Non-Profit Sector Business Ownership
Non-Profit Sector Business Ownership
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Different types of businesses are founded for different purposes. If you are interested in learning mre about these different purposes, check out the resources here.
The non-profit sector consists of Non-Profit Organisations (NPO's) which are privately owned businesses (ie. businesses that are not owned by the government) that are organized and operated for a collective or social benefit rather than generating a profit for their owners. One of the unique characteristics of NPO's is that they are not allowed to make a profit. This doesn't mean that they don't make any money, it just means that the money that they have left over at the end of the year after they have paid all of their expenses is called a SURPLUS instead of a PROFIT.
The key difference between a surplus and a profit is that a financial surplus is reinvested back in the NPO and/or the community, rather than it being distributed to the owners (or shareholders) of the business. It is important to note that NPO's operate in a commercial-like way but they do not distribute any profits or financial surplus to their owners or shareholders. Instead, the surplus they may earn is completely reinvested in the organization in order to pursue their vision and/or mission. Two examples of NPO's include:
Social enterprises are an example of social purpose organizations (SPOs) that aim to primarily provide a solution to important social or environmental issues, and not only commercial gains for its owners. Irrespective of whether they are for-profit or non-profit, all social enterprises leverage their ability to connect the work carried out by employees with a social goal. This provides employees with a sense of social purpose and the feeling of being able to make a positive difference to the social cause.
An international company that operates in more than 80 countries around the world with the mission to expand financial access to help underserved communities thrive. This helps students to pay for their education, women to start their own businesses, farmers to invest in capital equipment, and families to afford emergency healthcare.
This social enterprise was established by Malala and Ziauddin Yousafzai in 2013 to help empower women and girls by advocating and spreading access to education (by providing 12 years of free, safe, quality education and campaigning for gender equality). The Malala Fund is a registered charity in the UK.
Non-governmental organizations (NGOs)
Non-governmental organizations (NGOs)
A non-governmental organization (NGO) is a type of non-profit social enterprise that operates in the private sector of the economy. Therefore, it is not part of a government organization. Instead, it is operated a voluntary group to promote a social cause, such as the protection of human and animal rights, protection of the environment, and development aid. They operate at a local, national, or international level and put pressure on governments to adopt policies in support of their social cause. They are usually funded by a combination of sources:
Government grants or donations
Private donors and philanthropists.
International organizations
Charitable organizations
Commercial businesses, as part of their corporate social responsibilities (CSR),
Examples of non-profit social enterprises run as NGOs include the following organizations. For example, Doctors Without Borders is an international humanitarian medical NGO, free from direct control of any local or national government.
Advantages & Disadvantages of NPO's
Advantages & Disadvantages of NPO's
Advantages of NPO's
Advantages of NPO's
The advantages of establishing a business as a non-profit social enterprise include the following points (which apply to both NGOs and charities):
Non-profit organisations exist for the benefit of local communities and societies. Examples include fundraising events and donations to meet social aims of a community.
Non-profit organizations, including non-profit social enterprises, are exempt from paying corporate and profits taxes.
Many NPOs also qualify for government assistance in the form of grants and/or subsidies, thereby reducing their costs of production.
There can be a positive impact on employees and donors who feel that the non-profit enterprise is pursuing a socially meaningful ambition.
Disadvantages of NPO's
Disadvantages of NPO's
However, there are potential disadvantages of establishing businesses as non-profit social enterprises. These include the following points (which apply to both NGOs and charities):
There are strict guidelines and restrictions that non-profit social enterprises must follow; not all trading activities are permitted. This is to ensure the general public is protected against fraudulent activities by dishonest charities or non-governmental organizations.
NPOs depend on the goodwill of the general public and donors to fund their operations. As a result, business survival is often difficult for many smaller, less-known non-profit social enterprises.
There is a lack of financial and cost control because, unlike in a for-profit organization, managers at NPOs are not expected to earn a profit for their owners or shareholders.
As a non-profit organization, the wages and remuneration of workers are often lower than in commercial, for-profit organizations. Whilst it might be socially acceptable that the managers at a bank or private law firm is paid an annual bonus, gets to travel on business class and is offered a company car, the equivalent benefits for a person working for a charity might be deemed to be rather unethical.
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