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Not for Profit Organizations, Meaning and Features

Not for profit organizations are established to meet needs related to the environment, education, or society. Read the Complete blog to learn more!

Izhar Ahmad26 Oct, 2023

The main goal of not for profit organizations is to offer services to a specific group or the general public on a broader scale. Typically, they don't engage in producing, purchasing, or selling goods, and they may not be involved in credit transactions. As a result, they don't need to maintain extensive financial records like commercial entities do, including Trading and Profit and Loss Accounts.

The funds collected by these organizations are usually added to a general fund or capital fund. Their primary sources of revenue typically include membership subscriptions, donations, income from investments, and grants.

Not for Profit Organizations Meaning

Not for profit Organizations (NPOs) are entities created with the primary objective of enhancing societal welfare. These organizations operate as charitable associations, with no profit-making motives. Their record-keeping is primarily aimed at meeting legal obligations and ensuring proper use of their funds. They compile financial statements at the close of each accounting period, typically a fiscal year, to assess their income, expenses, and overall financial standing.

Objectives of Not for Profit Organizations

Not for profit organizations aim to achieve the following objectives:

Offer vital services not readily accessible, including education, healthcare, and social welfare programs.
Champion significant causes and drive societal change.
Conduct research and collect data to influence policies and practices.
Advocate for marginalized and underrepresented communities, giving them a voice.
Foster community bonds and enhance social unity.
Empower individuals and communities to address issues significant to them.
Encourage global cooperation and mutual understanding.
Preserve the environment and advance sustainable development practices.
Celebrate and safeguard cultural heritage.

Key Features of Not for Profit Organizations

Service Focus: Not for profit organizations are driven by the mission to provide services to specific groups, their members, or the general public. They do not discriminate based on race, religion, or ethnicity. Examples of these services include education, healthcare, food, shelter, sports facilities, and more. Membership Structure: Not for profit organizations are usually established as charitable trusts or societies, and their members consist of individuals who subscribe to their mission and objectives. Governance: These organizations are managed by a committee, often elected by their members, which oversees their operations and decisions. Income Sources: Not for profit organizations derive their income from various sources such as subscriptions, donations, government grants, legacies, and returns on investments. Surplus Distribution: Any surplus funds generated are typically distributed among the organization's members or reinvested in its activities to further the cause. Reputation Building: Not for profit organizations establish their reputation and goodwill based on the positive impact they make in the public welfare sphere. Their credibility is earned through their altruistic endeavors. Users of Financial Information: The accounting information of these organizations is utilized by current and potential contributors, as well as regulatory bodies, to assess their financial health and transparency.

Types of Not for Profit Organizations in India

In India, Not for profit organizations are entities dedicated to serving society without profit motives. There are primarily two types of such organizations: Companies Under Section 8: This is a prevalent form of Not for profit organization in India regulated by the Companies Act, 2003. These companies were established to promote social welfare and development. Any profits they generate can only be used to further their objectives and cannot be distributed among members. While their registration process is similar to other companies, they receive a special certificate. NGOs (Non-Governmental Organizations): These organizations operate under Section 8 of the Companies Act. They are Indian establishments authorized to accept foreign funds, although these funds are closely monitored by the National Intelligence Agency. Some notable examples of Not for profit organizations in India include CRY (Child Rights and You), GOONJ, Help Age India, Give Foundation, among others.

Accounting Treatment of Not for Profit Organizations

In the accounting for not for profit organizations, these entities maintain a Capital Fund or General Fund Account instead of a Capital Account. Surpluses, life membership fees, donations, legacies, and other contributions are credited to this account. Not for profit organizations are also obligated to prepare their financial statements at the end of the accounting year, adhering to accounting principles. These financial statements include: Receipts and Payments Account: This account summarizes cash and bank transactions, aiding in the preparation of the Income and Expenditure Account and Balance Sheet. It is also submitted to the Registrar of Societies along with the Income and Expenditure Account and Balance Sheet. Income and Expenditure Account: Similar to a Profit and Loss Account, this document outlines the surplus or deficit, if any, by detailing income and expenditures. Balance Sheet: Prepared in a manner akin to profit-oriented businesses, this Balance Sheet provides an overview of the organization's financial position, reflecting assets, liabilities, and capital.

Read Related Topics
How to Prepare Trial Balance	Census and Sample Survey	Tabulation	Cash and Cash Equivalents
Business Environment	Market Demand	Capital Structure	Marginal Product

Not for Profit Organizations FAQs

What is the difference between NPO and NGO?

NPO refers to any organization that operates without profit motives, while NGO is a specific type of NPO, engaged in social, cultural, legal, or environmental advocacy.

What are the five types of NGOs?

NGOs are categorized as advocacy NGOs, service NGOs, participatory NGOs, empowering NGOs, and operational NGOs based on their functions and objectives.

What is the world's largest NGO?

BRAC (formerly known as Bangladesh Rural Advancement Committee) is often considered the world's largest NGO, operating globally in various development sectors.

Who was the first NGO in India?

The Bharatiya Gyan Vigyan Samiti, founded in 1945, is often considered one of the first NGOs in India, promoting scientific education.

Who controls NGOs in India?

NGOs in India are regulated by the Ministry of Home Affairs under the Foreign Contribution (Regulation) Act (FCRA) and various state-level authorities.

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Not for Profit Organizations Meaning

Objectives of Not for Profit Organizations

Not for profit organizations aim to achieve the following objectives:

Offer vital services not readily accessible, including education, healthcare, and social welfare programs.
Champion significant causes and drive societal change.
Conduct research and collect data to influence policies and practices.
Advocate for marginalized and underrepresented communities, giving them a voice.
Foster community bonds and enhance social unity.
Empower individuals and communities to address issues significant to them.
Encourage global cooperation and mutual understanding.
Preserve the environment and advance sustainable development practices.
Celebrate and safeguard cultural heritage.

Key Features of Not for Profit Organizations

Types of Not for Profit Organizations in India

Accounting Treatment of Not for Profit Organizations

Read Related Topics
How to Prepare Trial Balance	Census and Sample Survey	Tabulation	Cash and Cash Equivalents
Business Environment	Market Demand	Capital Structure	Marginal Product