What is a Nonprofit?
Nonprofit organizations, also known as charitable organizations, non-governmental organizations, or tax-exempt organizations, are organizations, or corporate entities, that are formed for the purpose of fulfilling a mission to improve the common good of society rather than to acquire and distribute profits. . Nonprofit organizations exist in some form in every country in the world (commonly called nongovernmental organizations, or NGOs, outside of the United States). Nonprofit organizations provide a vehicle for people to do things that they cannot do apart, in which they are engaged in communities. Sometimes the need for these activities is explained as market failure or government failure. In any case, a common affinity brings people together for small and large causes — from coin collecting to climate change — and the organizations they form are held in common for mutual benefit.
The defining feature of nonprofit organizations is that they do not distribute a financial return (equity), or profit, to private individuals. Nonprofit organizations are subject to certain specific benefits as well as obligations, which are governed by Minnesota state statutes and the IRS. There are more than 25 different types of nonprofits defined in the IRS code, with the most common type is 501(c)(3).
Nonprofit organizations must be guided by their charitable mission and led by a board of directors. That board will set the strategic direction of the organization and hire additional staff needed to fulfill its mission.
Despite the fact that they are sometimes referred to as “voluntary organizations,” many nonprofit organizations compensate their employees with pay and benefits comparable to other areas of the workforce. Nonprofit organizations employ millions of people in the U.S., and more than 10 percent of Minnesota's workforce, and are best positioned to attract and retain a qualified workforce if they pay market rates of wages and benefits. They may not pay “excess” compensation, though there is no set amount that would be considered excessive, and many executives of large nonprofits, including hospitals and universities, are among top earners in all fields in the U.S.
