The Number Of Nonprofit Organizations Commerce Essay

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Over these this few years, the number of nonprofit organizations are growing substantially compare to the past time. This change has eventually created more intensive competition among nonprofit organizations and rose up people's interest toward this sector. Nonprofit organizations are now continuing to grow in worldwide and their importance are undeniable. However, over the years there are insufficient discussions on nonprofit organizations were made. The previous trend has caused people to focus more on the publications and discussions of profit organizations rather than nonprofit organizations. Hence, many people are lack of knowledge and information toward nonprofit organizations and are still confusing in differentiating profit and nonprofit organizations. They are unable to tell how profit and nonprofit organizations are differed from each other. In general, people understand that nonprofit organizations are established similarly to the profit organization as both of them are formed to achieve certain goals. However, according to Atan and Zainon (2004), nonprofit organizations are formed with specific social missions and objectives to accomplish social needs rather than maximize wealth. Nonprofit organization is also been defined legally as an entity that is legally prohibited from distributing profits to shareholders (Weerawardena, McDonald and Mort, 2010). It means that nonprofit organizations are the entities that are not aimed to generate profit to the organization and maximize shareholders' wealth (Kilcullen, Hancock and Izan, 2006). Othman and etc. (2012) further explain that nonprofit organization can be formed of any size and their main objective is to serve a social mission and provide public benefit.

Nonprofit organizations are usually a private foundation, public charity, or non-charitable nonprofit. As noted by Kilcullen, Hancock and Izan (2006), nonprofit organization can be found as a single entity or a group of entities including the parent entity and subsidiaries controlled by the parent. In Malaysia, non-profit organizations are composed of charitable corporation or a society. Nonprofit organizations provide services to society via welfare work for community development, aid in national disasters, and assistance to the poor and needy (Atan and Zainon, 2004). They exist to satisfy the needs that will be provided and satisfied by neither the corporate nor public sectors (Weerawardena, McDonald and Mort, 2010). Business does not fulfill these needs because they will not earn profit from their efforts. Whereby, government does not satisfy these needs because there is no sufficient public support in term of financial or resources to do so (Weerawardena, McDonald and Mort, 2010). Besides, a nonprofit organization does not use the financing method as profit organization or receive public support through tax collection as public sector to financial their action and activities for achieving organization's mission (Weerawardena, McDonald and Mort, 2010).

Nowadays, the size of the nonprofit sector in Malaysia has increased rapidly over the decades. The number of nonprofit organizations have growth rapidly from 44,396 registered organizations with the registry of society (ROS) as at March 2009 (Zainon etc., 2011) to 45 830 in 2011. The growing numbers of formation of nonprofit organizations concurrently with the increase of awareness on social welfare in Malaysia have created the need and concern of people toward nonprofit organizations' information. The information is very important to provide the understanding and knowledge to people regarding the nonprofit organizations and enable them to associate better in this sector. However, there are no much study on nonprofit organizations was made in our country. Besides, there are no specific subject related with nonprofit organization are taught in the school and university to the students. This has caused our students to face difficult situation when they go into the working environment especially when they deal with related organizations. This is because they have no sufficient knowledge and experience to deal with the nonprofit organizations. This eventually makes our students to be less competitive in the job market compare to others as they are not wholesome in all aspects.

Although there are some studies about nonprofit organizations are made previously, but these studies are narrowly focus on a single field of nonprofit organization. Therefore, this study is intended to provide an overview of the nonprofit organizations in which the differences of nonprofit organization and profit organization will be identified and some issues of nonprofit organization will be discussed. This will enables students to understand the nonprofit organizations' framework in a more complete and easier ways. With this information, more extensive studies could be made for the future. This study will be made through the review and study of various sources of primary and secondary data.

The paper will then moves toward an answer in three steps. First, the paper introduces several frequent used terminologies of nonprofit and the classification of nonprofit organization in different countries. Second, differences between profit and nonprofit organizations are identified and the issues related with nonprofit organization are discussed. Finally, conclusion on all the findings is made.


