What is the Difference Between a Nonprofit and a Not-for-Profit?

This is one of the more common questions I receive from those who find I focus most of my time in this sector. I’ve given this question a lot of thought over the years and have come up with three basic responses: The super short answer; the technical answer; and the practical answer.

Super-short answer:

Not much.

Technical answer:

The technical answer (otherwise known as the nerdy answer) is there are subtle technical differences bandied about in academic and legal circles. Most of those differences boil down to the fact the term not-for-profit speaks to the activities of the organization while the term nonprofit refers to the organization itself. To put it another way, building houses is a not-for-profit activity carried on by the nonprofit Habitat for Humanity.

Another technical response to this question is that many in the industry use the term not-for-profit to make the distinction between a for-profit organization, or a private business. The legal difference between these two is based in the private inurement doctrine; essentially who has the rights to the profits of the organization. In a for-profit business, the owners have ultimate rights to the income of the company. By contrast, a nonprofit organization cannot distribute its net profits to those who control it.

Practical answer:

The practical answer is that these two terms are often used interchangeably, and that’s perfectly acceptable. Many times, it comes down to a preference of language. I, personally, prefer the term not-for-profit because I feel it speaks to the purpose of the organization. The purpose of a charitable organization is not to generate a return for its investors, but rather its to carry out its mission and its programs. Therefore, its reason for being is not to generate a profit.

By contrast, I shy away from the term nonprofit because it can give the implication the organization either isn’t allowed to generate a profit or loses money on a regular basis. As we all know, if an organization loses money regularly, it won’t be around for long.

Again, that is my personal preference and carries no authoritative weight. Either term is perfectly acceptable.

I hope this article has been helpful to you. As always, if you have any questions or if there is any assistance we can provide, don’t hesitate to reach out to our nonprofit (or is it not-for-profit?) team.