Nonprofit Terminology

^{(Ed. Note: This entry is devoted to clarification of terminology. For more detailed information on any of the topics mentioned, see the individual entries.)}

The terms nonprofit, not-for-profit, voluntary and independent as well as the term third are used in differing contexts and countries as modifiers (e.g. to the term sector) to describe what appear to be very similar or related phenomena. These modifiers are used together with words like organizations, sectors, boards, corporations, committees, associations and numerous other objects to describe various third sector forms of uncoerced or independent collective action or cooperation outside markets, states, or households.

The term nonprofit is most widely used in the United States, Canada, Australia and New Zealand, while voluntary (as in voluntary organizations) serves the same purpose in Great Britain, and nongovernmental (as in nongovernmental organizations) is preferred in much of the rest of English-language usage throughout the world.

Nonprofit generally alludes to issues of motivation or legal constraint. In some cases, uses of the term connote absence of profit or of profit seeking intent. In the state-level incorporation statutes of most of the United States as well as U.S. federal tax code (Section 501), a distinction is made between profit seeking and profit distribution to owners or shareholders, with legal emphasis solely on the latter. (The widespread public perception that nonprofit organizations cannot "make a profit" is upon close examination a largely meaningless notion. Most nonprofit entities do not have the accounting procedures akin to the Cost of Doing Business calculation ordinarily used in businesses to determine profits, and this determining the presence or absence of profit is not ordinarily done. In most nonprofit settings any surpluses of revenues over operating expenses are simply rolled forward into the next accounting period.

For different reasons, many informed writers and speakers use the term not-for-profit; the middle term for seemingly clarifying the usage, or placing greater emphasis on collective intent or individual motive rather than legal constraints. Although a few attempts have been made to systematically differentiate the term not-for-profit from nonprofit (Evers and Laville, 2004), in most cases the two terms are interchangeable.

In parts of the world outside the United States (and in particular, continental European countries), either of these "profit-centered" approaches to defining the third sector provokes significant dissent. (Evers and Laville, 2004) United Nations agencies, other international bodies, including associations and foundations and numerous non-U.S. researchers, theorists and practitioners make more frequent use of the term nongovernmental organizations.

In most cases, nonprofit, not-for-profit and nongovernmental describe very similar phenomena, differing primarily in the particular contrast dichotomies they name: nonprofit and not-for-profit entities are contrasted with market, profit-making or "for-profit" entities, while nongovernmental entities are differentiated from governmental, or public entities. While simple logic might suggest a similar category of nonhousehold entities, this usage is rare-to-nonexistent.

References

• Evers, Adalbert and Jean-Louis Laville. 2004. The third sector in Europe. Northampton, Mass.: Edward Elgar Publishing.