One of the major myth, regarding the non-profit organisation, which most of the people believe as true is that it does not make the profit from business activity. However, in reality, the non-profit organisation too makes the profit from various activities just like a for-profit organisation does, but only the way of handling profit is different in the two organisations.
The basic aspect, which bifurcates business organisation is the purpose of their operation, i.e. not all organisations work for the profit motive; rather there are some entities whose aim is to serve the society first. This way, there are two major types of organisation, which are profit organisation and non-profit organisation.
So, this article attempts to clarify the differences between Profit and Non-Profit Organization.
Content: Profit Organization Vs Non-profit Organization
|Basis for Comparison||Profit Organization||Non-Profit Organization|
|Meaning||A legal entity, which operates for earning profit for the owner, is known as For-profit or Profit organization.||A non-profit organization is a legal entity, which operates for serving the society as a whole.|
|Motive||Profit motive||Service Motive|
|Form of organization||Sole proprietorship, Partnership firm or company||Club, Trust, Public hospitals, society, etc.|
|Management||Sole proprietor, partners or directors, as the case may be.||Trustees, committees or governing bodies.|
|Source of revenue||Sale of goods and services.||Donation, subscription, membership fee etc.|
|Commenced through||Capital contributed by the owners.||Funds from donation, subscription, government grant and so on.|
|Financial Statement||Income statement, Balance Sheet and Cash flow statement||Receipt & Payment A/c, Income & Expenditure A/c and Balance Sheet.|
|Money earned over and above||Profit, is transferred to capital account.||Surplus is transferred to capital fund.|
Definition of Profit Organization
Any business entity, whose primary aim is to generate profit from the regular operations, with a view to maximising the wealth of owners, is called as a profit organisation. The profit earned by such entities is either retained in business, for future contingencies, in the form of reserves or distributed to the owners as the dividend.
The business structure can be a sole proprietorship, partnership, Hindu Undivided Family, joint venture or company. Such trading concerns strive continuously for minimising expenses and maximising income to increase the profit of the business, to grow and expand. They need to maintain their books of accounts for tax and auditing purposes. Further, the tax is charged on the business profits at a flat rate.
Definition of Non-Profit Organization
A non-profit organisation, as the name suggest is a legal organisation whose primary purpose is to promote public good rather than making profit. These are founded by a group of people who come together for a common purpose, i.e. to provide service to members and people. The managing committee looks after its management which consists of a group of individuals, chosen by the members from among themselves. They are aimed at endorsing a social cause or supporting a particular outlook.
These include the sports club, public hospitals, religious institutions, cooperative societies, literacy society, etc. Non-profit organisations also make the profit, but the profit earned by it is used for furthering the aim of the concern. They raise funds from subscriptions, donation, government grant, membership fee, entrance fee, legacies, charity and so on.
Key Differences Between Profit Organization and Non-Profit Organization
The differences between profit and non-profit organisation can be drawn clearly on the following grounds:
- A profit organisation is defined as a legal organisation, which is operated with the sole aim of earning profit from the business activities. On the flip side, a non-profit organisation is one that is operated with the primary objective of benefiting the society as a whole.
- A profit organisation, as its name suggests, works for profit maximisation of the concern. As against this, a non-profit organisation works for providing service, for the well-being of the society.
- A profit organisation can be a sole proprietorship, partnership or a body corporate, i.e. company whereas a non-profit organisation is an association of person, which can be a club, trust, public hospitals, cooperative society, etc.
- The management of a profit organisation is overlooked by a sole proprietor in the case of sole proprietorship, partners in case of partnership and directors in case of company. On the contrary, there is the board of directors, trustees, committees or governing bodies who look after the management of a non-profit organisation.
- The major source of income, for a profit organisation, is from the sale of goods and services. Conversely, the non-profit organisation, derive a considerable part of their income from donation, subscription, membership fee, charity and so on.
- When it comes to the commencement of the entity, a huge amount in the form of capital is brought in by the owners to run the business. Unlike, the non-profit organisation, raise funds for commencement, in the form of contribution through donation, grant, legacies, subscription, etc.
- The financial statement of a profit organisation includes the income statement, balance sheet and cash flow statement. In contrast, the non-profit organisation prepare receipt & payment a/c, income & expenditure a/c and balance sheet prepared at the end of accounting year to know their financial position.
- Money earned over and above by the profit organisation, i.e. profit, is transferred to the capital account. On the other hand, the excess of income over expenses results in the surplus which is transferred to the capital fund.
Profit organizations differ from the non-profit ones in a number of ways, such as their procedure of fees for creation, tax benefit allowed to non-profit organisation but not to their counterpart for promoting public service, profit organisations are traded in stock exchange, ownership of a profit organisation lies with the shareholders but non-profit entities are not owned by any person, not even by the founders.