When applying to European Commission to register foundship.org, there was a section to fill, whether it is a non government organisation (NGO) and/or a non-profit organisation (NPO). While definition of NPO was provided, there was nothing written about NGO. It turns out that the definition and difference between NGO and NPO is more complicated than it seems from the first sight.

There are several possible definitions, but the most clear is paraphrased wikipedia definition – a non government organisation (NGO) is a non-profit organization (NPO) that does not belong to the government. The term is very confusing, because profit driven organizations (mostly called companies) also do not belong to the government, but they are not called NGO’s. Moreover, a non-profit status does not mean that organization does not earn profit, it just means that the profit is not distributed to the shareholders. Finally, company is still a non-profit if it earns a profit and distributes for good causes, stakeholders such as community or government. It is also confusing that there are many public companies that are partly owned by government and partly by investors and thus some profits go to the state and could be used for non-profit initiatives and some goes to private investors. Please see the picture for a visual description.

To be more detailed, a non government organization (NGO) is an organization that is established to address a society need that the government of that country was either not addressing or was incapable of addressing due to the lack of funds, time, commitment or other reasons. According to the UN, any kind of private organization that is independent from government control can be termed an “NGO”, provided it is not-for-profit, non-criminal and not simply an opposition political party.

Non Government Organization NGO and Non Profit Organization NPO by foundship.org

Non Government Organization NGO and Non Profit Organization NPO by foundship.org

For instance, British Oxfam can be seen as an NGO as it was established to help supply food and support to starving families and victims of the Second World war in Europe. Oxfam acted at a time when British government could not help due to political reasons.

In terms of the non-profit status, European Commision explains well that “a legal entity is qualified as a ‘Non-Profit Organisation’ when it is considered as such by national or international law (international organisations as well as any specialised agency set up by international organisations). As a general consequence, any possible profits have to be reinvested within the organisation itself and may not be distributed”.

Concluding a non-profit organization (NPO) is an organization that is established with legal restriction not to distribute profits to shareholders, we need to add that NPO can take one of two forms: strictly no profit (could be defined by law) or with a profit (most common), which is reused/reinvested in the next period for organisation needs. A little bit unlcear is whether to include organisations that transfer the profit to other non-profit organisation or a government programme for public use, but probably these will still go under NPO status. There are many legal forms and variations of NPO’s: charities, social enterprises, community interest companies (CIC), voluntary associations, even private limited companies, if they have stated non-profit status in articles of association.

Sometimes law allows both possibilities – being for profit and non-profit. For instance, community interest companies (CIC) in UK can distribute profits in dividends up to 35%, however, companies can voluntarily choose the articles or association to forbid this possibility, meaning full non-profit status. Foundship.org is such an example.