Terminologies Used For Nonprofit Organization

There are many terminologies are being used to address nonprofit organizations. They are sometimes referred to as the third sector, voluntary sector, non-government organizations (NGOs), independent sector, not-for-profit sector, nonprofit sector, the social economy, civil society, community organizations or charitable organizations (Atan and Zainon, 2004; Sargeant, 2012). According to Sargeant (2012), the concept of a third sector is distinguished by being dissimilar from either government or the private sector. Third sector is neither governmental nor private yet it is a mix of private business and governmental elements (Etzioni, 1973). Government, private and third sector are three important aspects of human society as each of them play different roles in fulfilling nations' needs in the society. Whereas, third sector is engaged in the part that neither government nor private sector are unwilling to step in (Sargeant, 2012). Hence, third sector plays a significant role in society. This is because third sector would be performing the efficiency and expertise of business domain with public interest, at the same time be accountability and has broader planning as the government (Etzioni, 1973). Therefore, the idea of third sector is these entities are diverse however doing for the same intention with its own individual types of social form and concrete reason (Corry, 2010).

Third sector often involves an individual or a group of people who gather to perform voluntary action to help those needy in solving their problems, take care of their livings and give them support and concerns (Sargeant, 2012). Hence, the idea of voluntary is come into place. According to Taylor and etc. (2009), there is no statutory definition of voluntary organization, however, the feature of a voluntary organization are, 1) is voluntary in the sense of being set up and continuing to operate because the people involved want to, rather than being set up by statute; 2) has a governing body (committee or board) whose members are likely to be volunteers, receiving no payment other than reimbursement of expenses; 3) is set up for the benefit of the public or a community, which may be local, national or international, or a community of interest such as people with a particular illness, political or social concern or hobby; and 4) is set up on a not for profit basis, which means it is not set up primarily for financial gain, and has rules saying that if it does make a profit or surplus, this has to be used for the organization's purposes rather than being shared among the members.

Moreover, the concept of independent sector is formed because of the sector is not being controlled by neither the State or corporate (Sargeant, 2012). This is as the idea of Wagle (1999) in which the term independent sector covers wider meaning which consist of element of autonomy and shared value. However, even this sector is free from direct control of other; there is still some linkage in term of financial aspect where it required the funding from others (Sargeant, 2012). As this sector is not profit oriented, they need financial support from both government and private corporation that lead them far from independent in term of funding (Sargeant, 2012). In addition to that, Wagle (1999) had defined independent sector as a domain emerged with the effort to promote informal resources for social welfare. In this context, Wagle's (1999) point of view is that nongovernmental organizations are then the part of the independent sector and represents voluntary, member serving and public serving activities in less formal way. This means that nongovernmental organization is classified as the secondary association and joined by people in accordance to their own interest.

Charity is another common used term for this sector. As the result of Sherlock and Gravelle's (2009) research, they found that the term "charitable sector" is used to refer to one type of tax-exempt organization, especially those registered under 501(c) (3) public charity status. According to United States' law, organizations qualified for 501(c) (3) status include charities, religious organizations, hospitals, and educational institutions; and the whole class of these organizations is commonly called as "charitable organizations" (Sherlock and Gravelle's, 2009). However, under English law, charity has a very specific meaning and applies to a small subset of organization who meets the purpose prescribed in this law (Sargeant, 2012). The concept of public benefit has been made more seriously than the definition of charity by the Charities Act 2006. Hence, organizations that pursuing to obtain charitable status must now prove that they have offered value to our wider society (Sargeant, 2012).

All of these terms are used variedly in different countries (Sargeant, 2012). All the terms are normally used interchangeably either by individuals or institutions worldwide but sometimes emphasis on different meaning (Atan and Zainon, 2004; Sargeant, 2012). The term of voluntary organization is commonly used in the United Kingdom and New Zealand. On the other ways round, non-government organization is usually used by Kenya. Canada uses nonprofit and voluntary or charitable organizations to mention on this sector. In Malaysia, we refer this kind of organizations as nonprofit organizations. Thus, the term "nonprofit" will be adopted in the continuous part of this article.

