Nonprofit Organizations Vs. Non-Profit Organizations

Non-for profit organizations

A non for profit organization is an organization which is barred from distributing its profit, if any, to the individuals who exercise their control over it, among which are members, directors, officers, and trustees. The primary difference between a non for profit corporation and a for profit or "business" corporation is the absence of stocks or other indications of ownership that provide these individuals a simultaneous share in both profits as well as control. Seldom, however, the term non for profit can be interpreted in a more restrictive manner, that an organization may not be incorporated as a non for profit

For example, non for profit firms can be expected to meet the increased demand more slowly or to make use their inputs less efficiently than the for profit firms. However, it is reasonable that the discipline of the market is in a lot of situations, to an certain point, weak so that the efficiency losses to be expected from for-profit producers can be considerably larger than those to be expected from non for profit producers. It has frequently been argued, however, that government and nonprofit organizations lack the incentive to be efficient (a consequence of nondistribution and soft-budget constraints), and so they may fail to set optimal incentives for 
managers (Alchian and Demsetz, 1972). The profit motive encourages efficient production.

The non for profit enterprises can be a reasonable response to some kind of "market failure," specifically the inability to protect producers by ordinary contractual devices, which is a "contract failure." There are, some isolated cases in which the nonprofit form has been adopted for reasons other than contract failure; social clubs being one of the examples. In general, however, contract failure is one of the essential factors in the function of a non for profit

It is, however, very important to note that such a constraint will not prohibit these organizations from actually earning positive profits. Thus, for the type of services that CARE provides, it is reasonable that an individual would choose to deal with a non for profit organization, because in this case he will have an additional protection provided by the non distribution constraint. If she needs an organization which she can fully trust, the non for profit, being legal constrained is expected to serve that function in a better manner than it is for profit counterpart.

Organizational behavior makes a distinction between three types of organization that are subject to nondistribution constraints: religious nonprofits, secular nonprofits, and governmental organizations.

The non distribution constraint could also be seen as a mechanism which screens selectively for types of entrepreneurs, managers, and employees who are more interested in providing high-quality service and less interested in financial rewards than are most individuals in for profits.

Furthermore, the non distribution constraint gives the consumers with some kind of assurance that the sums he pays to a ‘commercial’ non for profit will go entirely to the production of