Who owns a nonprofit?

Whether you’re just curious or considering starting or joining a nonprofit, you might have wondered: who actually owns and controls a nonprofit organization?

Unlike for-profit businesses, where individuals or shareholders hold ownership, nonprofits operate under a distinct model with unique characteristics and management structures.

Since the differences between models and their management can be confusing, this guide will help you understand how nonprofit ownership works and what sets it apart from for-profit organizations.

Here’s what we’ll cover

Understanding nonprofit ownership

Before diving into how nonprofit ownership works, you must first understand the core nature of these organizations. In a nonprofit, ownership isn’t about individuals or groups–it’s about accountability.

When building or participating in one, you aim to serve the community, with every decision and resource dedicated to fulfilling your organization’s mission.

Can you own a nonprofit?

Here’s the bottom line: no one can technically own a nonprofit. While for-profit companies focus on generating returns for owners, nonprofits exist to serve a mission or public good.

Whether you’re the founder, a board member, or a passionate volunteer, your role is to contribute to the organization’s goals, not to own or profit from it.

Instead, these organizations are overseen by a board of directors or trustees, whose primary responsibility is ensuring the organization stays true to its mission and operates within legal and ethical boundaries.

Even founders don’t own the non-profit, although they may take on leadership roles.

Understanding ownership: Nonprofit versus for-profit businesses

Although nonprofits and for-profits can have different core missions, you’ll find they share many operational and structural similarities.

Both require a strong understanding of business management to run effectively, whether you’re overseeing budgets, managing teams, or planning for long-term sustainability.

For-profit businesses focus on generating profits for their owners or shareholders, while nonprofits aim to fulfill a specific public mission, such as advancing education, healthcare, or environmental conservation.

Although a nonprofit may generate funds, it will only be in service to its mission.

Like for-profit businesses, nonprofits must implement effective business practices to ensure any money collected and spent is handled appropriately, with due accountability.

However, there’s a key difference in handling revenue, which you’ll read further down.

To do this, nonprofits can adopt various business structures, including LLCs, unincorporated associations, or trusts.

These structures allow your nonprofit to manage operations similarly to for-profit entities despite their differing goals.

Here is an exploration of each model’s core characteristics–the for-profit and nonprofit models—to help you understand how they are structured, funded, and managed.

The for-profit model

For-profit businesses aim to make money for their owners or shareholders.

Ownership plays a key role here, with individuals or groups investing in the company expecting financial returns. There are several types of for-profit structures, each with distinct approaches to ownership, taxes, and liability:

Sole proprietorship

This business is owned and operated by one individual who assumes all profits, losses, and liabilities.

In a sole proprietorship, business income is reported directly on the owner’s tax return, and the owner is personally liable for all business debts and obligations.

General partnership

This model involves two or more individuals who share profits, losses, and liabilities equally.

Unlike sole proprietorships, partnerships file a separate tax return.

However, the partners still report their share of profits or losses on their tax returns, as the income passes through them directly.

In terms of liability, each partner is personally liable for business debts and actions taken by other partners, making it crucial for partners to trust each other’s decisions and financial management.

Corporation

This business entity is owned by shareholders, and profits are distributed as dividends.

Unlike sole proprietorships and partnerships, corporations are taxed separately from their owners.

Corporations pay corporate income tax, and shareholders are subject to double taxation—first on corporate profits and again on dividends received.

Corporations are also distinct legal entities, which means that liability is limited to the corporation itself; shareholders are not personally responsible for the company’s debts or legal issues.

This structure protects personal assets, as only the corporation’s assets can be used to settle debts.

Limited Liability Company (LLC)

An LLC is a flexible structure that provides the liability protection of a corporation with the tax benefits of a partnership.

LLCs are considered “pass-through” entities for tax purposes, meaning the business income is reported on the members’ tax returns, avoiding corporate income tax.

LLC members are protected from personal liability for the company’s debts and obligations, so personal assets are generally shielded.

The nonprofit model

If you’re–or aim to be–involved with a nonprofit, you probably know that most funding comes from donations and grants.

But did you know nonprofits can also generate revenue by selling goods or services?

The key difference with traditional businesses is that all income must be reinvested back into your organization’s mission rather than distributed to investors or shareholders.

Although nonprofits don’t have traditional owners, your organization still attracts investors who believe in its goals.

Instead of seeking financial returns, these supporters help advance your mission.

Your nonprofit operates similarly to traditional businesses in many ways—they have expenses, management strategies, and financial obligations that require careful planning and oversight.

It’s also important to note that your nonprofit’s structures can vary.

For instance, while charities are one type of nonprofit, your organization doesn’t have to focus on charitable purposes.

Depending on your organization’s mission, it may fall under different 501(c) categories, each with specific tax designations and requirements.

Knowing where your nonprofit fits can help you navigate these rules effectively.

How nonprofit organizations are structured and managed

A well-defined structure is crucial for maintaining transparency, accountability, and efficiency for your nonprofit’s long-term effectiveness and sustainability.

Below is an outline of the key roles within a nonprofit organization to help you understand who is accountable for each operation, ensuring that every area functions smoothly.

