators of a business have as one of their
main objectives the receipt or generation of a financial return in exchange for
work and acceptance of risk. Notable exceptions include cooperative enterprises
and state-owned enterprises. Businesses can also be formed not-for-profit or be

The etymology of "business" relates to the state of being busy either as an
individual or society as a whole, doing commercially viable and profitable work.
The term "business" has at least three usages, depending on the scope — the
singular usage (above) to mean a particular company or corporation, the
generalized usage to refer to a particular market sector, such as "the music
business" and compound forms such as agribusiness, or the broadest meaning
to include all activity by the community of suppliers of goods and services.
However, the exact definition of business, like much else in the philosophy of
business, is a matter of debate and complexity of meanings

Partnership: A partnership is a form of business in which two or more people
operate for the common goal which is often making profit. In most forms of
partnerships, each partner has personal liability of the debts incurred by the
business. There are three typical classifications of partnerships: general
partnerships, limited partnerships, and limited liability partnerships.
 Corporation: A corporation is either a limited or unlimited liability entity that has a
separate legal personality from its members. A corporation can be organized for-profit
or not-for-profit. A corporation is owned by multiple shareholders and is overseen by a
board of directors, which hires the business's managerial staff. In addition to privately-
owned corporate models, there are state-owned corporate models.
Cooperative: Often referred to as a "co-op", a cooperative is a limited liability entity
that can organize for-profit or not-for-profit. A cooperative differs from a corporation in
that it has members, as opposed to shareholders, who share decision-making authority.
Cooperatives are typically classified as either consumer cooperatives or worker
cooperatives. Cooperatives are fundamental to the ideology of economic democracy.
The major factors affecting how a business is organized are usually:

      The size and scope of the business, and its anticipated management
       and ownership. Generally a smaller business is more flexible, while larger
       businesses, or those with wider ownership or more formal structures, will
       usually tend to be organized as partnerships or (more commonly)
       corporations. In addition a business that wishes to raise money on a stock
       market or to be owned by a wide range of people will often be required to
       adopt a specific legal form to do so.
      The sector and country. Private profit making businesses are different
       from government owned bodies. In some countries, certain businesses
       are legally obliged to be organized in certain ways.
      Limited liability. Corporations, limited liability partnerships, and other
       specific types of business organizations protect their owners or
       shareholders from business failure by doing business under a separate
       legal entity with certain legal protections. In contrast, unincorporated
       businesses or persons working on their own are usually not so protected.
      Tax advantages. Different structures are treated differently in tax law, and
       may have advantages for this reason.
      Disclosure and compliance requirements. Different business structures
       may be required to make more or less information public (or reported to
       relevant authorities), and may be bound to comply with different rules and

Many businesses are operated through a separate entity such as a corporation
or a partnership (either formed with or without limited liability). Most legal
jurisdictions allow people to organize such an entity by filing certain charter
documents with the relevant Secretary of State or equivalent and complying with
certain other ongoing obligations. The relationships and legal rights of
shareholders, limited partners, or members are governed partly by the charter
documents and partly by the law of the jurisdiction where the entity is organized.
Generally speaking, shareholders in a corporation, limited partners in a limited
partnership, and members in a limited liability company are shielded from
personal liability for the debts and obligations of the entity, which is legally
treated as a separate "person." This means that unless there is misconduct, the
owner's own possessions are strongly protected in law, if the business does not
Where two or more individuals own a business together but have failed to
organize a more specialized form of vehicle, they will be treated as a general
partnership. The terms of a partnership are partly governed by a partnership
agreement if one is created, and partly by the law of the jurisdiction where the
partnership is located. No paperwork or filing is necessary to create a
partnership, and without an agreement, the relationships and legal rights of the

partners will be entirely governed by the law of the jurisdiction where the
partnership is located.
A single person who owns and runs a business is commonly known as a sole
proprietor, whether he or she owns it directly or through a formally organized
A few relevant factors to consider in deciding how to operate a business include:

   1. General partners in a partnership (other than a limited liability partnership),
      plus anyone who personally owns and operates a business without
      creating a separate legal entity, are personally liable for the debts and
      obligations of the business.
   2. Generally, corporations are required to pay tax just like "real" people. In
      some tax systems, this can give rise to so-called double taxation, because
      first the corporation pays tax on the profit, and then when the corporation
      distributes its profits to its owners, individuals have to include dividends in
      their income when they complete their personal tax returns, at which point
      a second layer of income tax is imposed.
   3. In most countries, there are laws which treat small corporations differently
      than large ones. They may be exempt from certain legal filing
      requirements or labor laws, have simplified procedures in specialized
      areas, and have simplified, advantageous, or slightly different tax
   4. To "go public" (sometimes called IPO) -- which basically means to allow a
      part of the business to be owned by a wider range of investors or the
      public in general—you must organize a separate entity, which is usually
      required to comply with a tighter set of laws and procedures. Most public
      entities are corporations that have sold shares, but increasingly there are
      also public LLCs that sell units (sometimes also called shares), and other
      more exotic entities as well (for example, REITs in the USA, Unit Trusts in
      the UK). However, you cannot take a general partnership "public."

When businesses need to raise money (called 'capital'), more laws come into
play. A highly complex set of laws and regulations govern the offer and sale of
investment securities (the means of raising money) in most Western countries.
These regulations can require disclosure of a lot of specific financial and other
information about the business and give buyers certain remedies. Because
"securities" is a very broad term, most investment transactions will be potentially
subject to these laws, unless a special exemption is available.

Capital may be raised through private means, by public offer (IPO) on a stock
exchange, or in many other ways. Major stock exchanges include the Shanghai
Stock Exchange, Singapore Exchange, Hong Kong Stock Exchange, New York
Stock Exchange and Nasdaq (USA), the London Stock Exchange (UK), the

Tokyo Stock Exchange (Japan), and so on. Most countries with capital markets
have at least one.

Business that have gone "public" are subject to extremely detailed and
complicated regulation about their internal governance (such as how executive
officers' compensation is determined) and when and how information is disclosed
to the public and their shareholders. In the United States, these regulations are
primarily implemented and enforced by the United States Securities and
Exchange Commission (SEC). Other Western nations have comparable
regulatory bodies. The regulations are implemented and enforced by the China
Securities Regulation Commission (CSRC), in China. In Singapore, the
regulation authority is Monetary Authority of Singapore (MAS), and in Hong
Kong, it is Securities and Futures Commission (SFC).

As noted at the beginning, it is impossible to enumerate all of the types of laws
and regulations that impact on business today. In fact, these laws have become
so numerous and complex, that no business lawyer can learn them all, forcing
increasing specialization among corporate attorneys. It is not unheard of for
teams of 5 to 10 attorneys to be required to handle certain kinds of corporate
transactions, due to the sprawling nature of modern regulation. Commercial law
spans general corporate law, employment and labor law, healthcare law,
securities law, M&A law (who specialize in acquisitions), tax law, ERISA law
(ERISA in the United States governs employee benefit plans), food and drug
regulatory law, intellectual property law (specializing in copyrights, patents,
trademarks and such), telecommunications law, and more.

In Thailand, for example, it is necessary to register a particular amount of capital
for each employee, and pay a fee to the government for the amount of capital
registered. There is no legal requirement to prove that this capital actually exists,
the only requirement is to pay the fee. Overall, processes like this are detrimental
to the development and GDP of a country, but often exist in "feudal" developing

Conscious Capitalism
Conscious Business is a term used to describe a business enterprise that seeks
to be aware of the effects of its actions, and to consciously affect human beings
and the environment in a beneficial way. Conscious Business also refers to a
movement towards “Values-based” economic value, where “Values” represent
social and environmental concerns globally as well as locally. The Conscious
Business movement has emerged from the theory of Corporate Social
Responsibility, and is currently related to movements of Not Just For Profit
Business Models, Conscious Consumerism, and Socially Responsible Investing.
Conscious Business could also be referred to as “Conscious Capitalism”. As well
as being a category of business, it can also mean an individual and personal
approach to business, as in "she did business consciously".

