For-Profit vs. Non-Profit

There are two basic ways a company can be structured: for-profit, or non-profit. Charitable organizations, for instance, are often organized as non-profit ventures. But many Americans are unclear about what the actual difference is. They may be familiar with the terms, but not the actual operating differences of the two different systems.

Profit

The key difference between the two types of companies is obviously in the form of profits. Profit, after all, is money left over after operating expenses and taxes have been paid off. To simplify, if a company takes in $100,000 a year and has operating costs of $70,000 (paying employees, leasing the property of the office, etc) and pays $10,000 in taxes, then the company has a net profit of $20,000.

In a traditional for-profit company, this $20,000 would be given to the owners or shareholders of the company. In many corporations, this money would become dividends for investment made in the company. However, in a non-profit company, the $20,000 would be reapplied towards forwarding the goals of the company. For example, a non-profit company which supports the arts might use the $20,000 to fund a play. Examples of non-profit organizations include charities, trade unions, and public arts funds.

Taxing Non-Profits

In the United States, non-profit companies can file for tax-exempt status. The IRS will review the application to make sure that the company meets the conditions for tax exemption.

Contact Us

If you are considering starting a company or filing your company for tax-exempt status, contact the Austin business attorneys of Slater, Kennon & Pugh Ltd.LLP by calling 512-472-2431.