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Not-for-profits, charities & NGOs. What’s the difference?
In the charity work, social work, and volunteering industries, there are many different types of organisations. To make things difficult, a number of the terms used to describe these organisations overlap.
So before you head into an interview at a not-for-profit and start gushing about how desperately you want to work for a charity (hint: not all not-for-profits are charities), it’s a smart idea to get your head around what’s what.
Here are the main organisational classifications you need to know:
A not-for-profit is an organisation that reinvests all of its profits back into itself to continue carrying out its mission.
Not-for-profits can legally make a profit, but these profits can only be used for activities such as carrying out the day to day work of the organisation, paying tightly regulated staff wages, building infrastructure, or launching projects. Importantly, all of these activities must be congruent with the organisation’s mission. Even if a not-for-profit closes — voluntarily or otherwise — profits cannot be claimed by the owners or the group’s members. Instead, they must be redistributed to an organisation with similar goals.
Not-for-profits are commonly referred to as NFPs or non-profits. These organisations can be run by paid staff, volunteers or a combination of both, and may have sporting, religious, educational, social, well being or scientific purposes (to name a few). They vary in size but are typically at the smaller end of the scale relative to other classifications such as non-government organisations. Examples could include a community football club or local disability recreation service. Some not-for-profits also fall into the category of being a charity or a non-government organisation, illustrating the overlap of terms used.
- Cannot make profits for personal gain
- Hire paid staff and/or volunteers
- Don’t need to reach charitable status (explained below)
In contrast, a for-profit operates for the financial profit or personal gain of its owners, their family, friends or shareholders. For-profits have the option to reinvest their profit, keep it for themselves or distribute it to others.
A charity is a specific type of not-for-profit organisation.
Although the word charity is colloquially used for activities that ‘do good’ or provide for others, in reality there are very strict guidelines as to how an organisation can qualify as a registered charity. These guidelines are so strict that some organisations don’t even try to obtain the classification (even though they might qualify), as they feel it would be too hard to sustain the necessary requirements over time.
To qualify as a charity, an organisation must:
- Be a not-for-profit
- Have only charitable purposes (as deemed by law)
- Operate for the public benefit
- Comply with the Australian Charities and Not-for-profits Commission
- Not be a government entity, individual or political party
- Not have any disqualifying purposes (e.g. promote illegal activity)
Under Australian law, the entire purpose (or mission) of the organisation must fall into at least one of twelve charitable purpose categories. These categories represent what the organisation is striving to achieve. A few of these categories are:
- Advancing health, education, the natural environment or social welfare
- Promoting human rights and reconciliation
- Preventing the suffering of animals
An organisation can only have additional purposes if these further the central charitable purpose.
The greatest difference between a charity and other not-for-profit organisations is that a charity must be endorsed by the Australian Taxation Office as having charitable status (as measured by their purpose) which then qualifies the organisation for charity tax concessions. Other not-for-profits have the potential to qualify for a different set of tax concessions.
- Must have a charitable purpose endorsed by Australian law
- Must benefit the entire public or a sufficient section of the public
- Are a not-for-profit organisation
- Can hire both employees and volunteers
Non-government organisations — or NGOs as they are commonly referred to — are non-profit organisations that are set up and operated independently from local, state or international governments, but can receive government funding in some cases. They usually address social and political issues.
One of the biggest differences between NGOs and other not-for-profits is the scope of work these organisations undertake. NGOs generally (but not always) refer to organisations addressing larger and more widespread issues — natural disasters, famine, or worldwide child trafficking — whereas not-for-profits often refer to smaller scale groups such as community arts, well-being or religious organisations.
NGOs are known for mobilising resources, advocating for citizens, challenging policy, driving change through small and large scale projects, and partnering with other organisations to more effectively reach shared goals. They usually consist of a mixture of paid employees and volunteers.
While the specifics vary across the world, in Australia an NGO is an organisation that:
- Is run without oversight or representation from government
- Has a humanitarian function, addressing social and/or political issues
- Has paid staff and/or volunteers
- Tends to represent larger scale/international projects
It’s worth noting that there are also some government organisations that undertake similar humanitarian work as NGOs. The only difference is that government organisations are funded, run, and held entirely accountable to local, state or national governments. This means that the scope of these organisations, and their priorities, have the potential to change depending on who is in office.
Currently in Australia, social enterprises are not a legally recognised classification, but as the term gets thrown around a bit it’s good to know what it means.
A social enterprise refers to an organisation that uses income mostly derived from trade and sales, to fulfil a mission of improving society either environmentally, socially, culturally or economically, for the benefit of others.
Social enterprises are expected to reinvest a substantial portion (over 50%) of their profits to fulfil their social mission. This is in contrast to not-for-profits who must reinvest 100% of their profits. Instead of relying on funding and donations for income, social enterprises use their product and commercial skills as a means to fund their work on social issues.
Examples might include a coffee shop which uses its sales to help youth get off the streets and into housing, or a cleaning company that only hires refugees and asylum seekers to assist them in building a new life.
- Are commercially viable businesses
- Work towards a public/community cause
- Reinvest over 50% of their profits to carry out their social mission
- Use trade to create income
- Are different to not-for-profit organisations
- Hire employees and are less likely to hire volunteers
So there you have it. You’ll never confuse a not-for-profit with a social enterprise again. Go forth and educate your peers!