Nonprofit organizations are organized under state law for purposes other than generating profit for its members or officers. Non-profit organization operations and activities are limited to those that were identified in its organizational documents. They operate much like for-profit organizations except that no stock is sold to the public. They are advantageous because the directors gain the legal protections afforded for-profit corporations.
A Brief History of Nonprofit Organizations
Organizations based on volunteer work and supported by private donations began as early as the middle of the 18th century. These early nonprofit organizations were usually founded by churches, religious organizations and for the establishment of educational institutions. Early nonprofit organizations operated with little governmental regulation or sanction. Beginning in the 20th century, federal and state governments became involved in the establishment and regulation of nonprofits. One of the earliest federal laws to provide tax-exempt status to nonprofits was the Wilson-Gorman Tariff Act of 1894.
Nonprofit Organizations in the 21st Century
In the 21st century, nonprofit organizations are involved in a wide range of activities that intersect with the business community, the national economy and the social economy.
• Business—nonprofit retirement programs invest money in the markets to earn money to provide retirement benefits to members.
• Economy—nonprofit research programs are involved in conducting studies that marketing firms use to create profit and expand the economy.
• Social Economy—nonprofit agencies provide services and counseling to disadvantage families and workers help them meet their daily living needs.
Characteristics of Nonprofit Organizations
The term nonprofit organization has grown to cover a wide range of organizations that are essential to our nation’s economic system. Many different categories of nonprofits are known as 501 (c) (3) organizations. As an example, these organizations are established for charitable, educational, religious, scientific, public safety and prevention of cruelty of animals and children. Many of these organizations fall under one of the following categories.
• Private Foundations
• Public Charitable Organizations
• Quasi Nonprofit Organizations
The following list of nonprofits do not fall under 501 (c) (3) regulations:
• Advocacy Groups
• Membership Organizations
• Recreational Clubs
• Auxiliary Organizations
• Employee Benefit Funds
The primary positive characteristic of most nonprofit organizations is wrapped up in the word passion. According to an article from the Nonprofit Technology Network, “the passion for mission taps incredible creativity, energy and dedication for the work of an organization,” (Allison & Kaye). Nonprofit organizations provide a platform for people to be creative and innovative without the pressures related to profit and the bottom line of the organization.
The primary concern faced by all nonprofit organizations is the relationship they have with their primary funding sources. Since nonprofit organizations are established to meet a specific need in society, the primary funding sources provide financial resources to the organization or agency for the purpose of meeting the specific need identified in the organizations founding documents. Any mission creep may cause a rift in the relationship between the organization and its major funding sources.
The best way to put the nonprofit experience into proper perspective is to consider some organizations that have an outstanding record of success. All of these organizations have developed administrative processes that ensure all the money that comes in through their fundraising efforts is handled according to the highest fiduciary standards.
1. United Way operates on a worldwide basis providing leadership to a network that reaches to 45 countries. The organization’s goal is to help people reach their highest potential, and help people to have good health and a decent place to live.
2. The Salvation Army is an organization that operates on a worldwide basis and is an integral part of the universal Christian Church. The Salvation Army’s work is motivated by the love of God, and is committed to relieving meet human suffering.
3. Feed the Children is another nonprofit that works on a worldwide basis and is committed to providing food, medicine and clothing to needy children wherever there is a need.
Additional Nonprofit Organization Resources for Further Reading
The Social Studies Help Center: Non Profit Organizations
Urban Institute: Nonprofits’ Decade of Growth Outpaces Economy
Learning to Give: Nonprofit Organizations (Definition and Examples)
History of the Tax-Exempt Sector: An SOI Perspective; by Paul Arnsberger, Melissa Ludlum, Margaret Riley and Mark Stanton
Nonprofit Central: Types of Nonprofit Organizations
Nonprofit Management Masters: Top 25 Most Successful Non-Profit Organizations in the World