A nonprofit organization (NPO) is an organization that uses surplus revenues to achieve its goals rather than distributing them as profit or dividends.
Although nonprofit organizations are permitted to generate surplus revenues, they must be retained by the organization for its self-preservation, expansion, or plans. NPOs have controlling members or a board of directors. Many have paid staff including management, whereas others employ unpaid volunteers and even executives who work with or without compensation (occasionally nominal). Where there is a token fee, in general, it is used to meet legal requirements for establishing a contract between the executive and the organization.
Designation as a nonprofit does not mean that the organization does not intend to make a profit, but rather that the organization has no owners and that the funds realized in the operation of the organization will not be used to benefit any owners. The extent to which an NPO can generate surplus revenues may be constrained or use of surplus revenues may be restricted.
Some NPOs may also be a charity or service organization; they may be organized as a not-for-profit corporation or as a trust, a cooperative, or they exist informally. A very similar type of organization termed a supporting organization operates like a foundation, but they are more complicated to administer, hold more favorable tax status and are restricted in the public charities they support. Their goal is not to be successful in terms of wealth, but in terms of giving value to the groups of people they administer to.
According to the article Your Guide to Safe and Charitable Giving, Don't Get Fooled by a Charity Scam, The most frequent questions I get about charitable organizations are, "How do I know if an organization is legitimate?" and "How do I report a possible fraudulent nonprofit?"
Start first with safety. Don't let your gift fall into the hands of an organization that is at best poorly run and at worst fraudulent.
The IRS provides a "search" for IRS approved charities. Don't stop there, however. Even if your charity is listed, you may need to hunt further to get information about how effective and efficient the charity is.
You may also verify an organization's tax-exempt status and eligibility to receive tax-deductible charitable contributions by asking to see an organization's IRS letter recognizing it as tax-exempt, or you may call the IRS (toll-free) at 1-877-829-5500.
Charity Navigator ranks charities based on their efficiency, transparency and accountability. The rating agency gives charities up to four stars, providing an easy way to find the organizations where your contributions will be safe and effective. Read entire article here.