For people new to the world of nonprofits, there is often significant confusion about the use of the terms “nonprofit” and “not-for-profit”. Many organizations insist on referring to themselves as one or the other, and even some legal and accounting professionals attempt to draw a bright line between the organizations that fall under these terms. Though there are some technical differences between the two, they are generally used interchangeably.
There are some who argue that “not-for-profit” should refer to organizations that operate with the intention of never turning a profit at all — every penny that comes in is used for the primary purpose of the organization. Essentially, this encompasses every charity, NGO, civil society, private voluntary organization, and every other type of nonprofit. Often, what is intended is to clarify that the company only solicits what it needs to survive — an attempt to reassure potential members and donors that no one person is profiting from the money that comes in.
Some attempt to distinguish not-for-profits as unchartered groups, such as social clubs, civil societies, professional organizations and the like, while placing publicly-supported, charitable organizations under the nonprofit umbrella. While this distinction can make sense, the inconsistency of definition makes it difficult to apply. Often, the bottom line is the intention of the group to emphasize its inherent definition — an organization that, by design, does not distribute a profit to individuals at the end of the year.
Legal statutes (both federal and state) actually clarify that “not-for-profit” and “nonprofit” are synonymous. However, the IRS does offer a practical distinction in their own definitions. According to the Infernal Revenue Service, “not-for-profit” refers to a specific activity, such as a hobby. “Nonprofit” refers to an organization established for purposes other than turning a profit. This definition does not necessarily mean charitable, but encompasses any organization that does not intend to turn a profit. Amateur athletic leagues, quilt guilds, social clubs, and charitable organizations all fall under this definition.
Beyond the IRS, a distinction between the terms can also be found in the background of the folks who use them. Lawyers, accountants, and academics tend to prefer the term nonprofit, while experienced fundraisers (and many people involved in the nonprofit realm) prefer to use not-for-profit. Again, it is likely that the fundraisers prefer not-for-profit because it more clearly denotes the fact that no individual is profiting from the fundraising efforts. Or, it could just be an exclusionary tactic that helps those in-the-know to identify outsiders…but that is unlikely to be an organized conspiracy!
The final issue that raises unreasonable disagreement is whether nonprofit should have a hyphen or not. Non-profit does not have an inherently different meaning than nonprofit, but with-the-hyphen is often used in non-nonprofit references. Active philanthropists tend to leave out the hyphen. Technically, the hyphen denotes one adjective modifying another. Here, “non” is modifying “profit”…not that this clarification provides any particularly useful knowledge, except that the single word nonprofit is a noun, while non-profit would technically be a modified adjective, so an additional noun would need to be attached, such as non-profit organization.
Whatever term you intend to use for your nonprofit, just be sure you have a well-developed argument at the ready. Somebody will ask about it…probably several people. As long as you sound like you know what you are talking about, your argument will be repeated when they are asked about the difference.