For-profit organization definition

What is a For-Profit Organization?

A for-profit organization is an entity whose primary goal is to earn a profit. Most business entities are considered to be for-profit organizations.

Examples of For-Profit Organizations

Examples of for-profit organizations are airlines, construction companies, freight hauling companies, manufacturers, publishing companies, restaurants, retail stores, and shipping companies. Examples of not-for-profit organizations are governments, charities, and religious institutions.

Advantages of a For-Profit Organization

There are multiple advantages to forming a for-profit organization. The single greatest advantage is the possibility of generating substantial profits, which increase the value of the entity for investors. This can also result in benefits for the local community, as a company’s spending is generally spread through the local area. A second advantage is that the founders can run the business in the manner that they choose, rather than having to follow the direction of someone else. A third advantage is that there is a relatively low level of government oversight of most for-profit entities, so they can work in most areas as they choose. A final advantage is that the owners can sell a for-profit organization, possibly for a substantial profit. This can result in a major payday for the investors, if an acquirer believes the business to be so valuable that it is worth paying a substantial sum for it.

For-Profit vs. Not-for-Profit Organizations

The reverse of a for-profit entity is a non-profit, where the goal is some type of community service, with the organization earning no profit at all. Examples of non-profit entities are churches, festivals, and emergency services organizations.

A key differentiating factor between for-profit and non-profit entities is that for-profit firms pay income taxes, which are then used to support various government entities. Some of these funds may also be used to support certain non-profit entities. Also, for-profit organizations have a much easier time obtaining funds, since lenders are more likely to be paid back, and investors can earn a return.