What is a nonprofit? We get asked that a lot. There are a lot of misconceptions about what nonprofits are and how they work. There are many ways to define a nonprofit, but this version recently put forth by Entrepreneur.com is among the best:
“A business organization that serves some public purpose; and therefore, enjoys special treatment under the law.”
Nonprofit corporations, contrary to their name, can make a profit, but can’t be designed primarily for profit-making. Nonprofits have no owner or shareholders. They have a guiding board of directors (required by law) that helps guide the organization on behalf of the stakeholders who are generally thought of as the community itself. Nonprofit organizations are usually Florida business entities that have filed as corporations with the State of Florida. They can do it the same way for-profit companies, registering either through Sunbiz.org, their lawyer, CPA or some other service. They also have to register locally for an occupational license and all the other items a business may need to be legal. If they are going to do any kind of significant fundraising, they will have to get a permit to do so.
Here is a bad definition of a nonprofit organization as seen in many dictionaries:
“An entity not engaged in making a profit or profits.”
It not only should make a profit, it must make a profit! This archaic idea that a nonprofit should not make money is a misconception that has made the sector pay dearly in the past. It is called a nonprofit entity because it does not distribute any of its net earnings to individuals involved in the organization. Unfortunately, common thinking is that the nonprofit must end each year with a zero balance and no reserves! Many board members still see themselves in the role of spending the budget down to nothing, as they believe it is the right thing to do. Imagine running a for-profit company that way. It wouldn’t be around very long, would it?
In recent years, people have been trying to refer to nonprofits in a more up-to-date context using names such as mission-based organization (MBO), tax exempt organization or non-government organization (NGO). The following names are all use interchangeably in referring to a nonprofit organization. They are all correct; it’s just a matter of local usage:
NPO (nonprofit organization)
NGO (non-government organization)
MBO (Mission-based organization)
More Naming Confusion
On a different note, we find that sometimes people are using the .org registry to identify their web site when they are actually a for-profit organization. Most people simply took it because .com was not available, not realizing it is misleading. Unfortunately, some businesses out there are clearly trying to give the impression that they are nonprofit when they certainly are not. This is unethical and should be avoided.
NOTE: To participate in ScaleUp North Florida, a business must be a for-profit entity. We are sharing this useful information for business owners who wish to start a nonprofit in addition to their for-profit business.
This guest blog post was submitted by Kevin Monahan, consultant and special projects director at the Florida Small Business Development Center at UNF. One of Kevin’s specialties is helping nonprofit owners start and grow their organizations. He can be reached at firstname.lastname@example.org or (904) 620-2476.