Categories of Nonprofit Organization

Based on the information derived from Resources Center of Brighton and Hove (2012), nonprofit organizations in United Kingdom are basically categorized into two main categories which are community or voluntary groups and social enterprises. Community or voluntary groups are usually including a whole mass of organizations, from small neighborhoods groups manage by local people to larger voluntary agencies that equip with formal staff. Community or voluntary groups are working to improve specific local area, campaigning for revolution or providing a service. Whereas, social enterprise is normally a business that provides services or goods then reinvested the profit for the purpose of the business or community rather than maximize profit for shareholders or owners.

In America, nonprofit sector is one of the least understood parts of national life, but also one of the most important one (Abramson and McCarthy, 2002). America's nonprofits are cover a vast group of entity from hospitals and universities, orchestras and opera companies, family service agencies and religious congregations, environmental advocacy and civil rights organizations, soup kitchens, homeless shelters, to more others. However, all of these entities are being classifies into 11 main fields that consist of health, education and training, social services, arts and culture, housing and community development, international assistance, religious congregations, civic participation and advocacy, infrastructure organizations, foundations and corporate philanthropy, and individual giving and volunteering. Based on the study of Abramson and McCarthy (2002), nonprofit organizations play crucial roles in America society because this sector had hired almost 11 million employees which amount to 7 percent of America's workforce since 1998. Among these workers, 5.7 million of them are worked in full time basis. Besides, this sector helps in identifying problems that do not be concerned and brings them to public attention.

The nonprofit sector in Kenya consists of various types of organizations that engage in providing public services to communities for every village (Kanyinga, Mitullah and Njagi, 2007). Nonprofit organizations in Kenya are then divided into 5 different categories which are NGO, Cooperatives, Foundations or Trusts, Unions, and Community Based Organisations and Self-Help Groups (Women Groups and Youth Groups) (Kanyinga and Mitullah, 2007). The roles of nonprofits in Kenya's society are significant as this sector accelerate the development of economic and hired over 290 000 full time workers since 2000.

Whereas, Canada's nonprofit sector is one of the largest and most active nonprofit sectors in the world. It involves "service delivery" organizations in areas such as health, education, social services, community development and housing (Hall and etc., 2005). Social services are then further be divided into 5 Statistics Canada groupings which are arts and culture, environment and wildlife, society and public benefit, foreign and international organizations, and law and justice (Reed and Howe, 1999). The nonprofit and voluntary sector is an economic force in Canada and it accounts for 8.5 percent of the nation's gross domestic product (GDP) including the value of volunteer work (Hall and etc., 2005).

Meanwhile, from the international classification provided by United Nations Statistics Division on 2006, nonprofit organizations are sort into 12 groups. These groups consists of Culture and recreation, education and research, health, social services, environment, development and housing law, advocacy and politics, philanthropic intermediaries and voluntarism promotion, international, religion and business and professional associations and not elsewhere.

Nonprofit organizations in Malaysia are usually formed for the purpose of charity or society. According to the statistic shown by Registry of Societies, there are 45 830 nonprofit organizations were registered in December, 2011. The nonprofit organizations are further divided into different category as general religious, community welfare, social and recreation, trade, youth, mutual benefits, profession, woman, politics, culture, education, and sport. Even the nonprofit organizations have fall into different categories, but their objective is remain the same in which they intend to offer services to the public and society.


Framework of the Study

This analysis consists of reviewing the entire or parts of the papers and interpreting the statistic tables. From the review, I analyze the terminology and definition used, understand the differences, and study about the issue being discussed.

Data Collection Method

The data are gathered from various sources include published journals, thesis, articles, newspaper, books, newsletter, congressional research service report, handbook, research's notes, legal notice and online statistic.


Major differences between profit and nonprofit organization

There are several elements that obviously distinguish nonprofit organization from profit organization. Through the understanding of these differences will enable people to identify the nonprofit organization easily. These differences can be classified as significance, sources of fund, ownership and control, human resources management, accounting, assets distribution and used of profit of an organization.


