Nonprofit vs. Not-for Profit vs. For-Profit have different implications for your taxes, corporate governance and business activities.

Whether you decided to start a for-profit, not-for-profit or nonprofit, the first steps for creating your entity are the same. Start by filing for a business entity in the state in which you wish to run your operations. Your business entity might be a corporation, LLC, sole proprietorship or partnership. All of these entities can operate as for-profit, nonprofit or not-for-profit organizations.

Once the entity has been formed, you will apply for an Employer Identification Number (EIN) with the IRS.

A nonprofit has a tax-exempt status because its mission and purpose are to further a social cause. Nonprofits include hospitals, universities, national charities and foundations. They are required to make their financial and operating information public so that donors can see how their contributions are being used. Nonprofit pays no taxes on any money received through fundraising and donations to a nonprofit are allowed to be deducted from tax return. 

Similar to a nonprofit, a not-for-profit is one that does not earn profit for its owners. All money goes right back into running the organization. However, not-for-profits are not required to operate for the benefit of the public good. A not-for-profit can simply serve the goals of its members. A good example is a sports club. Not-for-profit must apply for tax-exempt status from the IRS, and money donated to a not-for-profit cannot be deducted on that person’s tax return.

A for-profit organization operates to make money. Most businesses are for-profits that serve their customers by selling a product or service. The business owner earns an income from the for-profit and may also pay shareholders and investors from the profits.