What is the difference between for-profit and not-for-profit?

Answer 1

The first, and most important difference between a for profit and non-profit business is the profit. As mentioned above, both have to generate a profit in order to survive and grow. Both have to generate money to pay their bills and, if the corporation is to acquire new assets and grow it needs profits both to use for this as well as to attract new investment (in the case of a non-profit, new investment takes the form of contributions from people or other corporations and people are just as reluctant to contribute money to a failing charity as they are to invest in a bankrupt corporation). In both cases some of the profits are re-invested in the organization (although laws, especially tax laws, place limits on how much non-profits are allowed to re-invest) either to replace aging and worn out assets (buildings, machinery, etc.) or to acquire new assets needed to expand the organization's operations (such as a religious group building a new and larger church to accommodate a growing congregation). However, it is the distribution of the remainder of the profits that is one of the differentiating characteristics between for profit and non-profit organizations. In a for profit organization the profits that are not re-invested in the organization are distributed to the owners of the corporation as cash. In the case of a non-profit organization the profits are used to provide goods or services to the group or groups the non-profit was formed to help. A religious organization may use the profits to help its members or others obtain food, medical care, education, etc. A university may use its profits to provide free or low cost education to some or all of its students. The point is that the profits of a non-profit organization always go toward supporting some cause that society deems as good and beneficial and not into the pockets of the investors.

The second difference, which explains the first, is ownership of the corporation. A for profit corporation is created when investors get together and transfer assets, money and/or talent to start the corporation. The corporation, which is actually a fictitious person in the eyes of the law, takes title and ownership of the assets, etc. and gives, in exchange for the assets, ownership shares in the company to those who contributed the assets. However, with a non-profit, individuals come together and provide assets, money and/or talent to start the corporation. But, these people who create the corporation do not receive any legal ownership in the corporation and, further, have no guarantee that they will be able to retain control of the corporation once formed. All of the assets are now to be used to advance that cause or provide the service for which the non-profit business was created as determined by the corporation's board of directors.

The composition of the board of directors is the third major difference between for profit and non-profit businesses. In both cases the original board is created by the same people who started the corporation and, in both cases, directors are given fixed terms. Things change when it comes time to re-elect or replace these board members. In the case of a for profit corporation each share of stock entitles its owner to one vote and owners of multiple shares have multiple votes. It is possible for the person or group owning 51% or more of the stock to control both the board and the business with their controlling votes. In the case of a non-profit corporation there are no shares and thus no owners of shares to vote. When a board member's term is up it is the remaining board members who decide to either re-elect that person to a new term or replace the person. (in organizations which have a defined membership, it is usually the members who elect the board but here each member only has one vote and membership does not give them an ownership right in the assets of the organization in the sense that they can sell it like a stock holder in a for profit corporation can sell their stock and the rights that go with it). It is the board of directors or members which makes the decisions and runs the corporation.