Non-profit organizations exist to achieve a specific social cause, not to make shareholders rich. Instead, non-profit organizations use the revenue to further the cause by paying the costs of operations and advocating on behalf of the cause. There are many reasons people start a non-profit. They might share a passion for a cause or want to raise funds to support it.
The purpose of a non-profit organization is different from that of a trading concern. A trading concern’s basic objective is to maximize shareholder wealth by engaging in certain lawful business activities. The basic purpose of a non-profit organization is to serve society and its citizens. Nonprofit organizations do not distribute profits and any surplus funds are used to provide social services. Non-profit organizations should not make profits.
Founded with a specific purpose, a nonprofit corporation is governed by state and federal law. This type of organization is free to form for any purpose as long as it is in the public interest. As long as the organization’s purpose is approved by the IRS, it can form under any legal title. The only difference between a nonprofit and a for-profit is that a nonprofit cannot distribute its profits to its members. Lastly, a nonprofit must have a stated purpose in order to receive favorable tax treatment.