What is a Nonprofit?

A nonprofit organization is a concept that we hear a lot in the context of organizations that work to achieve goals that serve the public. Organizations like this can make meaningful change in society and in the lives of many people and achieve purposes of assisting and supporting the wider public. But what exactly is a nonprofit? Which entities can be defined as nonprofits? And what does the law require of them to be defined as such?

What is a nonprofit? 

A nonprofit organization is an institution that does not intend to profit its owners or directors, and that operates for the public benefit. An institution like this can bring in income and profits, but these will be designated for the operation of the institution itself and to support the objects of its activities, not for the personal profit of its workers, directors or donors. 

That is, the essence of its work is not aimed at business activity that will generate profits, but rather work that contributes to society, and all the nonprofit's income is intended for this purpose and for the purpose of operating the organization itself.

What is the legal definition of nonprofit? 

A nonprofit is defined by law as an entity that is not intended to make profits. Since a nonprofit cannot be registered as a company, partnership or association of any kind, it is usually not an institution that deals with finance and funds. A nonprofit, in its legal definition, enjoys an exemption from paying certain taxes in accordance with the scope of its operations and its character. An additional criterion is the source of funding – in many cases nonprofits are entities that operate through donations from philanthropists, private individuals or other entities. 

Examples and kinds of nonprofits

Governmental sector – entities that operate with governmental support and serve the government. These bodies can be the military, the police, political parties, government companies and other entities that operate under government auspices and with government support. 

Local authorities – the local authorities, like entities that operate under the government, are designed to maintain public welfare and not for business profit purposes.

Educational institutions – institutions of higher education are sometimes considered as nonprofit institutions. These include, for example, colleges that are not supported by government budget allocations.  

Third sector – Entities such as nonprofits or voluntary organizations that are not operated by the government or local authorities and receive assistance through fundraising or funding from other sources. These organizations operate for public benefit in a wide range of areas from providing funds and assistance to certain segments of the population to supporting artists and athletes, medicine and medical research and more. 

Public endowments - institutions that deal with regulating the status of assets intended for purposes that serve the general public.

What documents are nonprofits required to submit? 

Nonprofits have different reports that they are required to submit to government institutions. Some of these are parallel to accepted processes in the business world even though these are defined as nonprofit institutions. 

Activity report – the report presents the organization’s expenses and income throughout a defined period. The report is similar to the profit and loss statement accepted for businesses. 

Statement of changes in assets – A detailed report of the organization’s assets, similar to the detailed statement of equity prepared by business entities or self-employed individuals. 

Balance sheet – a report that presents the financial position of the organization at a date or a short pre-defined period. 

Cash flow report – a report that details the movement of funds within the organization. 

Explanatory notes to financial statements - detailing the essence of the institution and its activities, its economic and financial policies and its main expenses and income.

Taxation of nonprofits: How does it work? 

The tax system works differently for nonprofits because they are entities that are not intended for profit purposes and therefore cannot operate like profitable, competitive businesses. Nonprofits receive exemptions from paying certain taxes as long as they meet the criteria. 

They are exempt from paying income tax on the institution’s income, as long as the institution meets the conditions defining it as a nonprofit. The exemption is valid also on income as a result of the sale of various products or services. 

Nonprofits are obligated to pay an advance of 90% of the amount of tax on excess income.

Nonprofits are obligated to pay payroll taxes, unless the total salary is less than a certain level set in advance. 

Nonprofits are entities that can assist the general public and contribute to personal welfare, security and quality of life. These are entities that work for noble goals that help the public conduct their lives in the best way possible. To meet these goals, it is possible to contribute to them, to support and assist through volunteering and financial donations. The JGive site is designed to help you to donate to nonprofits, and you are invited to choose the organization you would like to donate to, start the process – and donate quickly and easily. 

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Footnotes: 

From the Hebrew Wikipedia article on nonprofits

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