What is the Nonprofit Sector?

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  • Written By: Felicia Dye
  • Edited By: Heather Bailey
  • Last Modified Date: 26 September 2019
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The nonprofit sector is one that is not strictly defined. One reason for this is because the organizations placed in this category are very diverse, including businesses such as hospitals, private foundations, and charities. Another reason is because the rules outlined for members of this sector can vary depending on the country in which they are registered. Although they tend to operate like other businesses, the major difference between members of the nonprofit sector and those of commercial sectors is that nonprofit organizations are not meant to operate for the benefit of themselves. Instead, the members of this sector generally come into existence with a specific social purpose.

In many places, members of the nonprofit sector are called non-government organizations (NGOs). This name reveals an important characteristic about the sector. Members are supposed to be free of government control and influence. This does not mean they are not subject to any rules of law. It means their policies and actions should not be based on pressures or agendas outlined by government bodies.

Many people mistakenly believe that nonprofit organizations and charities are the same. Charities, however, are only a single type of organization that falls under this umbrella term. Much of the volunteer work done throughout the world is undoubtedly conducted by members of the nonprofit sector, but this is not required of all organizations in the sector. In some economies, a significant portion of jobs are created by the nonprofit sector.


This segment of the economy is also commonly referred to as the social sector. This highlights another important intended characteristic of these organizations. Each generally exists to provide a type of social benefit. They usually have specified missions such as providing health care to the impoverished, educating women, or spreading religious messages.

Another common misconception about members of the group is that they cannot earn money. The main source of income for some nonprofit organizations is donations. There are other strategies that can be used by members of this sector to generate revenue. One of them is to charge for services rendered.

Members of the nonprofit sector are often afforded special privileges. These may include tax breaks, special import and export privileges, and designation as a charitable organization, which can make resources from donors tax deductible. Many organizations in the nonprofit sector are multinational. When this is the case, although their status may remain the same, they are often subject to different rules and regulations in the various countries where they operate.


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