A not for profit organisation is an entity that operates primarily to fulfil a social, charitable, or community purpose rather than to generate profits for owners or shareholders. In the UK, these organisations form the backbone of civil society, driving impact in areas such as education, health, poverty relief, the arts, and environmental protection. Instead of distributing profits to individuals, all surplus income is reinvested back into the mission.
Not for Profit Organisation Definition UK
In legal and practical terms, the not for profit organisation definition UK refers to any structure set up to achieve community benefit without profit distribution. This includes charities, community interest companies (CICs), cooperatives, and voluntary associations. While the terminology can sometimes be confusing, the underlying principle is simple: not for profits exist to serve people and communities, not shareholders.
These organisations:
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Deliver essential services in partnership with public authorities.
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Mobilise volunteers and local networks to tackle pressing needs.
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Provide accountability and transparency through regulated governance.
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Reinvest every pound earned into sustaining or expanding their mission.
With more than 160,000 registered charities in England and Wales alone, plus thousands of community groups, sports clubs, and CICs, the not for profit sector is a cornerstone of UK society.
Why Not for Profits Matter in UK Communities
The social significance of not for profits is hard to overstate. They often fill gaps that government or private markets cannot address effectively. For example, local food banks, mental health initiatives, and refugee support services are often led by community-based organisations operating on a not for profit basis.
These organisations also act as trusted intermediaries between donors and beneficiaries. Funders know their contributions will be directed toward impact rather than private gain. Communities trust them because of their governance in not for profit organisations, which requires oversight by trustees or boards.
The Role of NGO Finance Hub
At NGO Finance Hub, we recognise that while the mission of not for profits is clear, managing the operational and financial side can be complex. From ngo financial management systems to training trustees in compliance and sustainability, our role is to help not for profits stay financially resilient while focusing on their impact. We offer resources, including our financial management for NGOs training and specialised ngo finance course, that empower leaders to manage funds effectively, comply with regulations, and plan for long-term sustainability.
Benefits of Understanding the Definition Clearly
For founders, trustees, and professionals considering setting up or working with a not for profit, understanding the legal definition and purpose is essential. It determines:
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Which regulators you must engage with (e.g., the Charity Commission).
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What tax benefits or Gift Aid your organisation may qualify for.
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How governance structures must be designed.
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What obligations exist for financial reporting and compliance.
Clarity at the outset prevents costly mistakes and builds a strong foundation for mission delivery.
Difference Between Not for Profit and Nonprofit Organisations
One of the most common questions asked by founders and trustees is: what is the difference between nonprofit and not for profit organisations? While the terms are often used interchangeably in everyday language, in the UK there are important distinctions that affect legal status, regulation, and governance.
Charity vs Not for Profit Organisation
In the UK, all charities are not for profit organisations, but not all not for profits are legally recognised as charities. A charity must have purposes that are exclusively charitable under UK law (such as poverty relief, education, religion, or community development) and must register with the Charity Commission if income exceeds certain thresholds. This registration brings tax advantages, access to Gift Aid, and public credibility — but it also imposes strict governance, reporting, and compliance obligations.
By contrast, a not for profit organisation may take different legal forms such as a Community Interest Company (CIC), a company limited by guarantee, or an unincorporated association. These entities still reinvest all surpluses into their mission, but they may operate in broader areas that do not qualify as “charitable purposes.” For example, a CIC could run a social enterprise tackling unemployment or environmental issues, which may not meet the legal test for charity but still delivers strong social value.
Practical Differences in Operation
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Governance: Charities must have trustees and adhere to charity law; CICs and other not for profits may have directors or committees with more flexibility.
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Taxation: Charities benefit from extensive tax reliefs (including Gift Aid on donations), while not for profits without charitable status may face corporation tax on trading profits unless exempted.
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Regulation: Charities are regulated by the Charity Commission, whereas CICs are overseen by the CIC Regulator and Companies House.
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Funding: Some funders restrict grants to registered charities only, while others support CICs and voluntary groups.
Why the Distinction Matters
For founders and boards, understanding whether to register as a charity or another not for profit form is a strategic decision. It determines:
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Eligibility for funding opportunities.
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Governance and compliance responsibilities.
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Public perception and trustworthiness.
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Flexibility to trade, generate income, or campaign on certain issues.
At NGO Finance Hub, we regularly advise organisations on choosing between charity vs not for profit organisation structures. Our expertise in ngo financial management and training courses helps trustees and managers weigh up tax benefits, compliance costs, and funding implications.
Building Clarity for Stakeholders
Funders, donors, and volunteers often use the terms “nonprofit” and “not for profit” loosely, but clear communication is essential. In your mission statement nonprofit documents, website, and funding applications, specify your legal structure and explain how surpluses are reinvested. This builds trust, demonstrates professionalism, and avoids confusion with commercial enterprises.
