Not-for-Profit Organizations

Non Profit making organisations are formed for social welfare or charity. They usually promote science, art, charity, commerce or religion for social development and not for personal profit. Such establishments can be registered under Section 8 of the Indian Companies Act, 2003.

Non-Profit Organisation Definition

It is a type of organisations which do not gain profits for its owners, instead all the amount of money they earn as donation is utilised in pursuing objectives of it and in keeping it running. Typically these non-profit seeking organisations are under the non-profit sector and are tax-exempt charities or other types of public service organisations.

The sole objective of such companies is to extend necessary aid to a specific group of people or public at large. Usually, they do not perform credit transactions which are generally done in a profit making organisation. Hence, they need not to keep a list of credit records, accounts for loss or profits as such. 

However, they do keep a book of records which is then used to keep track of consumption of their funds and to access the financial standing of the company during a fiscal year. This record is kept to maintain the transparency between the expenditure and income of that particular company and then submitted to statutory authority, also known as Registrar of Society. 

Characteristics of Not for Profit Organisations

There are a few distinct features which make them different from regular organisations.

  • The Motive for Service – Non-profit organisation meaning they are set up mainly to provide service to a specific group of people or public, without discriminating for their caste, creed and gender.

They extend help free of cost or at a nominal price as profit making is not their motive. For example, they provide services like health care, education, food, recreation, shelter, clothing, sports facility, etc. 

  • Management – Usually, a managing committee or executive committee looks after these organisations, and its members elect them. 

  • Members – Since these organisations are formed as charitable societies or trusts, the people who give subscriptions to these, are its members. 

  • Income Sources – The primary source of these trusts are donations, subscriptions, government grants, incomes from investments, legacies and several others. 

  • Surplus – If a financial year surplus is generated, that will be credited to the capital fund. 

  • Reputation – These organisations generally earn a reputation for the contribution it makes through the services and not for any of its member’s personal goodwill. 

  • Accounting Information – Generally, any present or potential contributors and its members can have access to its accounting information.

For instance, Amnesty International is an example of a non-profit organisation. Now, try searching and noting down the names of other 5 such renowned international non-profit organisations.  

Accounting Process of Non - Profit Organisations

Although non-profit seeking organisations do not trade with the motive to earn a profit, like any other organisation, they need to keep records of expenses, assets, income, liabilities, etc. Most of their sources of income are donations, subscriptions, etc. which are mainly made through cash or bank transactions.

Keeping proper credit documentation is required as these trusts are accountable to its members and contributors and most importantly, to the Government as well. For a matter of fact, the government monitors these trusts whether they are using their funds for right causes or not.

Along with ledgers and cash books, they also hold a Stock Register. This stock register records of all consumables and fixed assets, and are maintained carefully. Moreover, the not for profit organisations maintain general fund account or capital funds instead of capital account and this is one of the primary differences between a profit organisation and non-profit organisation.

These organisations must prepare a financial statement or final accounts at the end of a financial year. This financial statement includes the following components.

  • Receipts and Payment Account – Here, all the cash and bank transactions are recorded. It is used to prepare income, expenditure accounts and balance sheets, and finally, three of these have to be submitted to the Registrar of Societies. 

  • Expenditure and Payment Account – It is somewhat similar to profit and loss accounts and keeps track of deficit or surplus, if any. 

  • Balance Sheet – A balance sheet has to be made following the guidelines like any other organisation’s balance sheet is prepared. 

Types of Non - Profit in India

The term non-profit meaning is an entity which serves society without any motive to earn a profit. There are majorly two types of such organisations in India.

  1. Companies Under Section 8 – It is one of the most popular forms of non-profit organisation in India and comes under Companies Act, 2003. These types of companies are set up to promote social wellbeing and developments.

Any profit generates from them can only be used for promotion of the objectives of that particular body and cannot be divided among its members. The registration process of them is quite similar to that of other companies, but a special certificate is given in this case. 

  1. NGOs – These are non-government organisations which come under the Section 8 of Companies Act. These companies are established in India but are allowed to accept foreign funds. However, the funds are monitored by the National Intelligence Agency.

A few eminent examples of non-profit organisations of India are CRY (Child Rights and You), GOONJ, Help Age India, Give Foundation and various others.

Task for You: Find out the difference between a non-profit organisation and a non-governmental organisation.

For further details about not for profit organisations and NGOs of India and how they operate, check our website today. You can also install Vedantu’s app to take your learning with you.

FAQ (Frequently Asked Questions)

1. What do you Mean by a Non-Profit Organisation?

Ans. A non-profit organisation is a company which promotes charity and welfare of communities. Usually, they do not produce, sell or buy products to make a profit.

2. Is UNICEF a Non-Profit Organisation?

Ans. Yes, UNICEF is a non-profit as well as a Non-Governmental Organisation (NGO).

3. Is an NGO Non-Profit?

Ans. An NGO is also a non-governmental body; however, they may gain aid from the government. You may or may not make a profit from an NGO. They are built primarily for charitable purposes.

4. Give two Examples of NPO in India.

Ans. Aeronautical Society of India and All India Management Association are two examples of NPO in India.