Duhaime's Law Dictionary

Non-profit Definition:

Operated as nearly as possible at cost; an organization not seeking profit and which does not disgorge excess income to its members, in the form of dividends or otherwise.

Operated as nearly as possible at cost; an organization not seeking profit and which does not disgorge income in excess of expenses to its members, in the form of dividends or otherwise.

Also refers to 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.

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.

Pursuant to Canadian federal legislation, a non-profit corporation is aptly described by corporationcentre.ca as:

"... a legal entity separate from its members and directors formed for purposes other than generating a profit to be distributed to its members, directors or officers. While, a non-profit corporation can earn a profit, the profit must be used to further the goals of the corporation rather than to pay dividends to its membership. Non-profit corporations are formed pursuant to federal or provincial law.
"A non-profit corporation can be a church or church association, school, charity, medical provider, activity clubs, volunteer services organization, professional association, research institute, museum, or in some cases a sports association. Non-profit corporations must apply for charitable status to benefit from tax-exempt status and to issue tax deductible receipts to donors. Non-profit corporations are distinct from business corporations which are formed to make a profit and to distribute the profit to its shareholders."

Unincorporated non-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.

Some jurisdictions, like Texas, accommodate the formality of incorporation (Texas Non-Profit Corporation Act).

At ¶1396-1.02 of the Texas statute, the term is used as following:

"Non-Profit Corporation is the equivalent of not for profit corporation and means a corporation no part of the income of which is distributable to its members, directors, or officers."

Texas law suggests that the purposes for which a non-profit corporation may seek incorporation are, in addition to labor groups:

"... charitable, benevolent, religious, eleemosynary, patriotic, civic, missionary, educational, scientific, social, fraternal, athletic, aesthetic,  agricultural and horticultural;  and the conduct of professional,  commercial, industrial, or trade associations;  and animal husbandry."

Typically, an non-profit would differ from a for-profit corporation and that rather than sell shares, it would sell memberships 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 societies or non-profits 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."

In regards to this history, pre-19th century, "while the law recognized such societies, it did not provide for their incorporation" (Institute of Law Research and Reform, Report #49, Proposals for a New Alberta Incorporated Associations Act, 1987, p. 10).

Always looking up definitions? Save time with our search provider (modern browsers only)

If you find an error or omission in Duhaime's Law Dictionary, or if you have suggestion for a legal term, we'd love to hear from you!