What are the distinctive challenges of strategic management in not-for-profit organizations?
A not-for-profit organization (US and UK), often called an NFPO or simply a nonprofit, also non-commercial organization (Russia and CIS) often called an NCO, is an organization that uses surplus revenues to achieve its goals rather than distributing them as profit or dividends. States in the United States defer to the IRS designation conferred under United States Internal Revenue Code Section 501(c), when the IRS deems an organization eligible. While not-for-profit organizations (NFPO) are permitted to generate surplus revenues, they must be retained by the organization for its self-preservation, expansion, or plans. NFPOs have controlling members or boards. Many have paid staff including management, while others employ unpaid volunteers and even executives who work with or without compensation (occasionally nominal). 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 and intent to make money are not related in the United States. This means nothing can be conferred by the declaration. It is unclear whether or not this holds outside of the U.S. In the United States, such inference is the purpose of the Internal Revenue Code, Section 501(c). The extent to which an NFPO can generate surplus revenues may be constrained or use of surplus revenues may be restricted.
Nature and goals: Some NFPOs may also be a charity or service organization; they may be organized as a not-for-profit corporation or as a trust, a cooperative, or they exist informally. A very similar type of organization termed a supporting organization operates like a foundation, but they are more complicated to administer, hold more favorable tax status and are restricted in the public charities they support.
Legal aspects: NFPOs have a wide diversity of structures and purposes. For legal classification, there are, nevertheless, some elements of importance: Economic activity, Supervision and management provisions, Representation, Accountability and auditing provisions, Provisions for the amendment of the statutes or articles of incorporation, Provisions for the dissolution of the entity, Tax status of corporate and private donors, Tax status of the foundation. Some of the above must be, in most jurisdictions, expressed in the charter of establishment. Others may be provided by the supervising authority at each particular jurisdiction. While affiliations will not affect a legal status, they may be taken into consideration by legal proceedings as an indication of purpose. Most countries have laws which regulate the establishment and management of NFPOs, and which require compliance with corporate governance regimes. Most larger organizations are required to publish their financial reports detailing their income and expenditure publicly. In many aspects they are similar to corporate business entities though there are often significant differences. Both not-for-profit and for-profit corporate entities must have board members, steering committee members, or trustees who owe the organization a fiduciary duty of loyalty and trust. A notable exception to this involves churches, which are often not required to disclose finances to anyone, including church members.
Formation and structure: In the United States, nonprofit organizations are formed by filing bylaws and/or articles of incorporation in the state in which they expect to operate. The act of incorporating creates a legal entity enabling the organization to be treated as a corporation by law and to enter into business dealings, form contracts, and own property as any other individual or for-profit corporation may do. Nonprofits can have members but many do not. The nonprofit may also be a trust or association of members. The organization may be controlled by its members who...
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