Grand Rapids Voice Question of the Week:

non profitQUESTION:  What is the Definition of a Non Profit Organization?

The term nonprofit under the law can come in many forms, cover many organizations and a conversation covering such topics needs to first speak of the why. Why do nonprofits look and feel different than some other organizational structures in the for-profit arena and why would you want such a statues for your organization.

Let’s start with the definition.

A nonprofit organization (NPO, also known as a non-business entity]) is an organization whose purposes are other than making a profit. A nonprofit organization is often dedicated to furthering a particular social cause or advocating for a particular point of view. In economic terms, a nonprofit organization uses its surplus revenues to further achieve its purpose or mission, rather than distributing its surplus income to the organization’s shareholders (or equivalents) as profit or dividends. This is known as the distribution constraint. The decision to adopt a nonprofit legal structure is one that will often have taxation implications, particularly where the nonprofit seeks income tax exemption, charitable status and so on.

The terms nonprofit and not-for-profit are not consistently differentiated across jurisdictions. In layman’s terms they are usually equivalent in concept, although in various jurisdictions there are accounting and legal differences.

The nonprofit landscape is highly varied, although many people have come to associate NPOs with charitable organizations. Although charities do comprise an often high profile or visible aspect of the sector, there are many other types of nonprofits. Overall, they tend to be either member-serving or community-serving. Member-serving organizations include mutual societies, cooperatives, trade unions, credit unions, industry associations, sports clubs, retired serviceman’s clubs and peak bodies – organizations that benefit a particular group of people i.e. the members of the organization. Typically, community-serving organizations are focused on providing services to the community in general, either globally or locally: organizations delivering human services programs or projects, aid and development programs, medical research, education and health services, and so on. It could be argued many nonprofits sit across both camps, at least in terms of the impact they make. For example, the grassroots support group that provides a lifeline to those with a particular condition or disease could be deemed to be serving both its members (by directly supporting them) and the broader community (through the provision of a helping service for fellow citizens).

Many NPOs use the model of a double bottom line in that furthering their cause is more important than making a profit, though both are needed to ensure the organization’s sustainability.

Although NPOs are permitted to generate surplus revenues, they must be retained by the organization for its self-preservation, expansion, or plans. NPOs have controlling members or a board of directors. Many have paid staff including management, whereas others employ unpaid volunteers and even executives who work with or without compensation (occasionally nominal).

In some countries, where there is a token fee, in general it is used to meet legal requirements for establishing a contract between the executive and the organization.

Designation as a nonprofit does not mean that the organization does not intend to make a profit, but rather that the organization has no ‘owners’ and that the funds realized in the operation of the organization will not be used to benefit any owners. The extent to which an NPO can generate surplus revenues may be constrained or use of surplus revenues may be restricted.

Now that we have covered the definition of a nonprofit let us discuss the relevant questions in an effort to better understand the issue.

1. At 465 plus registered nonprofits in this county, there are almost a limitless number of causes to be supported in this area and the number appears to be growing annually, why?

2. As explained above the advantages are many, but are they always beneficial to the area economics they reside?

3. What common types are there and do they accomplish what you would expect for the tax advantages they receive?

4. Do they request public grants or monies to carry on their efforts and who accounts for their results?

5. Do some have little or no positive history causing them to survive solely for the benefit of their executive director?

6. Does anybody question the outcomes of the public money spent in the name of a nonprofit cause, for example, “economic development?”

7. What burdens get placed on the people of the community to carry the cost of their existence in the community?

8. Do the people realize the nonprofits that hold real estate pay no property tax?

9. Although they are called nonprofit enterprises does the public understand their executive directors and directors along with employees can be paid and paid well? Please refer to 990 form examples of local nonprofits.

10. Is it fair that a local bank pays both property tax and corporate income taxes while a co-op credit union does not? How about a nonprofit co-op electric company competing with a private company like Allete, Xcel Energy or Duke Energy? A little closer to home how about co-op Paul Bunyan Communications as competitor to Mediacom Corp? What about the local medical facilities some with nonprofit status and some without?

11. What about private nonprofit economic development companies reaching out for public money, who owns the properties they buy or are given from public coffers?.

12. The question “is there real value to these nonprofits or are they just a tax advantaged entity sucking the life blood out of the community?”

Lastly we will be looking at how to acquire a 990 tax form, from a nonprofit, what’s in it and your rights to request it.

2 thoughts on “Grand Rapids Voice Question of the Week:

  1. Lynn

    What exactly was the ? (Not bad info though)
    Kinda long…looking forward to the next ?…hoping its a single ?
    Was hoping to catch your meeting but wasn’t able to


  2. Mr Anonymous

    So…if they are making their own profits…why are so many of these places asking us for $?
    From those of us whose household take home is under $30,000& their employees can make big bucks?!!!
    Also..if they don’t pay property taxes are we making that amount up as homeowners like what happens with TIF zoning or is that different?
    And not all non profits are churches & those clubs but is there a points where a place is so large its no longer considered a nonprophit?


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