A nonprofit organization is formed for the common good of the public. Nonprofit organizations are usually formed for some specific religious, charitable or educational purpose. A for-profit organization may be formed to conduct any number of lawful business activities. The primary reason to form a for-profit organization is to earn a profit for the owners of the company.
Use of Profits
Since a not-for-profit organization is formed to accomplish a specific task, the profits raised by the organization must be recirculated back into the organization so it is able to fulfill its mission. This means that all the money raised by the not-for-profit organization will be retained in the organization. However, funds raised by a not-for-profit organization can be used to pay salaries to employees and to address any other administrative needs. In the case of a for-profit organization, the profits of the company may be distributed to the owners of the company. Establishing a for-profit organization allows a business owner to realize gains from the organization if the business becomes successful.
A not-for-profit organization may qualify for state and federal tax exemptions. The determination is made by the Internal Revenue Service (IRS) as to whether an organization qualifies as a 501(c)(3). A not-for-profit organization in Texas must apply with the Texas Comptroller of Public Accounts in order to be exempt from Texas state taxes. Designation as a 501(c)(3) may provide a not-for-profit organization with an exemption from paying sales and use tax and an exemption from paying property taxes on real estate owned by the not-for-profit organization.
A for-profit organization will not be granted a federal or state tax exemption. Furthermore, for-profit organizations are required to pay taxes on property owned by the company. Donations made to a not-for-profit organization with a 501(c)(3) designation are