NOT-FOR-PROFIT ORGANIZATION

Not-For-Profit Organization

Not-For-Profit Organization

Introduction

Many wellbeing care associations are not-for-profit. They do not have stockholders and no individuals may receive their residual assets, if any. They are also called nonprofit organizations . What distinguishes them from other private sector organizations is that profit is not their primary goal, although they are not constrained from being profitable. In fact, they must make some profits to maintain and upgrade their plant and equipment, repay debt, and adopt new technology.

TAX STATUS

Many in the general public associate tax exemption with not-for-profit status, but that is not a necessary condition. Most not-for-profit health care organizations qualify for federal, state, and local tax exemptions. They specify as charitable associations under part 501(c)(3) of the interior income Code. If they qualify, profits are not taxable and gifts to them are deductible charitable donations for the donor. Most of the time their real property is also exempt from local property taxes. Not-for-profit organizations may choose to be tax exempt or may lose their exemption because they have devoted too many resources to influencing legislation and have too much business unrelated to their stated charitable purpose. Foundations are a separate type of not-for-profit organization and must also distribute most their annual income in accordance with their charitable purposes. Health insurers, even if not-for-profit, are not exempt from federal income taxes.

GOVERNANCE

Most not-for-profit organizations have a governance structure quite different from that of a stockholder corporation. The executive director or chief executive officer (CEO) is usually an ex-officio member of the board, and the voting members of the board are not employees. They are usually called directors, governors, or trustees. The board sets policies and instructs the executive director and staff to implement them. The board of a not-for-profit tends to be much more involved in financial and management decision making than the board of a for-profit. The executive director tends to be selected based on professional as well as managerial qualifications and usually reflects the professional ideology that dominates the organization. A professional orientation and value system is important to leadership, because high levels of performance incentives are not usually offered by not-for-profit organizations. High salaries and bonuses often are not acceptable to donors or to the general public. One place where the CEO often does not come up through the organization's dominant profession's ranks is the U.S. hospital. Here a separate profession of hospital administrator has established itself. This group has advanced management training useful to the organization, but the administrator often loses out to the physicians whenever there are professional differences.

There are three categories of not-for-profit organizations: donative, entrepreneurial, and membership. Each has a different form of governance. Most large nonprofits have activities that operate on each model in order to maximize income. In a membership organization, membership is voluntary and often carries a cost, so the members elect the board directly. An entrepreneurial organization generally has an independent self-perpetuating board, whereas the donative organization often selects its new and continuing members on the basis of their ability ...