Pa 4355 Nonprofit Organizations Lec1 Essay

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Overview of the nonprofit sector
PA 4355 Nonprofit Organizations Summer 2013

What is a nonprofit organization?
— What does it me to be “nonprofit”?
— Nonprofit (a type of organization) – a legal term — Not-for-profit (a type of activity) – without a profit motive — What is the difference between nonprofit and forhold the equity in the enterprise — Private inurement - the transfer of the profits from the organization to its owners is pure private inurement

profit organizations? — Ownership – for-profit organization has owners that

Types of nonprofit organizations
— Corporation: A corporation is regarded as a separate legal entity – limitation against personal liability.

— Trust: Many private foundations are trusts. Most nonprofit organizations particularly those that will have a membership are ill-suited to be structured as trusts.

— Unincorporated association: A nonprofit corporation and a nonprofit unincorporated organization look alike. But the shield against individual liability provided by the corporate form however is unavailable in an unincorporated association.

Defining characteristics of the nonprofit sector (Worth, 2010)
— The non-distribution constraint: Nonprofits are not allowed to “distribute” profits.

— Tax-exemption: In order to get 501(c) nonprofit

status, organizations must claim exemption from federal income taxes.

Six defining characteristics of the nonprofit sector (Lester M. Salamon, 2000)
— Formal (organized entities) — Private — Non-profit-distributing — Self-governing — Voluntary — Of public benefit

Problem in defining the nonprofit sector
— Defining the nonprofit sector by what is “not” –
Defining something by what it is not can be misleading — Non-profit — Non-governmental

— The complexity and diversity within the sector –
Nonprofit organizations are so diverse and so specialized that some people even argue that grouping them as one sector is absurd

The concept of a definable nonprofit sector
— Nonprofit – For-profit – Government
— Most democratic state has three sectors: a government sector, a private for-profit sector, and a nonprofit sector. Each sector must function effectively and cooperate with the others to some degree is the democracy is to persist for the good of the individuals in the society

— The Commission on Private Philanthropy and

Public Needs (the Filer Commission), 1973-1975 — The Commission on Private Philanthropy and Public
Needs was founded in November 1973 to study the role of philanthropic organizations in the American public policy landscape.

Difference across the Sectors
(Brown et al., 2000)
Business Government Nonprofit

Purpose of existence

To provide public order and public goods Use of authority

To provide private goods and services

To actualize the values and purposes of citizens and citizen groups Independent voluntary efforts


Voluntary exchange

Resource Mobilization

Legitimate coercion and taxation

Resource exchanges

Appeals to values and social purposes

(Lipsky & Smith 1989; Salamon 1999)
— In contrast to government, nonprofit orgs are more tolerant of client selection procedures that are not based upon rigid standards of equity. smaller groups can act through the sector.

Nonprofit vs. Government

— Government action requires majority support while — Nonprofit orgs strive to be responsive to individual clients, even at the expense of their policy objectives. Government agencies, though, try to spread resources evenly over affected populations.

What is the nonprofit sector?
— Alternatives to the term “nonprofit” (Worth, 2010)
— — — — — —
Independent sector Third sector Charitable sector Voluntary sector Tax-exempt sector Civil society

However, all these terms are also limited.

Types of nonprofit organizations
— IRS categorization of tax-exempt organizations