Operated as nearly as possible at cost; on a cost-recovery basis; an organization not seeking profit and which does not disgorge excess income to its members, in the form of dividends or otherwise.
In the development of common law related to independent legal person, corporations which are not profit-seeking, nomenclature throughout common law jurisdictions has not been consistent. For what at the core represents a non-profit corporation, the terms used by jurisdictions include society, not-for-profit, non-profit, association and co-operative.
Also used to refer to a group of people formed as a separate organization and which has as a stated purpose some charitable or benevolent purpose either in regards to the public at-large or in regards to the common interests of the members.
A form of organizational structure which is institutionally operated on a cost recovery basis, for which incorporation is extended by the government or, in some jurisdictions, as unincorporated association of individuals, for a set of purposes set out in statute such as religious, scientific, social, literary, educational, recreational or benevolent purposes.
Unincorporated not-for-profit organizations deprive their members of the limited liability that incorporation usually provides. But the unincorporated format involves far less legal paperwork and is in great use for such things as volunteer groups, sports clubs and book review clubs.
For example, New York State has a Not-For-Profit Corporation Act defined as:
".... exclusively for a purpose or purposes, not for pecuniary profit or financial gain, for which a corporation may be formed under this chapter, and ... no part of the assets, income or profit of which is distributable to, or enures to the benefit of, its members, directors or officers except to the extent permitted under this statute.”
The term “not-for-profit corporation” or “not-for-profit organization” is used by the Canadian federal statute, known as the Canada Corporations Act, Part 2 which is called, to further exacerbate the variety of terms used to define and describe a non-profit corporation, as “corporations without share capital”. But even the Canadian federal government, as well as lawyers and others who operate in the field, refer to these structures as “not-for-profit corporation”.
Section 154 of the Canada Corporations Act states as follows in regards to “corporations without share capital”:
“The Minister may by letters patent under his seal of office grant a charter to any number of persons, not being fewer than three, who apply therefore, constituting the applicants and any other persons who thereafter become members of the corporation thereby created, a body corporate and politic, without share capital, for the purpose of carrying on, without pecuniary gain to its members, objects, to which the legislative authority of the Parliament of Canada extends, of a national, patriotic, religious, philanthropic, charitable, scientific, artistic, social, professional or sporting character, or the like objects.”
Typically, a not-for-profit organization would differ from a for-profit corporation in that rather than raising capital by selling shares, it would sell memberships (i.e. “corporations without share capital “); and rather than extend voting rights to shareholders, voting rights would be given to those who have bought memberships.
In Burke-Robertson and Drake, Non-Share Capital Corporations (Thomson-Carswell, 1996):
“The terms is non-profit and not-for-profit are often used interchangeably and generally refer to organizations whose profits are not passed on to their members. That is not to say that such an organization is prohibited from carrying on activities that may realize a profit (for example, a museum may run a bookstore or gift shop), provided that these activities do not constitute the primary activity of the organization and that the funds realized are used for the objects of the organization and not passed on to its members.”
The legal history of not-for-profit organizations was set out by the British Friendly Societies Commission in a 1999 paper entitled Fact Sheet and as follows:
“The origins of friendly societies can be traced back to the time of the Roman Empire when associations known as collegia were formed for a variety of mutual purposes including the payment of burial expenses of members. These collegia evolved over the centuries into the craft guilds of the Middle Ages. Members of these guilds usually lived in the same community or engaged in the same occupation. Grants were available to members for relief during periods of financial hardship or sickness and to cover the cost of a decent burial. The guilds eventually disappeared and were replaced by sickness or burial clubs. It was out of recognition of the need to regulate and to legitimise these clubs, or "friendly societies", as they became known during the 18th century that the Friendly Societies Act 1793 was born.
“During the 19th century societies grew rapidly as they were effectively the only means by which the working population was able to protect itself against loss of income through sickness or to make provision for retirement.”