A Non-profit making organization (NPO) is an organization which exists with the primary motive of improving the welfare of a certain section of the public, rather than making profits. As such, the surplus realized are not distributed to the share holders but rather, are used to pursue other welfare oriented goals of such organizations. In simple terms, shareholders of NPOs do not benefit financially.
Beside the profit making motive, there are other distinguishing factors between NPOs and profit making organizations. First, NPOs may seek for local tax exemptions viz. Property tax and sales tax. This does not apply for profit making organizations; they must pay taxes. Secondly, shares of NPOs, unlike those for profit oriented organizations, are not freely transferrable. From the description herewith, it is obvious that many modern organization meets the definition of NPOs. These organizations include charity organizations, public institutions of learning, and public health institutions, to mention just a few.
There are a variety of ways through which NPOs raise revenue. The first method is through membership contribution. Here, members are called upon to make their contribution to enable the organization pursue some determined goals. However, such contributions may be made on predetermined basis. Here, members pay a specified amount of money to the organization at a regular interval; say monthly or yearly. These contributions are usually called subscription and include renewal fee for existing members and registration fee for new members.
Furthermore, it is common for NPOs to organize functions with the motive of raising finances. Here, the public is invited to attend and money is raised through the sale of tickets. The functions in question are usually in form of entertainment where things like drinks are sold at a profit. Those interested in attending the events may also pay for gate passes. The surplus from the collection is then used to meet the goals of the organization. Besides, NPOs also raise finances by providing services to the members. It is imperative to note that members may be charged a reasonable fee for the services offered.
In the health sector NPOs refers to medical institutions whose primary goal is to provide Medicare to the public. They do this by either charging a price that is not profit geared or by providing free medical services. It is imperative to not that the private sector has also encroached in the health sector. Some of privately owned hospitals charge a prohibitively high price that a common man may not afford. This is the rationale behind the existence of public hospitals which are NPOs. These hospitals are funded from the national kitty to provide health services to the public. In America, around 90% of federal community hospitals are NPOs while approximately 10% are privately owned and thus profit oriented.
In conclusion, therefore, a non-profit making organization is an organization whose existence is justified by provision of services to the public with a primary objective of improving the welfare of the public. In absence of these organizations, privately owned corporations would manage to extort money from the public. Moreover, the nature of some services is that, their provision cannot be assigned to the private sector; which are also profit oriented. Some services like defence are too sensitive to be provided by the private sector. For instance, leaving a private organization to provide firearms is a terminal threat to a country’s security. The existence of NPOs is therefore justifiable in many aspects.
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