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What is a Nonprofit Anyway?
Dr. Seuss

In my thirty-years of experience leading nonprofit organizations, I have heard a lot of interesting questions. In my early years of nonprofit work, I had similar questions. A recent conversation with a friend made me realize that these questions might be more common than I had realized. So I thought I would share the answers to these three common questions:

What makes a nonprofit a nonprofit?

Who owns a nonprofit?

What’s the point of a Board?

What makes a nonprofit a nonprofit?

On the surface, the word “nonprofit” seems to tell you exactly what it is. However, the name is a bit misleading. Nonprofit organizations can, and often do, produce a profit through their operations. And that is perfectly fine. 

The difference between a nonprofit and a for-profit is that when a for-profit organization makes money, someone or multiple people make a profit. When a nonprofit organization produces a surplus, those funds go back into the organization. The reinvestment can be in the form of equipment, staff training, investments, and more.

Nonprofit organizations exist for purposes other than generating revenue. Their purpose is to address a critical social need and contribute to the greater good of the community, region, world, etc. To be clear, a nonprofit is a business. As such, they must function like one. Nonprofits must pay their bills, follow employment laws, and manage their finances; just like a for-profit. 

Since nonprofits exist to make the world a better place, the IRS rewards them with a tax exempt status. That is the deal that is made when a nonprofit is formed. The organization works to improve the world and the IRS gives them tax relief.

Who owns a nonprofit? 

This is probably the most confusing part of nonprofits for people to grasp. The short answer is that no one owns a nonprofit. Not the founder, not the Executive Director, and no one on the Board. 

That being said, it’s okay to think of the community, or the constituents served by the organization, as the “owners”. These are the people the organization benefits. Not through profit, rather with programs, services, and products. 

An organization that works to reduce poverty serves the whole community. The community can be considered the “owners” of that agency. A nonprofit that provides hygiene products to girls in third world countries, serves a smaller subset of the community, their constituents are the girls they support. Those girls could be considered the “owners”. 

A for-profit business is led by the owner(s). That is who makes decisions about how the business is run. However, an organization cannot possibly be led by an entire community. Same goes for girls on the other side of the world, it’s not feasible for them to provide organizational oversight. So that’s where the Board comes in!

What’s the point of a Board?

Since an entire community or constituency cannot lead an organization, a Board of Directors exists to represent the community/constituency. The Board is a select group of volunteers – always volunteers. Their role is to lead and make decisions in the best interest of the constituents. 

The Board of Directors is responsible for setting the mission, vision and strategic direction. Simply put, these are the promises the agency makes to their constituents. It’s the Board’s role to ensure that the organization has the human and financial resources needed to fulfill the promises made. Additionally, the Board ensures the organization meets all of their fiscal and legal requirements. 

Founders and Executive Directors can sometimes question the need for Board members. They often minimize the importance or the value of a Board. Sometimes engaging volunteers in the leadership of the organization can seem like just one more thing on a long list of expectations. I’m here to tell you, not only is a Board required, it may be the most important component of a nonprofit organization. 

A Board of Directors engages regular people in the community and activates them to make their world a better place. And really, that’s the point. In addition to engaging Board volunteers, best practices drive the Board to engage even more people with their cause through storytelling, fundraising, events, committees, volunteerism, and sponsorships. A crucial and valuable role of nonprofits is to activate community members in the work of making their community great.

Are you looking to get engaged in your community? I know a LOT of nonprofit organizations and could help you get connected and involved with a cause you are passionate about. Want to explore how to create an effective and impactful Board of Directors? I would love to help! Email me at to learn more. Let’s connect!

Kim Stewart

Kim is a mom, lover of being active and the outdoors,
and helper of nonprofits and small businesses. 

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