What is a Not for Profit Organisation?

Feb 12, 2016
Reading Time: 2 minutes
Written by Ananya Singh

Setting up a Not for Profit (NFP) Organisation is a great way to give back to the community. If there is a cause you feel strongly about, establishing a NFP organisation may be your ticket to contribution and fulfilment.

A NFP organisation, is a non-business entity, that uses its surplus revenue to further achieve the goals and vision of the organisation. Examples of not for profit organisations include (but are not limited to) trade unions, universities and hospitals, societies, support groups, political parties, religious groups and trusts.

The most obvious way a non-for-profit organisation differs from a business is the vision of a NFP organisation. A not for profit organisation is structured to generate profit which is used to further the charitable objectives of the organisation. A business is created for the purpose of acquiring profit t that is distributed amongst company shareholders.

Revenue and NFP organisations

Profit generated by a NFP organisation is used:

  • For the NFP organisation’s maintenance;
  • To expand the NFP organisation; or
  • To achieve goals which are directly related to the organisation’s purpose.

Revenue earned by the not for profit organisation must be used to further the charitable cause of the organisation in some way.

Legal structure of NFP Organisations

Not for profit organisations are typically structured in one of three ways:

  1. Companies limited by guarantee
  2. Trusts
  3. Incorporated associations.

You can find out more information on how to set up a not for profit organisation here.

How can your organisation can meet the requirements of a not for profit organisation?

An organisation can distinguish itself as a NFP organisation by having specific clauses within the governing rules.

NFP’s will have a non-profit clause and a dissolution clause that highlights the nature of the organisation.

The Non-Profit Clause

The non profit clause usually stipulates that the income of the NFP organisation will only be spent to further the charitable objectives of the organisation and as genuine compensation for the services or expenses of another person.

The Dissolution Clause

The dissolution clause stipulates what will happen in the event that the NFP organisation is dissolved. This clause will specify that the remaining profit left after the dissolution occurs, will be transferred to another similar NGO.

Tax Exemption

As an added bonus, your NFP organisation may be eligible for a tax exemption. If your NFP organisation is a charity endorsed by the government, you will be exempt from paying tax. You can find out if you’re NFP organisation is eligible for a tax exemption here.

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