Significance can be defined as the importance of something, especially when this has an effect on what happens in the future (Hornby, 2005). On the other way round, it can be explained as the importance of an organization, the affection of an organization or the purpose of its existence. Every organization is formed with a certain purpose or objective to be achieved. A profit organization exists mainly to generate profit which means to earn more money than those have been invested in. Profit organization aims to maximize profit and increase business owner's wealth. Therefore, profit organizations usually come out with products or services that are offered at certain price level in the market to generate income. The income will then be distributed to the owners of the organization.

On the other hand, nonprofit organizations are generally formed to promote social welfare and fulfill society's needs like for some specific religious, humanitarian, charity purpose, educational purpose and environment protection. According to Prugsamatz (2010), the main objective of nonprofit organization is to provide services to people by bringing people together and help them through improving the level of societies, economic and social situations; responding to various foreseeable and unforeseeable challenges encountered by society; environmental preservation; and other humanitarian efforts geared toward growth, development, and preservation. Besides Weerawardena, McDonald and Mort (2010) also said that nonprofit organization exists to provide services to fulfill the needs that will not be satisfied by both private and public sector. Therefore, nonprofit organization plays vital roles in organizing activities that will help in meeting nation's needs. All the activities perform in nonprofit organization must consistent with the purposes as stated before. The intention of a nonprofit organization's operations is to manage and distribute fund into programs and activities that would assist in meeting society's needs.

Sources of Fund

Fund is the fundamental element for the survival of an organization. Fund is required to finance the activities run in an organization and the activities include operation activities, administration activities, development activities and investment activities. Therefore, it is very vital for an organization to obtain sufficient fund from various sources to maintain the organization's functionality. In profit organizations, sales revenue include cash sale and credit sale are the main sources of fund to the organizations. Profit organizations rely mainly on the income generated from normal business activities and the credit arrangements from the suppliers and creditors to finance their operation. Besides that, profit organizations are allowed to raise fund from public at large through issuing of companies' shares. The investors will be offered certain percentage of ownership in accordance to the capital invested or fund injected into the organization. Profit organization can also obtain fund through employment of loan. Loan will provide the organization an amount of money that is required to finance organization's projects. The organization will then repay the loan after a certain period of time with certain percentage of interest with the earning obtains from the businesses.

On the other way round, a nonprofit organization can obtain fund through variety of sources. The funds can be gathered from fee for services, special events, donations and grants from individuals, government agencies and other organizations. Among these sources of fund, donation will contribute to major part of the fund received by the organization. As nonprofit organization is only able to collect fund from the donors solely based on the trust of donors toward the organizations, nonprofit organizations have to ensure the proper management of fund to maintain their reputation and gain donors' confident toward the organization. Thus, nonprofit organization must be very conscious in the usage of the money to ensure that the benefits given to targeted recipients will be maximized. In the context to get donation from others, special event would be the most suitable ways to attract the donors and get donors' acknowledgements. Grant is another good alternative to obtain fund, however, this source is inconsistence and therefore cannot rely too much on it. Whereas, fee for services is often an uncommon used alternative.

Ownership and Control

Another significant different of profit and nonprofit organization is related with the ownership and control over the organization. The ownership and control of a profit organization will often refer to which type of organization that the profit organization is. As an owner managed organization which is either sole proprietorship or partnership, the owner retains two principal powers in which the owner makes managerial decisions of the firm and entitles to the profits of the firm (Marks, 1999). In simple words, the owners own the company and having control on the operations and managements of the company. However, for large public held corporation, the owners remain their claim on the profit but do not having the direct control over the entire corporation (Marks, 1999). The owners of the big corporation which also call as shareholders, are having right to receive profit in the form of dividend annually from the organization. However, shareholders do not have right to make decision for the organization. This responsibility is eventually placed on the manager, who has been appointed by the board of director, who is formed by the shareholders of the organization. According to Marks (1999), managers have control on the organization but possess relatively small or no residual claims.

