What Does Non-Profit Mean?

By Frank Bass – Updated Feb 5, 2025 at 12:14 PM

Key Points

Nonprofits use earnings to further missions, not individual gains; they enjoy federal tax exemptions.
The IRS categorizes multiple nonprofit types under 501(c), with 501(c)(3) being the most common.
Creating a nonprofit involves initial costs and ongoing regulatory compliance but offers tax benefits.

Nonprofits are traditionally thought of as charities, but they’re often more than that. A nonprofit, as defined by the IRS, is simply a tax-exempt corporation that returns its net earnings to its mission rather than to any one individual or business.

Keep reading to learn more about nonprofit organizations -- their history, the types of nonprofits, the pros and cons of establishing a nonprofit organization, and some examples of corporations that you might not necessarily associate with the nonprofit world.

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Charity volunteer assisting a client near donation box — Image source: Getty Images.

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Disadvantages of nonprofits include:

Cost. Creating a nonprofit involves time and effort since the organization must be incorporated and apply to the IRS for tax-exempt status. To maintain its tax-exempt status, the organization must also keep detailed records and submit annual filings to state and federal tax authorities.
Control. Personal control of a nonprofit organization is limited. Nonprofits are generally controlled by its own articles of incorporation and bylaws, and are usually controlled by a board of directors, rather than an individual.
Public scrutiny. Since nonprofits are beneficiaries of the tax code, parts of its finances are required to be available for inspection by any member of the public. Records that are publicly available include the organization’s annual revenue, expenses, salaries, and top contractors.

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About the Author

Frank Bass is a contributing Motley Fool stock market analyst and editor covering energy, healthcare, consumer, and financial sectors. Frank has decades of experience in financial journalism, holding reporting and editing roles at The Wall Street Journal, The Associated Press, and Bloomberg. He also currently edits research on the global energy transition. He holds a bachelor’s degree in journalism from Texas Tech University and is a graduate student at the University of Alaska Fairbanks. Fun Facts: Frank has hiked The Long Trail in Vermont from end to end, and currently lives in a semi-dry cabin in Interior Alaska.

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