NON PROFIT ORGANISATION

NON- PROFIT ORGANISATION

Non Profit Organisation is a kind of organisation which is set up to promote the social welfare, cultural, educational, professional or religious objectives. These organisations are formed not to earn profit but to render their services to the society for the upliftment of the various sections of the society. It is a separate legal entity and not owned by any individual or an enterprise.

Such organisations include clubs, hospitals, libraries, schools, religious institutions, charitable institutions and literary societies etc. These non profit seeking entities exist with a primary motive of providing service. As clubs provide sports and recreational facilities; hospitals render medical services; literary society promotes art and culture and association may also be formed to protect the rights of the members.

FEATURES OR CHARACTERISTICS

ENTITY                                             

The non- profit organisation is a separate legal entity which is not owned by an individual or enterprise. It has its own existence in the eyes of the law. Also, it is not affected by the retirement, death, lunacy or insolvency of any member.

FORM

These organisations are in the form of clubs, hospitals, libraries, schools, religious institutions, charitable trusts, literary societies etc.

PURPOSE OR AIM

The purpose of these organisations is to further cultural, educational, religious, professional objectives and rendering services to the people at large.

NO PROFIT MOTIVE

Non –Profit organisation does not function with the objective of earning profit. The surplus is used for the objects for which it is set-up. Thus, surplus of these organisations is not distributed to the members as profit share.

MANAGED BY ELECTED MEMBERS

These organisations are usually managed by their elected members known as Trustees or Managing Committee.

SOURCE OF FUNDS

The main sources of income of these organisations are:

  • Subscription: The amount paid by the members periodically as their contribution.
  • Donations: Specific or General Donation received by the public.
  • Financial Assistance from the Government in the form of grant-in-aids.
  • Income from investment.

MANDATORY MAINTENANCE OF ACCOUNTS

These organisations also have to maintain proper accounts to meet the legal requirement and to exercise proper control over utilization of funds.

FINAL ACCOUNTS

The final accounts maintained by these organisations are:

  • Receipts and Payments Account
  • Income and Expenditure Account
  • Balance Sheet

CAPITAL FUND

As these organisations do not aim at earning profit, so the balance of the Income and Expenditure Account is taken as either Surplus or Deficit. The surplus or deficit is not distributed to the members rather is added or deducted from the capital fund.

DIFFERENCE BETWEEN PROFIT AND NON- PROFIT ORGANISATIONS

BASIS OF DIFFERENCE NON PROFIT ORGANISATION PROFIT ORGANISATION
MAIN MOTIVE The main aim of these organisations is to serve the society. The main aim of these organisations is to earn profits.
FORM OF BUSINESS Charitable Hospitals, Clubs, Schools, Associations etc. Sole proprietorship, Joint Stock Companies, Partnership etc.
ACCOUNTS MAINTAINED The final accounts maintained are: Receipt and Payment Account Income and Expenditure Account Balance Sheet The final accounts maintained are: Trading AccountProfit and Loss AccountBalance Sheet
SOURCE OF INCOME The sources of income for these organisations are: Subscriptions from membersDonations from publicGrants from Government The source of Income for these organisations is: Capital invested by ownersLoans from financial institutionsIncome from investmentsProfit earned
NET RESULT The net result of Income & Expenditure Account is either surplus or deficit.  The net result is either net profit or net loss.
CAPITAL VS CAPITAL FUND These organisations do not maintain any capital account. Instead they , maintain ‘Capital Fund’ comprising life membership fees, legacies, surpluses etc.  These organisations maintain capital account.
DISTRIBUTION OF PROFIT/ SURPLUS The surplus is not distributed among the members. The profit is distributed among owners of business.
MANAGEMENT Trustees, Managing Committee etc. Sole Proprietors, Board of Directors, Partners etc.
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