Difference Between For Profit and Not For Profit

For Profit vs Not For Profit
 

Businesses and organizations differ from each based on one main aspect; purpose of operation. While most organizations operate with the aim of maximizing profitability, some organizations operate with the main aim of doing good for the society and its people. There are a number of differences between for profit organizations and not for profit organizations in terms of not only their purpose of operation but also in terms of the challenges each face, stakeholders they serve, organization culture, etc. The article offers a clear overview of each organization and compares the similarities and differences between a for profit and a not for profit organization.

What is a For Profit Organization?

A for profit organization is a firm that operates with the main aim of maximizing profitability. A for profit minimizes expenses, maximizes income, and either payout profits to the company’s shareholders or reinvest in the firm, to expand business operations. For profit companies are owned by the shareholders that purchase shares and invest their capital in the firm. A for profit is subject to a number of taxes based on its income , and is scrutinized by the Internal Revenue Service to ensure that taxes are paid on all revenue earned. A for profit organization creates income statements and balance sheets at the end of the financial year to show the financial position of the firm, total assets, liabilities, income, expenses and profits available for reinvestment or distribution to shareholders.

What is Not For Profit Organization?

A not for profit organization does not operate with the aim of making a profit. Rather, the main aim of a not for profit organization i s the wellbeing of the society. A not for profit organization is not owned by anyone and, therefore, does not payout dividends or profits to shareholders. Rather income earned by a not for profit is utilized to pay for the organization’s activities and to meet expenses. A not for profit organization does not have to pay taxes on their revenue, as the government does not tax form organizations that are set up with the aim of improving the well-being of the society. The accounting methods and financial statements prepared by a not for profit organization are quite distinct. Instead of preparing balance sheets and income statements, a not for profit organization prepares statements of financial position listing the assets and liabilities, and statement of activities that list all the organization’s revenue and expenses.

What is the difference between For Profit and Not For Profit?

As its name suggests, a for profit organization operates with the main aim of maximizing profits while a not for profit operates with the aim of improving the society’s well-being. A for profit organization is owned by shareholders that invest in the firm; therefore profits made is paid out to shareholders as dividend payments or is reinvested in the firm. A not for profit is not owned by shareholders and so any revenues and profits are used for the organization’s charitable activities and events and is used to cover expenses. One of the main differences between a for profit and not for profit organization is that a for profit is subject to taxation; its income is largely scrutinized by the IRS for the payment of taxes. A not for profit,on the other hand, is exempt from paying taxes.

Summary:

 For Profit vs Not For Profit

• Businesses and organizations differ from each based on one main aspect: purpose of operation. While most organizations operate with the aim of maximizing profitability, some organizations operate with the main aim of doing good for the society and its people.

• As its name suggests, a for profit organization operates with the main aim of maximizing profits while a not for profit operates with the aim of improving the society’s wellbeing.

• A for profit company is owned by the shareholders that purchase shares and invest their capital in the firm. A for profit minimizes expenses maximizes income and either pays out profits to the company’s shareholders or reinvests in the firm to expand business operations.

• A not for profit organization is not owned by anyone and, therefore, does not payout dividends or profits to shareholders. Rather income earned by not for profits is utilized to pay for the organization’s activities and to meet expenses.

• One of the main differences between for profit and not for profit is that for profit pays taxes on its income, whereas not for profit is exempt from paying taxes. 

 

Further Reading:

  1. Difference Between Non Profit and Not For Profit
  2. Difference Between Charity and Non Profit