Frequently Asked Questions
Nonprofit Explore is a global site, based in Australia. While these FAQs – as with many of the articles on this site – are written from an Australian perspective, the overall principles and themes are common to nonprofit organisations in many parts of the world. We welcome input from readers locally or from countries where knowledge differs – let us know if there’s something we can add or amend to enhance understanding for all. Use the contact form to have your say, or to ask a question of your own.
What exactly is a nonprofit?
‘Nonprofit’ (or ‘non-profit’ with a hyphen) is industry shorthand for ‘nonprofit organisation’, as in “I work for a nonprofit”. Depending on who’s talking, the word further connotes a number of things.
For example it is variously, and often simultaneously (and by no means exhaustively!) used to describe:
- an organisation that retains its surplus or profit rather than distributing that surplus to its owners or shareholders
- an organisation that exists for purposes other than making a profit
- an organisation that delivers a public good on behalf of the community
- an organisation that works on behalf of its members
- an organisation that is not ‘owned’ by any individual or individuals and could be said to be ‘of the people for the people’
- an enterprise with a social purpose
- organisations from tiny community or grassroots groups to large, corporatised charitable institutions and unions
- organisations with a particular legal form such as an association, incorporated association, company limited by guarantee, foundation, trust, co-op and so on.
Is there a difference between a nonprofit and a not-for-profit?
Technically no, although some like to draw a distinction between the two, arguing ‘nonprofit’ implies a disinterest in profit that does not match the reality of today’s nonprofit sector, in which there is an increased emphasis on business-like behaviour. The feeling is ‘not-for-profit’ more accurately says “We’re not eschewing profit, we need profit to survive/grow/offer more services to our members or the public – we’re just not in it for the money”.
Sometimes we use both terms here but we mostly use ‘nonprofit’ because it rolls off the tongue easily, and because Not-for-profit Explore sounded a little clunky. We also wanted the name to sit alongside Nonprofit Assist too, which was established some five years prior.
Are nonprofits the same as charities?
No. By and large, the public’s perception is that the two are synonymous – industry folk might too not be clear about the distinction either.
Charitable organisations are but a subset of the broader nonprofit sector. What confuses us is the nonprofits most of us are most familiar with happen to be the charities that are household names – think cancer research institutions, guide dog associations, community welfare and overseas aid organisations and the like.
Most of us in fact interact with a multitude of nonprofits, and often on a daily basis. But because of our tendency to associate nonprofits with these higher profile organisations, we don’t realise there the sector is as diverse as it is.
Are there other differences between a nonprofit and a charity?
Yes. In many countries, nonprofits need to meet certain legal and taxation regulations in order to operate; on the taxation front in particular charities need to satisfy even more stringent criteria as they are usually seeking to obtain additional tax concessions, such as income tax exemptions; or deductible gift recipient status, which allows members of the public to claim donations to charities over a certain amount on their tax.
What kinds of organisations comprise the nonprofit sector?
We’ve already established the nonprofit sector is not just about charities, and suggested we interact with them on a daily basis. Consider the:
- mutual society that provides us with health insurance
- credit union we bank with
- netball association we play for or support
- animal shelter we get our pets from
- hospital we use for emergencies
- trade union we belong to
- political party we support
- university we attend
- P&C committee we’re a part of
- aged care facility our parents live in
- kindergartens and schools our children attend
- professional association we belong to
- fair trade products we purchase
- grocery co-op we shop in
- centre our child with a disability visits
- support group we belong to…
…all of these goods or services are provided – or are potentially provided – by nonprofit organisations.
Obviously, there are privately owned and operated aged care services, universities, health care funds and the like, and often these are playing in the same space – competing for the same government funds – as their nonprofit peers.
However, to clarify the situation, there are certain institutions on the above list that are unequivocally nonprofits and can only be operated as such, like co-ops, credit unions, mutual societies, trade unions and sporting associations. This means they utilise a nonprofit legal structure in order to conduct their affairs, as the nonprofit legal form is inextricably linked to their purpose.
For example, a credit union or mutual society exists for the purpose of supporting its members (in the form of reduced prices for their services) by ploughing its profits back into the organisation rather than, as happens in their for-profit equivalents, those profits being distributed to the firm’s investors (the bank’s executives and shareholders).
Then there are those institutions, such as hospitals, schools and universities, which can be operated as nonprofits, for-profits or government enterprises. Thus we have – in one example that covers all three bases – hospitals, which can be:
all offering services and all competing in the same domain.
What about social enterprises – what kind of organisation are they?
We also have a newer breed of organisation: the social enterprise. While these sit, in academic and industry terms, in the nonprofit space, some social enterprises are a kind of hybrid organisation. In Australia definitions have not yet been universally agreed upon, but usually they are organisations that trade (do business in the regular sense) for a social purpose. Here, they can utilise a nonprofit or a for-profit legal structure. Nonprofit Assist is a social enterprise utilising a for-profit structure (sole tradership), and Nonprofit Explore is an activity of that enterprise. It operates for a social purpose, and one of the expressions of that purpose is Nonprofit Explore.
In some other countries, social enterprise is far more established and special legal structures and regulatory frameworks exist to support them.
Can you say more about social enterprise?
At this point the jury is not entirely in and, in Australia at least (the jurisdiction in which Nonprofit Assist operates), the social enterprise space is as yet unregulated.
From an academic perspective, the field of social enterprise sits within the nonprofit space and is considered, like charity, to be a sub-set of it.
However unlike nonprofit organisations, which adhere to a nonprofit legal structure such as (in Australia) the incorporated association, company limited by guarantee or co-operative – they are just as likely to utilise a for-profit legal structure, such as sole-tradership, partnership or a company structure. These are ‘hybrid’ organisations, marrying a social purpose – traditionally the domain of organisations in the nonprofit sector – with an operational style similar to that of a for-profit business. This would seemingly locate them across both the nonprofit and business sectors, an ambiguity that has seen social enterprises adopt a variety of legal forms.
This is because – unlike most traditional nonprofits – their income is derived from trade, just like a regular business. The only difference is the focus is not on generation of profit for profit’s sake, but on the furtherance of a declared social or environmental benefit.