Legal Structures and Registration Options for Not for Profit Organisations
Choosing the right legal structure for a not for profit organisation is one of the most important steps in establishing your entity. In the UK, the structure determines governance, liability, funding opportunities, and regulatory oversight. Understanding these options ensures that founders make decisions that balance flexibility with compliance.
Common Legal Forms for Not for Profits
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Charitable Incorporated Organisation (CIO)
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Specifically designed for charities in England and Wales.
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Offers the benefits of incorporation (legal personality, limited liability) without needing to register at Companies House.
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Regulated by the Charity Commission.
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Ideal for organisations whose purposes are exclusively charitable.
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Community Interest Company (CIC)
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A popular option for social enterprises.
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Must demonstrate community benefit and pass a “community interest test.”
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Regulated by the CIC Regulator and Companies House.
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Can trade more flexibly than charities but lacks some tax reliefs.
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Company Limited by Guarantee (CLG)
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Widely used for membership organisations, associations, and clubs.
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Members act as guarantors rather than shareholders.
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Can be charitable or non-charitable, depending on purposes.
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Unincorporated Association or Trust
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Simple and low-cost to establish.
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Suitable for small community groups or clubs with limited income.
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Trustees or committee members may face personal liability as the entity is not incorporated.
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Regulatory Bodies for UK Not for Profits
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Charity Commission for England and Wales: Oversees registered charities, ensuring compliance and accountability.
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Office of the Scottish Charity Regulator (OSCR) and Charity Commission for Northern Ireland: Responsible for charities in devolved nations.
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CIC Regulator: Ensures Community Interest Companies meet legal and reporting obligations.
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Companies House: Registers companies limited by guarantee and CICs.
How to Choose the Right Legal Structure
When deciding, organisations must weigh:
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Purpose: Is your mission exclusively charitable under UK law?
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Scale: Small community group or growing national charity?
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Funding: Will you rely on grants (often restricted to charities) or trading income (where CICs excel)?
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Governance: How formal and accountable should your management structure be?
Why It Matters for Sustainability
The chosen structure impacts:
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Tax status and Gift Aid eligibility.
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Access to different funding streams.
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Liability protection for trustees or directors.
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Long-term credibility and transparency.
Tax Status and Compliance for Not for Profit Organisations in the UK
The tax status of not for profits in the UK is one of the most important factors influencing financial sustainability. While not for profit organisations exist to serve a social purpose, they must still navigate complex reporting requirements and compliance frameworks to maintain credibility with funders, regulators, and the public.
Tax Reliefs and Exemptions for Charities
Registered charities enjoy several tax benefits under UK law, provided they use their income exclusively for charitable purposes. Key reliefs include:
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Corporation Tax exemption: Charities generally do not pay tax on donations, grants, and most investment income.
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Gift Aid: Allows charities to reclaim 25p on every £1 donated by a UK taxpayer. This significantly boosts fundraising capacity.
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Business Rates Relief: Charities can receive up to 80% mandatory relief on premises used for charitable purposes.
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VAT concessions: Some goods and services for charitable activities qualify for reduced VAT rates or exemptions.
However, non-charitable not for profits, such as Community Interest Companies (CICs), do not automatically qualify for these reliefs. They may pay Corporation Tax on profits, though these are reinvested into community benefit.
Reporting and Compliance Obligations
Compliance is a cornerstone of governance in not for profit organisations. Key requirements include:
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Annual returns and accounts: Charities must file annual reports with the Charity Commission, including financial statements and a trustees’ report. CICs file community interest reports with the CIC Regulator.
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Companies House filing: Incorporated entities such as CICs or CLGs must also comply with company law reporting requirements.
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HMRC reporting: Organisations seeking tax exemptions must register with HMRC and submit relevant documentation to claim reliefs.
Risks of Non-Compliance
Failure to meet obligations can result in:
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Loss of tax reliefs such as Gift Aid eligibility.
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Regulatory investigations by the Charity Commission or CIC Regulator.
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Reputational damage that undermines donor and community trust.
Building Robust Compliance Systems
Best practices for compliance include:
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Clear financial reporting aligned with UK charity accounting standards (SORP).
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Regular governance reviews to ensure trustees and directors understand their duties.
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Strong record-keeping systems for donations, grants, and restricted funds.
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Training trustees and staff in financial literacy through programmes like our ngo finance course.
Why Tax Status and Compliance Matters
Donors, funders, and regulators want assurance that resources are being used responsibly. Demonstrating compliance not only protects against legal risks but also enhances organisational credibility, paving the way for future funding.
At NGO Finance Hub, we provide practical tools and training in ngo financial management to help organisations navigate tax and compliance frameworks confidently.