On the other hand, a nonprofit organization does not have an owner to control over the organization. Hence, there are no shareholder exist in a nonprofit organization. As said by Glaeser (2003), even those who have funded the nonprofit organization through donation cannot obtain the control over the nonprofit organization. Therefore, nonprofit organization is existed as an independent body that is not owned by anyone. However, nonprofit organization is officially controlled and managed by its board of director. The board of director of a nonprofit organization is usually formed by some of the major donor or their representative. Although the board is having authority to make decision and manage the organization, they do not own the organization. The organization itself is independent from anyone including those managing it. Therefore, board members are not able to sell or transfer their control rights to other and they do not own any valuable that will contribute to organization's success (Glaeser, 2003).

Assets Distribution

As provided by the Public Sector Accounting Standard Board of the Australian Accounting Research Foundation and Australian Accounting Standard Board (1995), asset can be defined as the future economic benefits that controlled by the organizations due to past transactions or other past events. Both profit and nonprofit organization use assets to provide goods and services that will satisfy people needs and wants.

In profit organization, the assets are used to provide goods and services. Organization's objective to maximize profit is achieved through the benefits received from the sale of these goods and service. Besides, the sale of the assets can also benefit the organization toward achieving profit maximization. In profit organizations, all the assets in the organizations belong to the business owners as the assets are bought by using the capital contributed by the owners. Therefore, while a profit organization is dissolved, organization's assets or the money from the sale of assets will be distributed to the organizations' owners in accordance to the proportion of shares owned or the percentage of their ownership in the organizations.

However, in nonprofit organization, assets are used to provide goods or services to fulfill the needs and wants of the needy without charges rather than to receive profit. In nonprofit organization, all the assets are belongs to the organizations. No personal is entitled to claim for the assets in a nonprofit organization. When a nonprofit organization is being dissolves, all the assets will be transferred or donated to another nonprofit organization. Therefore, one who is likely to earn money will invest in profit organizations rather than nonprofit organizations due to the restriction of nonprofit organizations in handling their assets.

Profit Distribution

The business owners in a profit organization are entitled to realize gains from their organization. When a profit organization has good performance or has surplus of money from sale for current period, the excessive gain is allowed to be distributed to the owners of the organization. In general, the business profit would first be charged as taxes and collected by Inland Revenue Board to finance the operation of government. Whereby, part of the business profit will be distributed to business owners or shareholders in the form of dividend in accordance to the percentage of ownership or shares own by them. The dividend will be given annually, for every six months or for every quarter depending on the practice of the organization. Whereas, the remaining undistributed profit will be classify as retained earnings.

On the other way round, there is no practice of profit distribution occur in any nonprofit organization. This is because the profit earned by nonprofit organization is not subjected to any person and therefore will not be distributed instead of retransfer back to the organizations. These profits are then being used to pay for the operating expenses incur for the organizations like salary of employees, utilities and other administrative expenses. As mentioned by Glaser (2003), nonprofit organization cannot disburse profits to its members either board of director or employees as this constraint prevent nonprofit organization to cheat on customers and workers. It is very important that all funds raised by nonprofit organizations remain in the organization. This is because nonprofit organization only acts as the agent to help in managing the public money for welfare purpose. All the funds are needed for accomplishing the specific organizations' objectives to meet society's needs rather than for other purposes.

Human Resource Management

Employees are essential asset for all organizations and are categorized as organization's human capital. Employees help in running organization's daily operation, improving organization's efficiency, promoting organization's growth and development and achieving organization's success. Hence, it is very important for organization to hire good and suitable employees to the organization. Profit organizations usually found to be easier in recruiting employees. This is because profit organizations would normally have sufficient resources to attract talent people to work for them. They can afford to pay high salaries, bonuses and offer other benefits to employees like equity in the companies, authority and other monetary and non-monetary benefits.

