A. Not For Profit vs. For Profit
Nonprofit Organizations and Other Tax-Exempt Entities
Depending on your goals and the circumstances surrounding your business, a tax-exempt (or nonprofit) entity may be the best fit for you. Filing for tax-exemption is a long and meticulous process; however, it has some benefits if it furthers your goals. In any event, think carefully about what you are trying to accomplish and talk to an attorney if you think a tax-exempt entity best serves your needs.
Nonprofit or For-Profit?
Nonprofits and for-profits differ not only in their legal structure, but also in how money can be raised and used. As already shown, it is possible to create a for-profit business with a social mission, so you need to consider all of the relevant factors before making a decision.
| For-Profit Business | Nonprofit | |
| Can it make money and generate a profit? | Yes | Yes |
| How can profits be spent? | Profits belong to the business owners. | Profits must not benefit an individual owner and must be put back into the organization to help fulfill its mission. |
| Does it pay taxes? | Yes, although the types of tax vary by the business’s legal structure. | No, for the most part. Nonprofits only pay employee taxes and are typically exempt from the rest. |
| Can it raise money / capital? | Yes | Yes |
| From whom does it raise money? | Money can be raised from investors in exchange for part ownership in the business. | Money can be raised from donors (individuals, business, churches, government, and private foundations) who receive a tax deduction in exchange. Donors cannot be given ownership of the organization. |
| Who owns the organization’s property or assets? | The business owner(s) (shareholders) | The nonprofit organization. If it ceases to exist, its assets must be given to another nonprofit. |
| Who is in charge? | The business owner(s). | The board of directors. |