Governance and Management in Not for Profit Organisations
Strong governance in not for profit organisations is essential for accountability, transparency, and mission success. Governance defines how decisions are made, who holds responsibility, and how resources are managed to achieve the organisation’s objectives. In the UK, regulatory bodies such as the Charity Commission and the CIC Regulator set standards to ensure charities and other not for profits operate responsibly.
The Role of Trustees and Boards
Trustees (sometimes called directors or board members) are legally responsible for the strategic direction and oversight of a not for profit organisation. Their duties include:
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Ensuring the organisation pursues its stated charitable or community objectives.
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Managing resources responsibly, including funding and sustainability for not for profits.
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Complying with charity law, company law (if incorporated), and HMRC regulations.
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Acting with integrity, avoiding conflicts of interest, and maintaining public trust.
An effective board provides checks and balances, ensuring management decisions align with the mission rather than personal or commercial interests.
Day-to-Day Management and Staff Roles
While trustees govern, daily operations are often managed by staff and volunteers. Key responsibilities include:
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Programme delivery: Running services and initiatives that directly support beneficiaries.
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Volunteer coordination: Recruitment, training, and engagement of volunteers, who play a vital role in many UK charities.
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Operational compliance: Meeting health and safety, safeguarding, and financial reporting requirements.
Volunteers contribute skills and time without financial reward, making volunteer roles in not for profits central to their sustainability. Ensuring proper training, recognition, and support for volunteers helps build long-term commitment.
Accountability and Transparency
Trust is the lifeblood of the not for profit sector. Organisations must demonstrate that funds are being used effectively and ethically. This is achieved through:
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Annual reports and accounts submitted to regulators and shared with stakeholders.
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Open communication with donors, beneficiaries, and the wider community.
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Clear governance frameworks, including conflict-of-interest policies and financial controls.
Best Practices for Strong Governance
To strengthen governance and management, not for profits should:
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Conduct regular board reviews to assess skills, diversity, and effectiveness.
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Provide ongoing training in finance, risk, and compliance for trustees (our financial management for NGOs training covers these areas).
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Foster a culture of shared accountability between trustees, staff, and volunteers.
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Establish transparent decision-making processes that encourage stakeholder engagement.
Why Governance is important
Without strong governance, even the most impactful mission can falter. Trustees who understand their responsibilities and a management team equipped with the right tools create a resilient organisation. Good governance ensures legal compliance, protects against mismanagement, and strengthens donor confidence—laying the foundation for long-term growth and sustainability.
Funding and Financial Sustainability for Not for Profit Organisations
Securing funding and sustainability for not for profits is one of the most critical challenges faced by UK charities and community organisations. Without stable and diverse income streams, even the most impactful mission can be at risk. A well-structured funding strategy ensures that programmes continue delivering long-term benefits while maintaining financial health.
Common Funding Sources
Not for profit organisations in the UK rely on a mix of income streams, including:
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Grants from public bodies, trusts, and foundations. These often fund specific projects and require strict reporting.
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Donations and fundraising campaigns from individuals and corporate sponsors.
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Membership fees where appropriate, such as in community associations or clubs.
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Trading income from services, ticket sales, or charity shops, helping reduce reliance on restricted grants.
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Contracted services, where charities deliver services on behalf of government agencies or local authorities.
A balanced approach combining restricted and unrestricted income helps organisations remain flexible and responsive.
Building Long-Term Financial Sustainability
Sustainability goes beyond securing funding for one year—it’s about ensuring resources will support the mission in the long term. Practical strategies include:
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Diversification of funding streams to avoid dependence on a single source.
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Establishing reserves policies to provide a financial safety net.
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Cost recovery models, ensuring all overheads and staff costs are factored into funding bids.
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Strengthening donor stewardship through consistent communication and impact reporting.
Managing Restricted vs Unrestricted Funds
Not for profits often juggle restricted funds (earmarked for specific projects) and unrestricted funds (flexible income for operational needs). Good practice involves:
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Clear tracking in financial systems to prevent misallocation.
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Regular reporting to funders on restricted income use.
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Proactive strategies to increase unrestricted income for resilience.
This is where professional ngo financial management becomes invaluable, ensuring compliance while giving trustees the confidence to plan sustainably.
Innovation in Fundraising and Income Generation
New approaches are transforming nonprofit sustainability, including:
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Digital fundraising platforms and social media campaigns.
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Recurring giving models such as monthly donor programmes.
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Corporate partnerships offering both funding and in-kind support.
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Exploring social enterprise models, where trading activities directly fund charitable work.
Organisations that invest in innovation often build stronger, more predictable revenue streams.
The Role of Financial Planning and Training
Strong financial sustainability also requires skilled management. Trustees and managers should be confident in budgeting, forecasting, and financial reporting. At NGO Finance Hub, our ngo finance course and financial management for NGOs training provide practical tools to help organisations build financial resilience while maintaining compliance with UK regulations.
