Non-profit organisation: how does it work and where does it get its funding?

Do you want to volunteer, raise money for a good cause, support the community in your area, or have a group with whom you share a common interest? Find out how a non-profit organization can help you do just that!

What is a non-profit organization?

A non-profit organization (NO) is a type of legal entity. However, its main purpose is not to make money, but to support society or a selected group. Therefore, NPOs are most often established in the fields of culture, sports, education, health, charity or humanitarian aid.

On a global scale, some of the best known NGOs are Doctors Without Borders, Greenpeace or Amnesty International. In the Czech Republic, Charity Czech Republic, Good Angel, People in Need, the Czech Olympic Committee or the Mountain Service.

Principles of a non-profit organisation

Unlike commercial companies, non-profits focus on different target groups and have a different vision, mission, values and goals.

The goals of a nonprofit organization

Nonprofits pursue alternative goals than making a profit. They are divided into two basic types based on their focus:

• Public benefit NPO - the purpose of its activities is to contribute to the improvement of society and public life, typically in the fields of ecology, education, research, health, charity, etc.;
• mutually beneficial - it aims to support its members, a particular interest group or community. Typically it is involved in areas such as culture, sport, but also hobbies such as hunting or beekeeping.

The mission of a non-profit organization

The principle of a nonprofit is its mission - for example, to benefit by improving the quality of life, supporting the community, and solving social problems. A nonprofit's mission is based on what problems and issues it specifically wants to address and what it plans to contribute to either the public or its members.

Classification of non-profit organizations by founder

The founder of a nonprofit can be the state or the private sector. The founder determines the legal form of the non-profit, its management and control bodies, as well as how the NGO will raise funds for its operation and objectives.

State-owned non-profit organisations

Typical state-owned NPOs are public research institutions (research institutes) and also contributory organisations - in the form of a school/school, hospital or cultural facility, established by the state, region or the municipality where the school is located.

More broadly, this may also include political parties.

Non-governmental non-profit organisations (NGOs)

Private (non-governmental) NGOs do not have direct support from the state. Thus, they are not externally controlled, but manage and control themselves. NPOs include all foundations and endowments, registered societies and institutes. However, it also includes trade unions and religious organisations.

Types of NGOs and the differences between them

1/ What is an association?

If you and your friends, neighbours or perhaps colleagues have a common interest that you want to develop in an organised way, you should form a society (formerly a civic association).

Associations are the most common form of non-profit and people choose them for several reasons:

• You just need a group of three people with whom you share a common theme;
• you don't have to put up any capital;
• with responsible management as members, you are not liable for the association's debts;
• you can run a side business to raise funds.

2/ What is an institute and how is it different from an association?

An institute is the new name for the former benefit society. These still operate, you just can't set them up anymore. Whereas a society is formed as a special interest organisation for its members and is flexible in many ways, an institute is a form of non-profit tailored to provide social and other community services.

An institute also differs from an association in the following areas:

• the founder is only one person;
• has employees (not just members);
• it must provide its services equally to all;
• there is a compulsory deposit upon registration;
• the institute must establish a board of directors.

3/ What is a foundation?

Foundations, like institutes, operate with the aim of assisting in charity and public benefit projects. However, their main purpose is to pool assets.

They continue to manage the assets and provide where they are needed - whether through promotion, educational programmes or consultancy, or direct financial support. That is why they must also deposit a foundation principal of at least half a million crowns upon registration and have their foundation deed certified by a notary.

Please note that a foundation may never be used to support a political party or movement.

4/ What is an endowment fund and how does it differ from a foundation?

Endowment funds function similarly to foundations - however:

• they are also created in the short term to meet a specific objective;
• they do not require the deposit of a foundation principal at the time of registration;
• they do not require a notarial deed for the foundation;
• they usually cease to exist once their purpose has been fulfilled.

Financing of the non-profit organisation

A non-profit organisation may generate profits through its activities, but these must be used exclusively for the purposes of its mission. It must therefore not redistribute the profits in any way to the owners or other management or the state.

A nonprofit may combine different sources of funding (fundraising) to raise as much money as possible for its operations and ideally not depend on just one type of income. The main sources include:

• donations and contributions - from private individuals, companies (e.g. as part of their corporate social responsibility) or foundations and endowments;
• grants and subsidies - both private, governmental or even international (e.g. from the UN or EU);
• membership fees - one-off or with regular frequency;
• Income from own activities - e.g. from the sale of gifts or souvenirs, tickets for sporting or cultural events, but also from renting their own premises or real estate;
• sponsorship - typically in exchange for advertising the sponsor or its activities;
• public collections (crowdfunding) - most often in the form of a benefit concert, auction, sporting event or online campaign to support NO;
• bank loans - with a well-developed financial plan and mission, an NGO can apply for a bank loan for its activities.

A certain type of financial support is also the work of volunteers in a non-profit. Volunteering connects people willing to help without pay with those who need and appreciate the help. The nonprofit gets support while saving on operating and payroll costs compared to companies with regular employees.

Set up a society without worrying

Over 100,000 people have set up a society in the Czech Republic in recent years. Do you have a group around you with a common interest you want to develop? Contact us using the form below and we will set up a tailor-made association for you.

Contact information

Write to us and we’ll get back
to you within 24 hours.

+420 226 224 724

info@jake-james.cz

Revoluční 736/15, Praha 1

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