On the other hand, in current funding environment, nonprofits are especially hard pressed to fund operating expenses. In order to maximize the usage of fund for social welfare, nonprofit organizations are required to minimize their operating cost. Therefore, nonprofit organizations are very difficult to afford to attract employees through monetary incentives. Therefore, with limited resources, nonprofit organizations cannot attract and retain employees easily. Furthermore, nonprofit organizations do not have shares and thus unable to offer share option to their employees. Hence, most of the employees in nonprofit organizations are the people who have passion and willing in helping and serving the nations. They work for their inspiration instead of money return. However, in reality, it is very difficult to search for these volunteer to work in the nonprofit organization.

Accounting Treatment


Profit organizations are registered as the business entity and required to pay taxes on their net income from business. Different types of organizations are subjected to different kind of tax and tax rates. For instance, owners of sole proprietorship and partnership are subject to personal tax instead of corporate tax for owners of companies. On the other hand, nonprofit organizations have tax privileges. Nonprofit organization may be exempted from tax if the nonprofit organizations' objectives are to promote social welfare (Glaeser, 2003). Government would intend to help those nonprofit organizations to minimize their costs through tax exemption. Therefore, donations given to nonprofit organizations are tax deductible. This is because government hopes that by doing so, nonprofit organizations would free from tax burden (Glaeser, 2003) and have more funds to be allocated to activities for the social welfare and helping the country to serve and develop the nations. However, nonprofit organizations will still being assessed for taxes for those that are not in the main organizations' scope such as real estate tax and sales tax. Different in tax treatment for profit and nonprofit organizations have led to different accounting treatments for these two organizations. Furthermore, these tax benefits are at the heart of nonprofit status and these tax deductibility allows nonprofit organizations owes its strength and to be more compatible (Glaeser, 2003).

Balance Sheet

Every registered organization in Malaysia is required by regulations to prepare balance sheet at least once in a year. A balance sheet is a summary of an organization's accounts. It consists of assets (everything owned by organization), liabilities (everything owed by organization to others) and equity (everything owed to shareholders include both common and preferred stock). Balance sheet provides an overview to the statement users on the organization's financial position. Nonprofit organizations do not use balance sheet instead they are using "statement of financial position" in which current FRS has also required all the companies to change the term from balance sheet to statement of financial position in their annual report. Nonprofit organizations' statement of financial position is only emphasized on the assets and liabilities of the organizations. As there are no owners, the statement of financial position of nonprofit organizations does not include equity part.

Income Statement

Beside balance sheet, profit organizations are also required to prepare income statement yearly. An income statement consists of organization's revenues, expenses, profits and losses. Income statement allows statement users to understand the financial performance of an organization on how the organization generates income and manages the operation and administration cost. The profit organizations' value and share price will be affected by the result of assessment on income statement. On the other way round, nonprofit organizations do not produce income statement. Nonprofit organizations prepare a statement of activities for each quarter that shows the organization's revenue, expenses, plus net asset.

The Issues Faced by Nonprofit Organization

It is always not an easy task to manage an organization especially a nonprofit organization. This is because there are many matters and issues need to be considered deeply before making decision for the operation of an organization. Once any significant terms are not taking into account, the decision made may lead the organization to poor condition, facing legal obligation and even liquidation. Therefore, it is important for a nonprofit organization to know about the issues that they need to deal with in order to come out with suitable solution that can lead the organization for continuous growth. The following are some issues that require further consideration.


Funding is an important element for both profit and nonprofit organizations for sustain and survival (Werosh, 2008). This is because the operation and administration activities of an organization require fund to process. Without sufficient fund, many organizations especially nonprofit cannot maintain their operations to provide necessary services to our society (Werosh, 2008). As nonprofit organizations are not aimed to generate profit to the organizations, they obtain fund through fundraising activities in order to finance their operations and activities. However, due to the rapid growth of the number of nonprofit organizations in seeking the limited financial resources, the competition is increase intensively and cause nonprofit to be harder in achieving long term financial stability (Frumkin and Kim, 2001). Fundraising by nonprofit organization is challenging during the good economic condition and especially more challenging during economic downturn (Kurre, 2010). At the same time, the success of a nonprofit organization in raising fund will enable the growth of the organization and effective fundraiser will increase the networking and relation with donors. Thus, most of the nonprofit organizations now seek fundraising as the critical activities in their organization.

