Business vs. Organization
Definitions & Setup
First, I want to commend you for getting to this section of my website. It means you are at the very least attempting to funnel through all the seemingly endless information. If you are just as confused as most of us were when starting a business or organization, I promise this will help start to clear the air.
Businesses and organizations are separated by how they function. One thing remains the same, they are entities filed by people just like you and I with the Internal Revenue Service (IRS). For example, a store that sells clothes can file an entity and become Business, however, a store that sells clothes and receives its products through donations can file and become an Organization.
You can forgo creating an entity and rather bring together a group of associates to obtain a shared goal. This group would not be a legal business or legal organization, but you do not have to create a business or organization just to accomplish a goal.
There are other ways, but if creating an entity is what you NEED then let’s have a Tactical review of what setup may work best. Keep in mind no matter what you call your entity, the IRS will refer to it as an organization.
(FPO) For Profit Organizations, (NPO) Non-Profit Organizations, and (NFPO) Not for Profit Organizations
For Profit Organizations
This means your focus area will be:
• Business Plans,
Business Operations and Systems Assessment,
Nonprofit Organization (NPO)
Your Focus Area will be
• NPO Operations and Systems Assessments
• Employee Assessments
• Volunteer Assessments
• Member Assessments
• Community Engagement
• Business Plans
• Fiscal Sponsorships
Non For Profit Organization (NFPO)
Your Focus as a Not For Profit Organization will be:
NFPO Operations and Systems assessment
As an (FPO) For Profit Organization (aka Business) your main goal will be to make money. Businesses sell products and services to their cutomersYou can choose to have employees depending on how you are set up or you can run as a solo practice and purchase services to help when needed.
A (NPO) Non-Profit Organization (aka organization) – As a Non-Profit Organization, your main goal is also to make money. However, the funds that you raise must be for the greater good by furthering a social cause or public benefit. This is because as a nonprofit your entity holds a Tax-exempt status known as 501(C)(3) of the tax code.
Any profit you earn is also required to be public knowledge as well as your operating information, so donors can see how their contributions are being used. Any profit you distribute must go towards the advancement of greater good of the public.
Non Profits are allowed to have employees just like a For Profit, however they also have members and volunteers who help run the organization. Non Profits are also allowed to form sperate legal entities like LLC’s.
In addition individuals who donate to your Non Profit can also deduct this cost from their personal taxes so as long as they itemize their deductions.
To create a Nonprofit Organization, you must first create your entity. Once the entity is formed you will then apply for an EIN Employer Identifications Number. Last you want to select your tax-exempt status using form 1024 if you wish to run as a Nonprofit organization.
A (NFPO) Not for Profit Organization –
A Not-for-Profit Organization is not run as a business like how Non-Profit Organizations and For-Profit Organizations are. Unlike a Non Profit, which operates solely for the greater good of the public, Not for profit organizations mainly exist to fulfill the goals of the organization’s owner or members. This can be anything from resources to recreation.
An example of this would be sports and private clubs.
Its goal is not to generate revenue, but to serve a specific purpose usually recreational, which is why they are coined “recreational organizations”. All profit earned must go right back into the organization, including donations.
Donations made to Not for Profit Organizations by individuals cannot be deducted from the donor’s personal tax, nor is the Not For Profit Organization allowed to form separate legal entities like LLCs. Not for Profit Organizations can have paid employees and or run on a volunteer base only.
In addition, these organizations also have a tax-exempt status, which includes sales and property tax, that falls under the tax code section 501(C). However, depending on the purpose of the organization it could fall under another section like a 501(K) that hold childcare organizations or a 501(C)(4) that hold Civic Leagues. If you want to learn more about the different tax code sections click here.
These are the tax code judications that we are knowledgeable to work with this time. As the business grows we’ll be able to assist you with more.
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