Intellectual property
Businesses often have important "intellectual property" that needs protection
from competitors for the company to stay profitable. This could require patents or
copyrights or preservation of trade secrets. Most businesses have names, logos
and similar branding techniques that could benefit from trademarking. Patents
and copyrights in the United States are largely governed by federal law, while
trade secrets and trademarking are mostly a matter of state law. Because of the
nature of intellectual property, a business needs protection in every jurisdiction in
which they are concerned about competitors. Many countries are signatories to
international treaties concerning intellectual property, and thus companies
registered in these countries are subject to national laws bound by these treaties.

The Laws of Intellectual Property
Some critics of intellectual property, such as those in the free culture movement,
point at intellectual monopolies as harming health, preventing progress, and
benefiting concentrated interests to the detriment of the masses,[19][20] and argue
that the public interest is harmed by ever expansive monopolies in the form of
copyright extensions, software patents and business method patents.
Some libertarian critics of intellectual property have argued that allowing property
rights in ideas and information creates artificial scarcity and infringes on the right
to own tangible property. Stephan Kinsella uses the following thought experiment
to demonstrate this objection:

       [I]magine the time when men lived in caves. One bright guy—let’s
       call him Galt-Magnon—decides to build a log cabin on an open
       field, near his crops. To be sure, this is a good idea, and others
       notice it. They naturally imitate Galt-Magnon, and they start building
       their own cabins. But the first man to invent a house, according to
       IP advocates, would have a right to prevent others from building
       houses on their own land, with their own logs, or to charge them a
       fee if they do build houses. It is plain that the innovator in these
       examples becomes a partial owner of the tangible property (e.g.,
       land and logs) of others, due not to first occupation and use of that
       property (for it is already owned), but due to his coming up with an
       idea. Clearly, this rule flies in the face of the first-user
       homesteading rule, arbitrarily and groundlessly overriding the very
       homesteading rule that is at the foundation of all property rights.[21]

Other criticism of intellectual property law concerns the tendency of the
protections of intellectual property to expand, both in duration and in scope. The
trend has been toward longer copyright protection[22] (raising fears that it may
some day be eternal[23][24][25][26]). In addition, the developers and controllers of
items of intellectual property have sought to bring more items under the
protection. Patents have been granted for living organisms,[27] and colors have

been trademarked[28]. Because they are systems of government-granted
monopolies copyrights, patents, and trademarks are called intellectual monopoly
privileges, (IMP) a topic on which several academics, including Birgitte
Andersen[29] and Thomas Alured Faunce[30] have written.

Non-profit distinction
Whereas for-profit organizations exist to earn and re-distribute taxable wealth to
employees and shareholders, the nonprofit corporation exists solely to provide
programs and services that are of self-benefit. Often these programs, services
and policies are overlooked and not otherwise executed or enforced by the
government. While they are able to earn a surplus, more accurately called a
profit, such earnings must be retained by the organization for its self-
preservation, expansion and future plans. Earnings may not benefit individuals or
stake-holders.[3] While some nonprofit organizations put substantial funds into
hiring and rewarding their internal corporate leadership, middle-management
personnel and workers, others employ unpaid volunteers and even executives
may work for no compensation. However, since the late 1980s there has been a
growing consensus that nonprofits can achieve their corporate targets more
effectively by using some of the same methods developed in for-profit
enterprises. These include effective internal management, ensuring
accountability for results, and monitoring the performance of different divisions or
projects in order to better benefit from their capital and workers. Those require
satisfied management and that, in turn, begins with the organization's mission.[4]

