The nonprofit sector is made up of roughly one million organizations that spend at least half a trillion dollars annually, according to The Independent Sector, a national nonprofit resource center. This sector offers meaningful and rewarding work and a culture that embraces community as its ultimate objective.
By design, nonprofit organizations are set up with the aim of benefiting the people and they measure the amount of profit they make in terms of the quality of life that have improved as opposed to how much money they have made. They help to provide solution to services that would have otherwise fallen on the Federal Government or private business.
A nonprofit organization is any organization that was formed with the aim of serving a public or mutual benefit as opposed to making profits for the owners and investors. The nonprofit sector is also known as the third sector, independent sector, voluntary sector, philanthropic sector, social sector, tax-exempt sector, or the charitable sector.
As of present, there are about 1.2 million different organizations that are registered with the IRS as nonprofit organizations. It is further estimated that millions more small formal and informal associations exist that do not register with the IRS because they have revenues of less than $5,000 per year.
Nonprofit organizations receive approximately ten percent of their income from donations. This may come as a surprise to many because a lot of people think that nonprofit organizations get income mainly from donations. In reality, most of the income received by nonprofits is generated from fees for services, sale of products, or earned interest on investments. The second highest source of income is government grants or contracts. Donation by individuals and other private organizations constitute the third highest source of income for nonprofit organizations. However, a large number of American citizens contribute to nonprofit organizations. In 1998, a reported 70% of households contributed to charity.
Volunteerism is a key component for nonprofit organizations. Volunteers serve many roles with nonprofit organizations. In addition, nonprofit organizations are each governed by a volunteer board of directors. Volunteers also perform the role of fundraisers, service delivery staff, staff management, and in numerous other capacities. Volunteers bring personal experiences and professional expertise to enhance the nonprofit organization.
As at 1998, it is estimated that 109 million Americans volunteered an average of 3.5 hours per week in nonprofit organizations. This is equivalent to nine million full-time employees at a value of $225 billion.
Nonprofit organizations are usually classified as either member serving (addressing the needs of only a select number of individuals) or public. They may take any of the following forms:
- Charities: examples of charities include, American Red Cross, Salvation Army, YMCA
- Foundations: examples of foundations include, W.K. Kellogg Foundation, Ford Foundation, community foundations
- Social Welfare or Advocacy Organizations: examples of Social Welfare or Advocacy Organizations include, National Association for the Advancement of Colored People (NAACP), American Civil Liberties Union (ACLU), National Rifle Association (NRA)
- Professional/Trade Associations: examples of Professional/Trade Associations include, Chamber of Commerce, American Medical Association (AMA)
- Religious Organizations: these include churches and mosques.
As far back as 1601 when the United States Congress met to develop the first federal income tax laws, it was determined that nonprofit organizations should be exempted from the burden of paying tax and also called upon society to support these organizations. Almost all nonprofits are exempt from federal corporate income taxes, and most are also exempt from state and local property and sales taxes.
Nonprofits have received this tax exempt status mainly because they relieve the government of its burden, benefit society, or fall under the provision of separation of church and state. However, it should be noted that nonprofit organizations are not prohibited from making a profit, but the IRS restricts what these nonprofit organizations can do with their “profits.” All money must go back into the operation of the organization. Profits cannot be disseminated among owners or investors like a normal business.
Here are some theories as to why there are nonprofit organizations in today’s society.
- Economic Theories:
- Market failure: This theory believes that there are not a lot of people who desire a particular service or program to attract for-profit corporations to provide such services. Also, the fact that an organization exists without a profit-motive instills trust in the constituent.
- Government failure: governments cannot provide a lot of services due to the high price tag that is attached to them or the limited interest the public has on such projects. If there is not a large presence of constituents demanding a response from government, then the government is not likely to act. To this effect, a small group of individuals can create a nonprofit organization with the intention of providing mutually desired services rather than trying to convince a majority of citizens to support such efforts. There is also a cultural resistance to “big” government. Citizens are skeptical about the government being involved in all aspects of community life.
2. Historical Theory: before the existence of the formal American government, a lot of communities were already in existence. As such, citizens were forced to come together to address issues within their communities and work together to form a solution. Even when government developed a presence within a community, citizens were afraid of the bureaucracy and often sought out solutions through voluntary associations.
Religion also provides a strong foundation for charity and altruism through scripture and a sense of duty taught within the church.
3. Political Science Theory: Nonprofit organizations provide an avenue for civic participation. People are able to assemble and work toward a common goal with the intention of providing a benefit to the general public. Nonprofit organizations provide an outlet for pluralism and solidarity.
Benefits of Nonprofit Organizations to the Society
Nonprofit organizations provide programs and services that serve one purpose or the other to the community. A lot of nonprofit organizations were formed to attend to the issues that are needed within their communities which the government has failed to meet. Nonprofits also tend to have the ability to act faster than government in response to an issue. Nonprofits do not have to wait for a majority of citizens to agree upon a proposed solution. Rather, they have the ability to react to a specialized need or a request by a small group of citizens.
Provision of goods and resources
Non-profit organizations provide services, goods and resources to meet community needs. They are businesses, most often charitable, that assist other businesses in the community to drive economic development, the arts, cultural awareness, education, health, and spirituality of virtually every sector of society. As government agencies and the private sector have scaled back their charitable giving in recent years, non-profits have become very important.
Nonprofit organizations provide an avenue by which individual initiatives can be promoted for the betterment of all. Nonprofit organizations have allowed members of a community to take concrete action to change the community they live in. This can be by way of developing a local neighborhood watch program or, on a larger scale, developing an organization that responds to world relief efforts.
Advocacy and Problem Identification
Nonprofit organizations have helped to bring the attention of the general public to societal issues. Nonprofit organizations make it possible to identify significant social and political concerns, to give voice to under-represented people and points of view, and to integrate these perspectives into social and political life.
In America, the nonprofit sector can be seen as a bridge between capitalism and democracy. Nonprofit organizations develop a sense of community among the citizens by providing a means to engage in social welfare.
Provision of employment
The role of nonprofits in society can have ripple effects throughout the economy. A study that was carried out by Johns Hopkins University in the year 2012 showed that 10.7 million people were employed in the nonprofit sector in 2010 — 10.1 percent of total employment in the U.S. In 2012, the nonprofit sector provided 5.4 percent of the nation’s entire GDP — $887.3 billion.
In conclusion, even though there are more for profit businesses than non-profit organizations, the number and importance of nonprofit organizations are both increasing. Between the year 2001 and 2011, the number of philanthropic organizations in the U.S. grew 25 percent, while the number of for-profit businesses rose by half of 1 percent, according to the Urban Institute.