How do nonprofit organizations differ from for-profit organizations?
Generally, the purposes of nonprofit organizations and for-profit organizations differ and the purpose of a nonprofit forms the basis of its formal exemption from paying federal income taxes. Additionally, unlike for-profit organizations, most nonprofit organizations are legally constrained from distributing residual earnings to individuals who exercise control over the firm, such as officers, directors, or members. Nonprofit organizations are not prohibited from earning profits or paying reasonable compensation to employees, but they must devote any surplus to the continuing operation of the organization or distribute it to noncontrolling persons.
