Question

compare the similarities and differences between the financial objectives of private, public, and non-profit organizations.

Answer 1

Similarities between Non Profits and For Profit Business

• Both non profit as well as for profit organizations have goals and missions which are well defined. Their products or services are known by every one.

• The non profits should satisfy the objectives and needs of their various stakeholders just like a private company knows their customers and serve them accordingly.

• Both non profit and for profit organizations have limited resources and the goals must be met with the limited funds.

• Like private and commercial business corporations, many non profit organizations have boards, management and different levels of staff which help in the efficient working of the organization.

Differences between Non Profits and For Profit Business

• There is third party funding in the case of non profit but not in for profit business. A non profit may get donations, grants and government funds.

• The non profits are generally run by the volunteers but for profit businesses are run by employees who are hired at wages.

• The stakeholders might not contribute financially to the organization unlike the for profit business where the shareholders have to contribute financially.

Nonprofit organizations play a key role in the social and economic well-being of a country. They benefit society in ways that the private sector might not, which is part of the reason why a majority of nonprofit organizations are tax-exempt under Section 501(c)(3) of the Internal Revenue Code. The Internal Revenue Service (IRS) distinguishes nonprofit organizations primarily by the level of public involvement in their operations. As a result, nonprofit organizations generally fall into two distinct categories: public charities (public nonprofit organizations) and private foundations (private nonprofit organizations).

Public Charities

Public charities, or public nonprofit organizations, are the most common type of nonprofit organization classified by the IRS and what people generally think of when they hear that an institution is a "nonprofit." Although public charities include entities such as churches, homeless shelters and hospitals, the definition is broad enough to include educational sites such as universities and medical research institutions, which are considered "statutory public charities." In stark contrast with private nonprofit institutions, public charities must contain a diversified board of directors that represent the public interest. More than half of the board must be unrelated and unable to receive compensation as employees of the institution

Private Foundations

Under tax law, a section 501(c)(3) organization is initially considered a private foundation, or a private nonprofit organization, unless it requests and is authorized to be, a public charity. As opposed to a public nonprofit institution, in which more than half of the board must be unrelated, a private nonprofit organization can be controlled by a family or a small group of individuals. Private foundations generally derive much of their income from a smaller pool of donors and from investment income, and are typically subject to more restrictions than public nonprofit organizations. Failure to comply with regulation can garner serious penalties for private foundations.