Key roles in a nonprofit

Board of directors or trustees

The board is responsible for overall governance, including strategic planning, financial oversight, and major decisions affecting the nonprofit’s direction.

Its primary role is to ensure that the organization remains focused on its mission while maintaining compliance with legal obligations.

Board members typically do not receive compensation for their services and are tasked with acting in the best interests of the nonprofit and the community it serves.

Executive team

Nonprofits often have a CEO or executive director who handles the organization’s day-to-day management.

The board of directors hires these leaders to implement strategic plans, manage staff, oversee operations, and meet the nonprofit’s goals.

While they play a crucial leadership role, they do not have ownership rights in the organization.

Their primary responsibility is to align the organization’s operations with its mission and ensure effective resource management.

Volunteers and staff

Many nonprofits rely heavily on volunteers, especially smaller organizations with limited budgets.

Volunteers can assist in various roles, from administrative tasks to community outreach and program delivery.

Depending on your nonprofit’s size and scope, paid staff members may also be part of the team.

These staff members contribute specialized skills to help the nonprofit advance its goals.

501(c)(3) status

In the United States, one of the main designations for nonprofit organizations is the 501(c)(3) status.

Under this section of the Internal Revenue Code, nonprofits are recognized as tax-exempt entities, which exempts them from federal income tax on donations and most other revenue sources related to their mission.

While most business owners dream of not paying taxes, to qualify for and maintain 501(c)(3) status, your nonprofits must follow strict IRS guidelines, including: 

Use of funds for charitable purposes only

All revenue generated, including donations and any earned income, must be used exclusively for mission-related activities.

Profits cannot be distributed to individuals, such as board members or founders, and any surplus must be reinvested into your organization’s programs and services.

Any misuse of funds discovered can lead to criminal proceedings at worst and, at best, a loss of trust in your organization and its operators.

Limitations on political activities

Nonprofits can’t participate in political campaigns.

While your organization may engage in some advocacy related to its mission, these activities must not constitute a substantial part of its operations.

Annual financial reporting and disclosure

501(c)(3) nonprofits must file an annual information return with the IRS, typically using Form 990, to ensure transparency.

This public document allows donors and the general public to review your nonprofit’s financial practices, which supports accountability.

Compliance with state and local regulations

In addition to federal requirements, your nonprofit may need to comply with specific state and local regulations.

This includes data handling, registration for charitable solicitation, and, in some cases, independent financial audits.

Financial audits and public transparency

While the IRS does not require all nonprofits to conduct audits, larger organizations or those receiving substantial government funding must be subject to regular financial audits.

Many nonprofits voluntarily conduct audits to demonstrate financial responsibility and transparency.

Nonprofits often make audited financial statements and annual reports available to the public and donors, enhancing credibility and trust.

Who holds a nonprofit accountable?

Unlike for-profit businesses, which are accountable to their owners or shareholders, your nonprofit is responsible to different groups.

First and foremost, your organization is accountable to its board of directors.

The board ensure that the organization operates in accordance with its mission and complies with legal and financial regulations.

In addition to the board, your nonprofit is accountable to its donors and the public.

Donors provide the financial resources necessary for your nonprofit to operate. They expect transparency in how their contributors are used.

Many nonprofits publish annual reports or financial statements to demonstrate how they use their funds and progress toward their goals.

They must all adhere to the Generally Accepted Accounting Principles (GAAP) set by FASB.

Does the founder “own” the nonprofit?

If you’re considering starting a nonprofit, it’s important to know that the founder doesn’t “own” the organization.

Although this is a common misconception, once your nonprofit is legally established, it becomes a separate entity.

That means it is completely independent of your control.

As the founder, you might take on a key role, such as executive director or board member.

However, your authority will still be limited by the organization’s bylaws and subject to oversight by the board of directors.

Ultimately, the board—not you as the founder—holds the final authority.

Even if you stay actively involved or receive a salary, you must follow the board’s decisions and adhere to the organization’s governance rules.

Understanding this structure is essential for managing your nonprofit effectively and maintaining its mission.

Can a nonprofit be sold?

One of the most frequently asked questions about nonprofit organizations is whether they can be sold.

The short answer is no.

Because no individual or group “owns” a nonprofit, it cannot be sold like a for-profit business. Instead, a nonprofit’s assets are considered public assets and must be used to further the organization’s mission.

If you’re part of a nonprofit that dissolves, you must understand that its remaining assets cannot be distributed to any individual or group.

Instead, they must be transferred to another nonprofit with a similar mission.

In some cases, your nonprofit can merge with other organizations to pool resources and increase its impact.

During a merger, your nonprofit’s assets are transferred to the new entity, but the original nonprofit is not traditionally “sold.”

Final thoughts

Running a nonprofit takes more than just passion for your mission.

It requires a solid understanding of how your organization is structured, who’s responsible for what, and what needs to be reported.

Here’s some encouragement: managing your nonprofit can be much easier with the right tools.

From staying on top of 501(c)(3) compliance to handling financial reporting and keeping your stakeholders informed, nonprofit accounting and management software simplifies the process.

It’s a great way to streamline your finances, clarify roles, and focus on achieving your mission.