Formation and structure
In the United States, nonprofit organizations are formed by incorporating in the
state in which they expect to do business. The act of incorporating creates a
legal entity enabling the organization to be treated as a corporation under law
and to enter into business dealings, form contracts, and own property as any
other individual or for-profit corporation may do.
Nonprofits can have members but many do not. The nonprofit may also be a trust
or association of members. The organization may be controlled by its members
who elect the Board of Directors, Board of Governors or Board of Trustees.
Nonprofits may have a delegate structure to allow for the representation of
groups or corporations as members. Alternately, it may be a non-membership
organization and the board of directors may elect its own successors.
A primary difference between a nonprofit and a for-profit corporation is that a
nonprofit does not issue stock or pay dividends, (for example, The Code of the
Commonwealth of Virginia includes the Non-Stock Corporation Act that is used to
incorporate nonprofit entities) and may not enrich its directors. However, like for-
profit corporations, nonprofits may still have employees and can compensate
their directors within reasonable bounds.

The two major types of nonprofit organization structure are membership and
board-only. A membership organization elects the board and has regular
meetings and power to amend the bylaws. A board-only organization typically
has a self-selected board, and a membership whose powers are limited to those
delegated to it by the board. A board-only organization's bylaws may even state
the organization has no membership, although the organization's literature may
refer to its donors as "members"; examples of such structures are Fairvote[5][6]
and the National Organization for the Reform of Marijuana Laws.[7] The Model
Nonprofit Corporation Act imposes many complexities and requirements on
membership decision-making. Accordingly, many organizations , such as
Wikimedia,[8] have formed board-only structures. The National Association of
Parliamentarians has raised concerns about the implications of this trend for the
future of openness, accountability, and understanding of grassroots concerns in
nonprofit organizations. Specifically, they note that nonprofit organizations, unlike
business corporations, are not subject to market discipline for products and
shareholder discipline over their capital; therefore, without membership control of
major decisions such as election of the board, there are few inherent safeguards
against abuse.[9][10] A rebuttal to this might be that as nonprofit organizations
grow and seek larger donations, the level of scrutiny rises, including expectations
of audited financial statements.[11]

United States
        For a United States analysis of this issue, see 501(c) and Charitable
        organization#United States.
After a recognized type of legal entity has been formed at the state level, it is
customary for the nonprofit organization to seek tax exempt status with respect to
its income tax obligations. That is typically done by applying to the Internal
Revenue Service (IRS), although statutory exemptions exist for limited types of
nonprofit organizations. The IRS, after reviewing the application to ensure the
organization meets the conditions to be recognized as a tax exempt organization
(such as the purpose, limitations on spending, and internal safeguards for a
charity), may issue an authorization letter to the nonprofit granting it tax exempt
status for income tax payment, filing, and deductibility purposes. The exemption
does not apply to other Federal taxes such as employment taxes. Additionally, a
tax-exempt organization must pay federal tax on income that is unrelated to their
exempt purpose.[17] Failure to maintain operations in conformity to the laws may
result in an organization losing its tax exempt status.
Individual states and localities offer nonprofits exemptions from other taxes such
as sales tax or property tax. Federal tax-exempt status does not guarantee
exemption from state and local taxes, and vice versa. These exemptions
generally have separate application processes and their requirements may differ
from the IRS requirements. Furthermore, even a tax exempt organization may be
required to file annual financial reports (IRS Form 990) at the state and federal

Issues faced by NPOs
Capacity building is an ongoing problem faced by NPOs for a number of reasons.
Most rely on external funding (government funds, grants from charitable
foundations, direct donations) to maintain their operations and changes in these
sources of revenue may influence the reliability or predictability with which the
organization can hire and retain staff, sustain facilities, or create programs. In
addition, unreliable funding, long hours and low pay can lead to employee
burnout and high turnover rates.
Founder's syndrome is an issue organizations face as they grow. Dynamic
founders with a strong vision of how to operate the project try to retain control
over the organization, even as new employees or volunteers want to expand the
project's scope and try new things.

