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Non-profit organization or NPO
A non-profit organization does not distribute its funds to any owners or shareholders. NPO´s funds help achieve its main goals. Most government agencies apply as NPOs, however most countries classify them as a different type of organization and are not counted as NPOs. Examples of NPO are: charities, trade unions, and public arts organization. NPOs exists to provide programs and services that are of self-benefits. While executed by members of the society, the programs and services are supervised by the government. NPOs do earn profit, or surplus, it must be retained by the organization for its self-preservation, expansion and future plans. In most countries NPOs are exempt from income and property tax. Some NPOs invest their funds in hiring and rewarding their collaborators, other NPOs employ unpaid volunteers.
It is important to mention that since the 1980S nonprofits achieve their corporate targets more effectively by using some of the methods developed in for-profit enterprises. Including effective internal management, ensuring accountability for results and monitoring the performance divisions or projects in order to better benefit from their capital and workers.
They can be set up as not-for-profit corporation, trust, cooperative or they may be informal. They are also known as foundations or endowments, which have large stock funds. The name foundations may be used by any not-for-profit corporation, volunteer organization, etc.
There are some legal aspects that are prime to structure NPOs:
- 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
These requirements have to be expressed in a document in most jurisdictions. However, some other may be provided by the supervising authority at each particular jurisdiction.
In the US, nonprofits organizations are formed by incorporating in the state in which they expect to do business. This enables the organization to be treated as corporation under law and to enter into business dealings, form contracts and own property as any other individual or for-profit-corporation may do. The organization may be controlled by its members, if it has any, who elect the Board of Directors. One of the main differences between nonprofit and for-profit corporations is that nonprofit does not issue stock or pay dividends, and may not enrich its directors. However, NPOs can have employees and compensate their directors within reasonable bounds.
In the US for the NPOs to be exempt from federal income taxes they must meet the requirements set fort by the IRS.