Future Business Leaders of America (FBLA) Agribusiness Practice Test

What distinguishes a nonprofit corporation from a for-profit corporation?

1. Nonprofits cannot make a profit

2. Nonprofits distribute profits to shareholders

3. Nonprofits are formed for charitable purposes

4. Nonprofits can issue stock

The correct answer is: Nonprofits are formed for charitable purposes

The distinguishing factor between a nonprofit corporation and a for-profit corporation lies in the purpose for which the organization is formed. Nonprofits are specifically created to serve a charitable, educational, religious, or other public benefit purpose. Their primary goal is to fulfill their mission rather than to generate profit for owners or shareholders. This fundamental characteristic influences various aspects of the organization, including tax exemptions and the way revenue is utilized—any surplus income is reinvested back into the organization's activities rather than distributed as dividends. In contrast, for-profit corporations focus on generating profit for their shareholders, and they often distribute a portion of that profit through dividends. Nonprofits are prohibited from distributing profits to individuals or investors, as their income is meant to support their mission, which emphasizes community service or advancement of a specific cause. Additionally, nonprofit organizations typically do not issue stock like for-profit corporations that can raise capital through investors. Thus, the creation of a nonprofit for charitable purposes is what clearly sets it apart from a for-profit entity.