Nonprofit Organizations

Nonprofit Sector

Nonprofit organizations, taken collectively, are referred to as part of the nonprofit sector. This is a general name given to the institutions and organizations in society that are not businesses or governments. The nonprofit sector is sometimes referred to by other names, such as the not-for-profit sector, the independent sector, the third sector, the philanthropic sector, or the voluntary sector. Nonprofits are typically referred to as nongovernmental organizations (NGOs) outside the United States. It has been estimated that the nonprofit sector in the United States represents about 6% of all organizations and that roughly 1 in every 15 U.S. citizens is employed in a nonprofit organization. It has been estimated that more than a million nonprofit organizations spend in excess of $500 billion each year. In short, nonprofit organizations are pervasive and touch each of us every day. Collectively, the nonprofit sector composed of these nonprofit organizations represents a significant segment of society that affects the total citizenry. All estimates seem to indicate that the nonprofit sector is growing in size.

What is a Nonprofit Organization?

As their name implies, the primary characteristic of nonprofit organizations is that they cannot pay profits to owners. Nonprofit organizations have no owners in the traditional business sense. As compared to business organizations that can generate profits and distribute these profits to investors, owners, or shareholders, nonprofit organizations, frequently referred to simply as “nonprofits,” cannot distribute any income that represents revenues in excess of costs. Nonprofits have stakeholders, not stockholders. These stakeholders include the clientele that benefit from their services or programs and the community, in general, that receive indirect benefits from their presence. This does not mean that nonprofits cannot make any profit. It simply means that whatever profit is made must be [Page 1513]retained and reinvested into the organization's budget and programs.

Most nonprofit organizations are created for the purpose of providing some public benefit or service. Having a public service purpose or mission is a key identifying characteristic of nonprofit organizations as they are generally thought of in society today. They are created by interested parties for the purpose of serving society, generally, or particular issues, topics, or clientele groups, specifically.

Nonprofit organizations are private, in the sense that they are not a part of government. They are typically incorporated as legal entities, and they are selfgoverned by their boards of directors, who are usually volunteers committed to the nonprofit's mission. In terms of daily operations, depending on their size and budget, they could be composed of all nonpaid volunteers or could have paid staff, including paid executives and managers. Frequently, most nonprofits have at least a small core of employees who are paid but accomplish much of their work with volunteers.

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