It’s often confusing to differentiate between a Non-Governmental Organization (NGO) and Non-Profit or Not for Profit Organization (NPO). Many think both as the same. Yes, they are right to some extent as there are many similarities between them such as both NGOs & NPOs are formed and work for social good and not with the intention to make profits. Surplus funds of both organizations are not distributed to their members. That’s why people often get confused when differentiating between NGO & NPO.
Now we talk about the difference between NGO & NPO. The core difference is that NGOs do not involve in commercial activities. On the other hand, NPOs normally engage in commercial activities although their main objective is not to earn profits.
NGOs work independently of governments but sometimes might be funded by governments. They focus on alarming areas like health, education, social protection, environmental issues, and gender inequality in developing countries. The area of operations of NGOs is normally wider than NPOs and their projects might spread across many countries.
On the contrary, governments often establish and run NPOs for public benefits. NPOs normally focus on promotion and advancement of art, science, research, commerce, or any other useful purpose and may include a charitable organization, membership groups like a sports club or women’s club, social or recreational organization, public educational institutions, public hospitals, etc. The area of operations of NPOs is normally limited.
To run their operations, NGOs are funded by individuals, governments, and other international organizations like the United Nations. NPOs are funded by its members, NGOs, and financial institutions. Talking about legal requirements for NGOs and NPOs, there are a number of laws for registration. The prominent Acts and Ordinances are The Societies Registration Act, 1860, The Trusts Act, 1882, The Companies Act, 2017, The Co-operative Societies Act, 1925, Trade Organizations Ordinance, 2007, etc. The NGO or NPO has to comply with legal requirements of the act or ordinance under which it is registered.
Author
Faheem Abbas
Manager, Audit & Corporate Services
Iftikhar Masood & Co. Chartered Accountants.