Examples of Not for Profit Organisations in the UK
Understanding examples of not for profit organisations helps illustrate the diversity of missions, legal structures, and financial models that exist in the UK. These organisations share one key characteristic: they reinvest all surpluses into advancing their social, charitable, or community goals rather than distributing profits to shareholders.
Charities and Community Organisations
The most common type of not for profit is a registered charity. From large national charities like Cancer Research UK and Oxfam to local community food banks and youth clubs, charities cover a wide spectrum of causes. They typically operate as Charitable Incorporated Organisations (CIOs) or companies limited by guarantee and are regulated by the Charity Commission.
Community groups and unincorporated associations also fall under the not for profit umbrella. These often serve hyper-local needs, such as running sports clubs, cultural associations, or community centres.
Mutuals, Cooperatives, and Societies
Not for profits are not limited to charities. Cooperatives and mutual societies operate to benefit their members, whether through affordable housing, credit unions, or ethical trading. Profits are reinvested into the organisation or shared equitably among members to further the mission.
For example:
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Credit unions provide accessible financial services to communities underserved by mainstream banks.
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Housing associations develop and manage affordable housing across the UK.
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Community benefit societies often run renewable energy projects or local services.
Advocacy and Membership Bodies
Another important category includes advocacy organisations and membership associations, which represent the interests of specific groups or campaigns. Examples include:
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Environmental NGOs pushing for policy change on climate action.
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Professional associations that provide training, advocacy, and community for their members.
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Sports governing bodies that promote participation and regulate standards.
Case Studies of Varied Missions
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A community arts charity might rely on grant funding and ticket sales to make arts accessible to disadvantaged groups.
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A local food cooperative could operate on membership fees and volunteer labour to deliver affordable groceries.
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An advocacy organisation may depend on donations and membership subscriptions to sustain its campaigns.
These examples show the flexibility of the not for profit model in addressing everything from social justice and environmental protection to local services and cultural enrichment.
Examples for New Organisations
For founders exploring how to start a not for profit, studying existing models helps identify:
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The right legal structure (charity, CIC, cooperative, etc.).
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The funding strategy that best supports long-term sustainability.
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The governance model that ensures transparency and accountability.
At NGO Finance Hub, we support charities and not for profits in developing tailored structures and sustainable ngo financial management strategies that match their mission.
Frequently Asked Questions (FAQs) on Not for Profit Organisations
What is the legal definition of a not for profit organisation in the UK?
A not for profit organisation in the UK is defined as an entity that does not distribute profits to owners or shareholders but reinvests all surpluses back into its mission. The term covers charities, community interest companies (CICs), cooperatives, mutuals, and voluntary associations. Each type has its own legal and regulatory framework, but they all share the principle of prioritising social impact over profit.
How does a not for profit differ from a charity?
A charity is a type of not for profit organisation with strict legal requirements, including operating exclusively for charitable purposes such as education, poverty relief, or health. Charities must register with the Charity Commission and are subject to close oversight. Not for profits, on the other hand, include a wider range of organisations like CICs and cooperatives that may have social purposes but are not always legally defined as charities.
What are typical governance structures for not for profits?
Governance in not for profits is usually overseen by a board of trustees or directors. Their role is to ensure the organisation remains accountable, transparent, and mission-focused. Many organisations also involve volunteers in governance committees or advisory roles. Effective governance includes clear decision-making processes, risk oversight, and compliance with reporting standards.
Can not for profits make profits?
Yes. A not for profit can generate a financial surplus through trading, fundraising, or investments. The key distinction is that profits must be reinvested into the mission rather than distributed to private individuals or shareholders. This allows not for profits to build reserves, expand programmes, and improve financial sustainability.
How do not for profits raise funding?
Funding sources for not for profits include:
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Grants from government bodies, trusts, and foundations.
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Donations from individuals and corporate partners.
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Trading income, such as selling products or running services.
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Membership fees or subscriptions.
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Fundraising campaigns and events.
A diversified funding base improves resilience and reduces reliance on any one income stream.
Are all charities not for profits?
Yes. All registered charities are by definition not for profits, but not all not for profits are charities. For example, a CIC or cooperative may not meet the strict charitable purpose test but is still a not for profit entity.
What regulations govern not for profit organisations?
Regulation depends on the type of organisation:
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Charities: overseen by the Charity Commission for England and Wales (or OSCR in Scotland).
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CICs: regulated by the Office of the Regulator of Community Interest Companies.
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Cooperatives and mutuals: regulated by the Financial Conduct Authority (FCA).
Each type must also comply with company law, tax law, and financial reporting standards.
How do volunteers fit into not for profit operations?
Volunteers are the backbone of many not for profits, supporting everything from programme delivery to governance. They provide invaluable skills, time, and energy that extend organisational capacity. Effective volunteer management ensures that contributions are recognised, supported, and aligned with the charity’s mission.
