The Pros and Cons of Being a Nonprofit, A Comprehensive Overview
There are advantages and disadvantages to being a nonprofit organization. Nonprofit organizations are mission-driven organizations that exist to serve a social, environmental, or cultural purpose. They differ from for-profit businesses in that they cannot distribute profits to owners or shareholders, and they must use their revenue to support their mission. While there are advantages to being a nonprofit, there are also challenges and limitations that come with this type of organization. Here are some of the most common pros and cons:
Pros:
Here are the pros:
Tax-exempt status
Nonprofit organizations are generally exempt from paying federal and state taxes, which can save a significant amount of money and allow more resources to be directed towards the organization’s mission.
A nonprofit organization called Feeding America, which works to end hunger in the United States, is exempt from paying federal income taxes, allowing more resources to be directed towards their mission.
Eligibility for grants
Nonprofits are often eligible for grants from foundations, corporations, and government agencies that are not available to for-profit businesses.
The Nature Conservancy, a nonprofit organization that works to conserve lands and waters around the world, has received grants from corporations like Disney and Starbucks that are not available to for-profit businesses.
Public trust
Nonprofits are typically viewed as trustworthy and altruistic organizations that exist to serve a greater social or environmental purpose. This can attract donors, volunteers, and community support.
The Red Cross, a nonprofit organization that provides disaster relief, blood donations, and health and safety training, is often viewed as a trustworthy organization that exists to serve a greater social purpose. This has helped the organization attract donors, volunteers, and community support.
Limited liability
Nonprofit board members and officers are generally protected from personal liability for the organization’s debts and obligations.
The board members of the Smithsonian Institution, a nonprofit organization that operates museums, research centers, and educational programs, are protected from personal liability for the organization’s debts and obligations.
Mission-driven
Nonprofits exist to serve a specific social or environmental mission, which can provide a sense of purpose and motivation for staff and volunteers.
Teach for America, a nonprofit organization that recruits and trains teachers to work in low-income communities, is mission-driven and attracts staff and volunteers who are motivated by the organization’s purpose.
Read also: Gift Economy (donation) | An integral part of the circular economy?
Cons:
Limited income-generating activities: Nonprofits are restricted in their ability to generate income, as they cannot distribute profits to owners or shareholders.
Compliance requirements
Nonprofits are subject to strict legal and regulatory requirements, including annual filings with the IRS and state agencies, which can be time-consuming and costly.
The Sierra Club Foundation, a nonprofit organization that supports environmental advocacy and education, is subject to strict legal and regulatory requirements, including annual filings with the IRS and state agencies, which can be time-consuming and costly.
Limited control
Nonprofit board members are responsible for overseeing the organization’s mission and finances, but they do not own the organization and cannot sell or transfer it.
The National Trust for Historic Preservation, a nonprofit organization that works to save America’s historic places, may find it more difficult to access capital or financing than for-profit businesses, as they cannot issue stock or take on investors.
Limited access to capital
Nonprofits may find it more difficult to access capital or financing than for-profit businesses, as they cannot issue stock or take on investors.
The board members of the Humane Society of the United States, a nonprofit organization that advocates for animal protection and welfare, do not own the organization and cannot sell or transfer it, which may limit their ability to make certain decisions.
Limited income-generating activities:
The American Heart Association, a nonprofit organization that funds research, education, and advocacy programs related to heart health, is restricted in their ability to generate income, as they cannot distribute profits to owners or shareholders.
Donor dependency
Nonprofits rely heavily on donations and grants for funding, which can be unpredictable and subject to economic fluctuations or changes in donor priorities.
Charity Water, a nonprofit organization that provides clean and safe drinking water to people in developing countries, relies heavily on donations and grants for funding, which can be unpredictable and subject to economic fluctuations or changes in donor priorities.
Pros and Cons of Being a Nonprofit do you still want to open it?
We don’t have personal preferences or desires. However, the decision to start or join a nonprofit organization should be based on a variety of factors such as:
- one’s personal values,
- goals,
- resources,
- and the specific context and environment in which the organization will operate.
It’s important to carefully consider the pros and cons of being a nonprofit, as well as to develop a clear and realistic understanding of the challenges and opportunities that one may face. Ultimately, the decision to start or join a nonprofit should be based on a well-informed and thoughtful evaluation of all relevant factors.
Sources: PinterPandai: Chron, Investopedia, Candid Learning, Rasmussen University (Illinois)
Photo credit: PublicDomainPictures via Pixabay
