For profit organizations are just what they say they are. They are for a profit. They do not have to answer to anyone. They may have shareholders and investors, but for the most part, they are on their own. They have a product or service they provide to the marketplace and they sell it. A profit is made and that profit is either reinvested back into the company or used as salaries. Basically, they could do whatever they want with the profit.
Profit for organization
For profit organizations file taxes, pay employee tax, unemployment tax, insurance, 401K benefits, and other fringe benefits the company deems they want to pay for their employees. It could be discounts at the neighborhood gym. Those are benefits the for-profit company wants to share with its employees. Usually a for-profit organization can be up and running fairly quickly. Basically complete your secretary of state requirements, apply for an EIN and you’re in business.
Service to community
Now, the non-profit is a bit more involved. The non-profit is to provide a service for the community. It can be a museum, educational institution, religious, scientific research, hospital care, or environmental. A non-profit has a board of directors, articles of incorporation and fundraising to consider. A non-profit has to get direction from the board of directors to implement programs, how the programs will be implemented and for how long. In addition to concentrating on the programs the organization is implementing, they have to think about fundraising. These funds are used to run the programs, not for the profit of the organization.
The non-profit does pay taxes, such as employee tax. But may not pay sales tax. Other fringe benefits are also paid, such as insurance and 401K. However, extra benefits such as gym memberships are not considered the best use of the nonprofit funds. It takes a little bit longer to become a non-profit in the eyes of the IRS. First you would register as a non-profit with your secretary of state, apply for an EIN and send your non-profit incorporation letter from the state to the IRS in addition to completing a packet for the IRS. The registering with your state may not take as long, however, to register with the IRS may take a while. If you are planning to begin applying for funding with your IRS non-profit letter, you may need to make other plans for raising funds while you await your letter.
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Dr. Genola Johnson is the Executive Director of Johnson & Associates Consulting Firm, LLC a grant writing firm. For more information on JACF, vist www.jacf.net