Difference between nonprofit and not-for-profit explained

This quick guide explains the real difference between nonprofit and not-for-profit, in plain language. No jargon, just clear answers to help you choose the right path for your mission.

What is a nonprofit organization?

A nonprofit is an organization that exists to serve the public good—not to make money for owners or shareholders. That means everything it earns goes right back into its mission. These groups often focus on things like education, health, the environment, or social services. Think of your local food bank, animal shelter, or youth mentoring program—chances are, they’re nonprofits.

What really makes a nonprofit stand out is how it's structured. It’s run by a board of directors, and it usually has what's called 501(c)(3) status. That’s a special designation from the IRS that says the organization doesn’t have to pay income tax. Even better? People who donate can often write off those gifts on their own taxes, which is a win-win.

At Harness, we’ve worked with hundreds of these groups—big and small—and we’ve seen firsthand how powerful a well-run nonprofit can be. When the right systems are in place, they can do a lot with limited resources and build serious momentum for their cause.

What is a not-for-profit organization?

A not-for-profit organization might sound like a nonprofit, but it plays by a different set of rules. Instead of serving the general public, it usually exists to support a specific group of people. That could be a sports league, a hobby club, or a neighborhood association. The goal isn’t to make money—but if they do bring some in, it just goes back into keeping things running.

Unlike nonprofits, not-for-profits don’t always qualify for 501(c)(3) status. That means they might not get the same tax benefits. Donors often can’t write off contributions, and these organizations might still pay certain taxes. They also don’t have to meet as many formal requirements as nonprofits do, especially when it comes to reporting and structure.

In our experience at Harness, we don’t work with not-for-profits as much as we do with nonprofits—but the heart is still there. These groups are often fueled by community, passion, and people simply wanting to make a difference for the folks around them.

The key differences between nonprofit and not for profit organizations

Even though the names are super similar, the way nonprofits and not-for-profits work can be pretty different. Here’s how it breaks down:

1. Purpose and mission

Nonprofits exist to serve the public good. Their work is about helping communities, solving problems, and creating positive change on a broader scale. Not-for-profits, on the other hand, usually support a more specific group or interest. It could be a local soccer club or a neighborhood gardening group—they’re important, just not meant to reach as wide an audience.

2. Organizational structure and management

Most nonprofits are legally required to have a board of directors and follow certain rules about how decisions get made. Not-for-profits? They’re a bit more relaxed. Some have boards, but it’s not always required, and their structure tends to be simpler.

3. Tax exempt status and IRS classifications

This one’s big. Nonprofits can apply for 501(c)(3) status, which means they don’t have to pay income tax and their donors can get tax deductions. Not-for-profits don’t always qualify for that same deal. They might still be tax-exempt in some ways, but they don’t usually offer the same benefits to donors.

4. Funding and revenue handling

Both types of organizations can raise money, but nonprofits are more likely to get public donations and grants. Any money they earn must go back into their mission. Not-for-profits can make money too, but it usually supports the group’s activities—not a bigger cause.

5. Use of paid employees and volunteers

Nonprofits often have paid employees, especially if they’re larger. They also rely heavily on volunteers. Not-for-profits are usually smaller and might be run entirely by volunteers. Either way, both types are driven by passion more than paychecks.

How nonprofit and not-for-profit organizations are similar

While they do have their differences, nonprofits and not-for-profits share a lot of the same heart. At the core, both types of organizations exist to do good—not to make a profit for owners or investors. They care about community, people, and creating something positive.

Both types can accept donations (though the tax benefits might differ), and both often rely on volunteers or small, dedicated teams. They also share similar values when it comes to mission, transparency, and keeping the focus on impact instead of income.

From our side at Harness, we’ve seen how much both kinds of organizations rely on trust. Whether you're running a neighborhood support group or a full-scale national nonprofit, it all comes down to relationships—with your team, your supporters, and the people you serve.

Nonprofit vs. not-for-profit vs. for-profit businesses

Here’s where it gets even more interesting—because nonprofits and not-for-profits don’t just differ from each other. They’re also a whole different world from for-profit businesses.

A for-profit company exists to make money for its owners or shareholders. That’s the main goal. Whether it's selling clothes, building apps, or opening restaurants, every dollar earned is meant to turn into more profit. These businesses pay income taxes, may collect sales taxes, and keep a close eye on their bottom line.

Nonprofits and not-for-profits? They might earn money, but they can’t pocket it. Everything they bring in has to go right back into their mission or activities. Plus, they have different tax rules and reporting responsibilities. Many nonprofits, especially those with 501(c)(3) status, don’t pay federal income taxes and can receive tax-deductible donations.

Another big difference is in structure. For-profit organizations usually have owners, while nonprofits are governed by a board of directors. Not-for-profits often fall somewhere in between, depending on their setup and size.

We’ve worked with partners who started as one type of organization and later switched paths. Sometimes a nonprofit realizes they need a for-profit model to grow. Other times, a small business owner wants to transition into doing something mission-driven. Whatever the case, it’s all about aligning your structure with your goals.

Choosing the right type of organization for your mission

So, which one should you choose? That really depends on what you’re trying to do.

If your goal is to serve the wider public—to help your community, support a cause, or solve a problem on a larger scale—a nonprofit organization is probably the right fit. Especially if you're looking to apply for grants, accept tax-deductible donations, or partner with other community organizations, going the nonprofit route gives you more tools to grow your impact.

But if you're building something smaller and more focused—like a local arts group, a neighborhood co-op, or a social club that reinvests any earnings into its members—a not-for-profit might be just what you need. The setup is simpler, and you still get to do meaningful work without worrying about making a profit.

The important thing is to be clear on your mission, your funding needs, and your long-term vision. We’ve helped founders think through these decisions more times than we can count, and the biggest advice we can offer is this: take your time. The structure you choose will shape your team, your money, and your future.

Final thoughts

Choosing between a nonprofit and a not-for-profit isn’t just about labels—it’s about setting up your organization for success. The structure you pick shapes how you raise money, how you operate, and the impact you can make.

At Harness, we’ve worked alongside hundreds of mission-driven teams, helping them navigate these decisions and build lasting donor relationships. Whether you’re launching a local community group or scaling a national cause, we know what it takes to grow your impact.

Looking for the right tools to support your fundraising efforts? Explore the best donation platforms for nonprofits and see how technology and strategy together can help you raise more and do more.

Frequently asked questions

What is the primary difference between a nonprofit and a not-for-profit organization?
The main difference is in their purpose. Nonprofits exist to serve the public good, while not-for-profits typically serve a specific group of people. Both types don’t operate to make profits for owners or shareholders.

Can not-for-profits accept donations?
Yes, they can accept donations. However, unlike nonprofits with 501(c)(3) status, not-for-profits usually can’t offer tax deductions to donors.

Do both types of organizations have tax-exempt status?
Nonprofits can apply for federal tax-exempt status under the IRS tax code, most commonly 501(c)(3). Not-for-profits may also be tax-exempt at the state level, but they don’t always have the same recognition or benefits.

Can an organization switch from not-for-profit to nonprofit or vice versa?
Yes, it’s possible, but it requires restructuring, legal updates, and approval from the IRS if you’re pursuing nonprofit status.

Do these organizations pay employees?
Many nonprofits have paid staff, especially as they grow. Not-for-profits may also pay employees, but they’re often smaller and rely more on volunteers.