We face many challenges — from a food deficit to a lack of jobs, economic struggles, and pandemics. In reaction to these challenges, we can distinguish between two types of corporations that fight issues worldwide: for-profit and nonprofit organizations. 

For-profit organizations have a mission to help the world in some capacity, but they do also want to profit from their endeavors — as the name suggests. Nonprofit organizations, on the other hand, were formed to provide with no intention of turning a profit. Nonprofits do, of course, accept donations and fundraise to bring in money to cover expenses and grow the organization. 

The focus is slightly different in both of those types of corporations, and thus, there also are some differences between their board of directors.

What are the main differences between nonprofit and for-profit organizations?

We can pinpoint a couple of areas in which the differences are clear.

Mission

Both types of companies aim to help others. For-profits are focused on helping people they cater their services to — for a profit. Nonprofits help in situations where the people in need can’t afford to pay for the help. This does not mean that nonprofit organizations do not make money (because they do), but it is not the sole purpose of their existence. They need to break even to survive. 

Their missions might be similar, but the way they approach the subject of help is different.

Ownership 

Nonprofit organizations serve the public but are not public companies in the sense that their stock shares trade on an exchange. There are no shareholders that need to be appeased — but the organization’s actions are judged by the public. 

As the purpose of a nonprofit organization is to serve the public, all of its assets are built around providing assistance in every way possible. Anything that belongs to that organization cannot be transferred to a private individual for their benefit.

If an organization chooses to disband, they are obliged to transfer their assets to another nonprofit organization because the former members can’t take possession of any property.

Income distribution

Nonprofit organizations are led by a board of directors nonprofit that monitors the company’s cash flow. They do not receive any compensation for leading the organization, but they can get reimbursed for any travel expenses.

The board of directors of a nonprofit organization acts as a group and can at any moment decide if they need a change in personnel. No one has full control over the organization, and they need to act together to achieve their common goals.

Governance 

To ensure that everything is done with an external goal in mind, the governance over the organization is given to every member of the nonprofit board. The founder might be part of the board, but in no way are they privileged to decide the course of action single-handedly. Their opinions on the execution of actions or direction of the organization carry the same weight as every other board member.

How different is board recruitment for nonprofits?

The board of directors nonprofit is assembled of individuals that want to unite for a larger purpose than themselves. They accept board appointments not because they want to make money but because they want to make a difference.

Board recruitment is motivated by the skillset of the individual and how they fit into the organization. It is dependent on how much they are willing to give, without getting anything in return apart from the satisfaction from helping people.

The peculiarities of board governance in nonprofits

When the board is selected, and everyone knows their place in the organization, that’s the time to decide on a course of action. Each member of the board has a voice, and no decision can be made without a vote. 

This way, the governance of the board over the organization is put upon each member as there are no nonprofit board positions that could overthrow this democracy. Opinions are voiced, and the course of action is established as one body.

Nonprofit organizations are different from for-profit organizations in a variety of ways. Their existence is not motivated by revenues but by helping those who are in need. The board decides the course of action, and through the use of board meeting software, they can better manage their mission. To see how this could benefit your business, read up on it about board governance in nonprofits.

Recommended Posts

What You Should Know About Compensation Committees
Bylaws for Nonprofit Organizations: What You Need to Know
The Ultimate Guide on Nonprofit Strategic Plan Development