In the United States, two of the wealthiest non-profit organizations are the Bill
and Melinda Gates Foundation, which has an endowment of $38 billion,[18] and
the Howard Hughes Medical Institute, which has an endowment of approximately
$14.8 billion. Outside the United States, another large NPO is the British
Wellcome Trust, which is a "charity" in British usage. See: List of wealthiest
foundations. Note that this assessment excludes universities, at least a few of
which have assets in the tens of billions of dollars. For example; List of U.S.
colleges and universities by endowment
Measuring an NPO by its monetary size has obvious limitations, as the power
and significance of NPOs are defined by more qualitative measurements such as
effectiveness at carrying out charitable mission and goals.
Some NPOs which are particularly well known, often for the charitable or social
nature of their activities conducted over a long period of time, include Amnesty
International, the Better Business Bureau, Oxfam, Carnegie Corporation of New
York, DEMIRA Deutsche Minenräumer (German Mine Clearers), Goodwill
Industries, United Way, The National Rifle Association, ACORN, Habitat for
Humanity, Teach For America, the Red Cross and Red Crescent organizations,
UNESCO, IEEE, World Wide Fund for Nature, Heifer International, and SOS
Children's Villages.
However, there are also millions of smaller NPOs that provide social services
and relief efforts on a more focused level (such as Crosswind — Community
Outreach Ministry and Literacy Center West) to people throughout the world.
There are more than 1.6 million NPOs in the United States alone.

Other terminology for the sector
There is a growing movement within the “non”-profit and “non”-government
sector to define itself using more proactive wording. Instead of being defined by

“non” words, organizations are suggesting new terminology to describe the
sector. The term “civil society organization” (CSO) has been used by a growing
number of organizations, such as the Center for the Study of Global
Governance.[19] The term “citizen sector organization” (CSO) has also been
advocated to describe the sector — as one of citizens, for citizens — by
organizations such as Ashoka: Innovators for the Public.[20] This labels and
positions the sector as its own entity, without relying on language used for the
government or business sectors. However, use of terminology by a nonprofit of
self-descriptive language such as "public service organization" or other term that
is not legally compliant risks confusing the public about nonprofit abilities,
capabilities and limitations.[21]

Community organization

Community organizations (sometimes known as community-based
organizations) are civil society non-profits that operate within a single[citation needed]
local community. They are essentially a subset of the wider group of nonprofits.
Like other nonprofits they are often run on a voluntary basis and are self funding.
Within community organizations there are many variations in terms of size and
organizational structure. Some are formally incorporated, with a written
constitution and a board of directors (also known as a committee), while others
are much smaller and are more informal.
The recent evolution of community organizations, especially in developing
countries, has strengthened the view that these "bottom-up" organizations are
more effective addressing local needs than larger charitable organizations[1].

Typical community organizations fall into the following categories: community-
service and action, health, educational, personal growth and improvement, social
welfare and self-help for the disadvantaged[2].
In Canada and elsewhere, amateur sports clubs, school groups, church groups,
youth groups and community support groups are all typical examples of
community organizations[3].
In developing countries (like those in Sub-Saharan Africa) community
organizations often focus on community strengthening, including HIV/AIDS
awareness, health clinics, orphan children support and economic issues [4].


Fundraising for community organizations can be very different from that of
charities and larger nonprofits, which benefit from endowments, institutional and
government grants, individuals, and other diverse funding sources.
Smaller community organizations typically rely on donations (monetary and in-
kind) from local community members and sponsorship from local government
and businesses. In Canada, for example, slightly over 40% of the community
organizations surveyed had revenue under C$30,000. These organizations tend
to be relationship based and people-focused. Across all sizes, Canadian
community organizations rely on government funding (49%), earned income
(35%), and gifts and donations (13%)[3].
Community fundraisers can take a people-focused approach to fundraising.
Relationship building is a key part of the people-focused approach. Relationship-
building communicates the benefits that the organization offers to the local
community. Open days and other such events are very valuable relationship-
building events.


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