NGO vs. Nonprofit: What’s the Real Difference and Why Does It Matter?
Curious as to how an NGO compares to a nonprofit? Read on to learn more about these two kinds of organizations and understand which term aligns best with your cause.
Jamy-Lee Holt
Curious as to how an NGO compares to a nonprofit? Read on to learn more about these two kinds of organizations and understand which term aligns best with your cause.
Non-governmental organizations and nonprofits share a common goal of addressing various social, humanitarian, and environmental issues. If you’re wondering what the difference is between an NGO vs. nonprofit, we’re here to help.
In this article, we compare these two terms to help you decide which is more aligned with your organization’s mission.
As the name suggests, a non-governmental organization (NGO) is an entity that operates independently of any government and depends – partially or fully – on charitable donations and voluntary service.
NGOs often focus on similar areas as government agencies, including humanitarian, social, and environmental issues. While they may receive funding from governments, they operate separately from them.
Many NGOs also operate as nonprofit organizations. Having 501(c)(3) status provides tax exemption for funds received, helping these organizations drive their missions forward.
These organizations typically have an expansive global reach and provide services across borders. For example, Save the Children – an NGO focused on protecting and advocating for children’s rights – works with international partners and communities to reach millions of children in more than 110 countries.
In a nutshell, NGOs may share the same purposes as government entities and receive funding from them, but are not represented or controlled by governments in any way.
Now that we’ve looked at the definition of an NGO, let’s see how it compares to a nonprofit.
A nonprofit organization (NPO) is an entity with a mission to serve local communities or a group of individuals. It does not distribute revenue from grants, fundraising, and other funding avenues to its founders and shareholders or use it for personal gain.
Instead, profits are reinvested into the organization to help further its mission and take care of operational expenses, pay staff salaries, and meet social goals.
There are nearly 1.9 million registered nonprofits in the U.S. alone. Nonprofits with 501(c) designations in the U.S. are tax exempt, and some are also eligible to receive tax-deductible donations. 501(c)(3) organizations are the most common type of nonprofits and include organizations with charitable, religious, educational, and scientific purposes.
NPOs tend to have a smaller footprint than NGOs, but that’s not always the case. Some nonprofit organizations focus on local communities, while others have a broader reach and provide aid on a national or global scale.
For example, International Aid Charity is a 501(c)(3) that provides emergency and ongoing aid relief, education, orphan sponsorship, and social support services to marginalized people worldwide.
Bonus resource: Thinking of registering a 501(c)(3) nonprofit? Check out our ultimate guide to learn more!
Let’s look at the key differences between NGOs and NPOs, along with their similarities.
Now, let’s look at the similarities these organizational types share.
Now that we’ve looked at the differences and similarities between NGOs vs. NPOs, let’s explore how the term you choose can have an impact on your organization.
Incorrectly defining your organization may limit funding opportunities, cause compliance issues, and confuse your donors, stakeholders, and the public.
Let’s highlight the main areas where the difference between NGOs vs. NPOs matters.
Securing funding is essential to mobilizing your mission and keeping your operations afloat. Startup grants offer the financial support required to kickstart your organization.
Many grants are designed specifically for nonprofit organizations, which may affect your eligibility status if you are an NGO operating without 501(c)(3) status. Some NGOs with tax-exempt status also benefit from contributions being tax-deductible, an important incentive for donors as part of an organization’s fundraising efforts.
Grants are also awarded based on geographic location, with many targeting projects that are focused on specific cities, states, or countries.
For example, if you are an NGO and plan to apply for funding with the U.S. Embassy, your organization will need to meet specific eligibility criteria. Commonly, this includes being a registered nonprofit organization.
Pro tip: Providers specify the eligibility criteria for grants, so do your research beforehand to gain a better understanding of the requirements.
NPOs are required to file tax returns with the IRS to meet compliance and maintain their tax-exempt status. The same goes for NGOs registered as 501(c)(3) charities.
NGOs that aren’t registered as nonprofits must declare all funds received as taxable income to the IRS.
It’s important to keep these legal requirements in mind – along with the obvious benefits of having a tax-exempt status for fundraising efforts – to maintain compliance with the IRS.
You’ve probably heard the term “nonprofit organization” more times than you can count. Many donors and stakeholders use the terms “nonprofit” or “charity” interchangeably when referring to organizations that rely on donations and grants to operate.
Despite many NGOs operating as nonprofits, the term “non-governmental organization” may cause some confusion amongst donors, especially where tax-deductible donations come into play.
If you decide to register your NGO as a 501(c)(3) organization, be sure to make this clear on public materials, such as your website or online donation page. This will give potential donors and sponsors a better understanding of your organization.
In addition, make sure you clearly outline your objectives when defining your mission to avoid any confusion about your organization among potential stakeholders.
Need help creating your mission and vision statement?
Many NGOs in the U.S. are qualified as exempt from state and federal taxes, making it easier to operate as nonprofits. This means that they don’t need to pay tax on funds received through donations and fundraising in general.
NGOs that are not registered as nonprofits can still receive donations, but these funds are seen as income and are therefore taxable. This may dilute your fundraising efforts as an NGO and potentially cause hesitation among some donors who may prefer donating to tax-exempt organizations.
Nonprofit organizations rely heavily on fundraising to collect the critical funds needed to realize their missions. As mentioned earlier, being a 501(c)(3) charity comes with the benefit of donors being able to make tax-deductible contributions to your cause – ultimately increasing your fundraising potential.
501(c)(3) charitable organizations often boost donations to their causes by running peer-to-peer and crowdfunding campaigns, hosting local events that drive engagement and support, and collecting recurring donations through online donation forms.
See how Maya’s Hope, a registered nonprofit organization, raised more than $900,000 through a Donorbox-hosted peer-to-peer campaign for children in Ukraine:
Raise Funds for Your Cause with Donorbox
Fundraising platforms like Donorbox support organizations of all kinds – including NGOs and nonprofits – to raise more for their causes. More than 100,000 organizations trust our platform and have raised over $3 billion and counting in donations using our intuitive fundraising features.
Now that you have a better understanding of the difference between an NGO vs. nonprofit, you may be wondering which one best describes the purpose of your organization.
Here are some factors to keep in mind when deciding whether you should refer to your organization as an NGO or NPO:
NGOs and nonprofits both play a pivotal role in addressing social, humanitarian, and environmental issues.
However, understanding the differences between these two organizational types can help your organization minimize confusion amongst donors and stakeholders, maintain compliance, and tap into funding opportunities that fuel your mission forward.
Whichever classification you choose, Donorbox is here to help you fundraise smarter and nurture those all-important relationships with your donors. Our fundraising features are geared to help NGOs, NPOs, and other organizations raise the critical funds needed to enable positive change.
Check out the rest of our Nonprofit Blog and YouTube channel for more fundraising insights and ideas. Hit subscribe so you never miss a beat.
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