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For Profit vs Non Profit

By CA Harsh KataraCA Harsh Katara

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Difference Between For Profit vs Non Profit

The for-profit organization can be defined as a company, partnership or a sole proprietorship firm whose primary purpose is to earn profits whereas a non-profit organization can be defined as a club, trust, society, etc formed for the purpose of serving the community. It is no denying that both For-profit and the non-profit organization intend to make profits but the difference is that the former earns profits for personal fulfillment reasons whereas the latter earns profits for serving a social cause or the society at large.

Head to Head Comparison between For Profit vs Non Profit (Infographics)

Below are the top 17 differences between For Profit vs Non Profit:

For Profit-vs-Non-Profit-info

Key Differences Between For Profit vs Non Profit

The key differences between a For Profit vs Non Profit contract are provided and discussed as follows-

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  • A for-profit organization is required to pay all its tax liabilities whereas non-profit organization is entitled to receive tax exemption in sales tax, income tax, property tax, etc.
  • A for-profit organization is managed by its proprietors, partners, or sole proprietors whereas non-profit organization is managed by committee members, trustees, etc.
  • The source of revenue in a for-profit organization is revenue that is earned from clients and customers i.e. by trading in the purchase and sale of goods and services whereas in the case of a non-profit organization is grants, donations, subscriptions, etc.
  • The profits earned by for-profit and non-profit organizations are transferred to the capital account and the capital fund account respectively.
  • For-profit organizations have ample budgets whereas non-profit organizations are budget constraints.
  • The for-profit organization focuses on economic factors whereas non-profit organizations focus on social and environmental factors.

For Profit vs Non Profit Comparison Table

Let’s discuss the top comparison between For Profit vs Non Profit:

Basis of Comparison

 For Profit Organization

Non Profit Organization
Purpose The prime purpose of a for-profit organization is to earn profits. For such organizations, money-making for personal motives is always a priority. The prime purpose of a non-profit organization is to serve society or a social cause. Therefore, such organizations choose to make and invest profits in order to serve society in a better way. For non-profit organizations society or social wellness is always a priority.
Aim The aims of for-profit organizations are to make more and more profits and achieve all their long-term and short-term goals and objectives. The aim of a non-profit organization is to contribute to the wellness of society or a social cause.
Types of for-Profit/non-Profit Organizations A for-profit organization can be of the following types-

  • Company
  • Partnership firm
  • Sole proprietorship firm
 A non-profit organization can be of the following types-

    • Clubs
  • Trusts
  • Society
  • Others
Managed by For-profit organizations are basically managed by the owners of the same, partners or sole-proprietors. Non-profit organizations are managed by trustees, committee members, NGOs, etc.
Source of Revenue Revenue earned from clients and customers – The source of revenue for an organization operating for the purpose of earning profits is the buying and selling of products and services. The sources of revenue for a non-profit organization are subscriptions, donations, grants, etc.
Types of Financial Statements that Are Required to be Prepared The income statement, cash-flow statement, and balance sheet are the types of financial statements that are required to be prepared in a for-profit organization. The receipts and payments account, income and expenditure account, and balance sheet are the type of financial accounts that are required to be prepared in a non-profit organization.
Transfer of Profits In a for-profit organization, profits earned are transferred to the capital account. In a non-profit organization, profits earned are transferred to the capital fund account.
Arrangement Of the Initial Level of Investment In a for-profit organization, the initial level of investment is arranged by the founders of the owners of organization, partnership or sole proprietorship firm. In a non-profit organization, the initial level of investment is arranged by procuring government grants, assembling donations, etc.
Employees Such an organization hires paid employees. Such an organization hired paid and non-paid employees.
Budget Such an organization has an ample budget. Such an organization has a slim budget.
Strategic Goal Competitiveness is the strategic goal for organizations operating for the purpose of earning profits. Effectiveness is the strategic goal in the case of a non-profit organization.
Values Innovation and creativity are the values of for-profit organizations. Accountability to social integrity is one of the prime values of non-profit organizations.
Success Factors Earnings, growth rate and market share are the factors that determine the success of a for-profit organization. Cost efficiency, management practices, and social impact are the factors that determine the success of a non-profit organization.
Potential Benefits The for-profit organization enjoys the following benefits-

  • Access to potential investors
  • Recruitment of employees
  • Enhanced quality of product and services

 

 The non-profit organization enjoys the following benefits-

  • Profits earned can be exempted from tax implications
  • Access to donations and tax-deductible grants
  • Enhanced flexibility
Potential Problems A for-profit organization may face the following issues-

  • Customers might get offended if the company is too aggressive to earn more and more profits.
  • Maintaining social focus is not so easy.

 

 A non-profit organization might face the following issues-

  • Lack of staff or volunteers
  • Insufficient funds and donations

 
Sustainability Economical Social and environmental
Tax Status Such an organization does not receive any tax benefit. Such an organization is entitled to receive tax exemption in income tax, sales tax, property tax, etc.

Conclusion

As the name implies, for-profit organizations work in order to earn profit figures. On the other hand, non-profit organizations work for the wellness of society. The profits earned by non-profit organizations are used towards the fulfillment of a social cause while the profits earned by for-profit organizations are used for personal fulfillment. The types of financial statements that are required to be prepared in a for-profit organization are the income statement, cash-flow statement, and balance sheet. On the other hand, the types of financial statements that are required to be prepared in a non-profit organization are the receipts and payments account, income and expenditure account, and balance sheet. The employees employed in a for-profit organization are paid whereas the employees of a non-profit organization can either be paid or unpaid.

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This is a guide to the top difference between For Profit vs Non-Profit. Here we also discuss the For Profit vs Non Profit key differences with infographics and comparison table. You may also have a look at the following articles to learn more –

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