However, this trend has become the concern of public on nonprofit organization as they worry that nonprofit organization may spend more resources on unproductive fundraising activities in order to attract more donations in which the used resources can otherwise be spent productively in delivering goods and services to public (Yurenka, 2007). People are concern with the focus of a nonprofit organization will be twisted when the organization is too emphasis on fundraising activities and neglect its main duties for the society. Undeniable the main purpose of a nonprofit organization is to provide goods and services that will fulfill the needs of society which will not be satisfied by other parties. At the same time, the important of fundraising activities cannot be denied as they actually act as the supplement or support for the organization to provide goods and services to meet society's needs. Therefore, both of them are remain equally important. The nonprofit organization is responsible to balance itself among both of these efforts.

Furthermore, the worried of more resources will be allocated to fundraising activities rather than to meet organization's objectives can be vanished. From several previous researches including research done by Yurenka (2007), they had shown that fundraising and donation tend to have a positive relationship. This means that the fundraising activities can generate more donations and eventually the expenditure of fundraising activities can be cover up by these additional donations. Therefore, there will be more fund can be utilized in order to achieve organization's objective to fulfill the needs of society. Fundraising expenses are only a small portion of donations received. Besides that, Yurenka (2007) have discovered that the demands for donation are downward sloping. This is because the more amounts the organization has to pay for a single donation, the fewer donations will be demand. Hence, a nonprofit organization will only search for the donations within the limit that the organization can afford.

Moreover, some nonprofit organizations are also facing problem in identifying suitable sources of funds in the fundraising activities for their organizations. This is because they are uncertain on which sources are more appropriate and more reliable to depend on. Some sources are reliable but not easy to obtain and difficult to maintain continuous funding. Some cannot be relied on but are able be obtained easily as long as fulfilling the requirements. Therefore, nonprofit organizations need to investigate and analyze carefully for the most suitable sources of funds for their organization to ensure their organization's sustainability. There are some common sources where the nonprofit organizations can obtain funding for their operation. Nonprofit organizations can collect fund from donors, grants, fee for service, special events and in kind donations.

Donors Management

Even there are many ways in obtaining fund, nonprofit organizations are still facing great challenge in attracting the potential donors and maintain the existing donors. This is because the nonprofit organizations do not employed useful steps in acquiring and serving their donors. Some nonprofit organization lack of ability in creating attention and attract donors to finance them. Even they have successfully attract some donations, they loss the donations in later time due to their poor donors' management. In the effort to attract donors, nonprofit organizations would need to know about the appropriate and effective ways to attract a donor. This is because donors are rarely come on their own instead of successfully being persuaded by the organizations. Therefore, in order to attract donors successfully, nonprofit organizations would first need to communicate with the donors about the organizations' purposes and objectives.

Donors' intentions to donate to the organization are usually due to their belief on the organization's objectives and the ability to meet the objectives. The simplest way to inform them about these is by communication either orally or through documentation. The organizations need to tell about the organizations' objectives, the ways on how the organizations achieve their goals and how successful the organizations can do. This is because donors will consider about the financial report of performance and financial information as important element to make their donation decision on which organization is to be supported (Zainon and etc., 2011). Besides the financial elements, other non-financial factors such as the efficiency of the organization, the nature of activities and work carried out by the organization are also other important element to be considered for (Zainon and etc., 2011). The information delivered is needed to be repeated frequently so that the audients or readers would remember them. Besides that, quality supporting materials are also needed to help to provide evidence on the saying and impress the donor. According to Zainon and etc. (2011), based on the assessment of sufficient information on the organization, the willingness and decision to support the organization in the future will be made by donors. Therefore, nonprofit organization would need to provide and deliver adequate information to donors as the basis for their decision.

Besides that, fundraising activities should be continue and carry on after a particular donation is received. In order to maintain donors to become a repeat and continuous donor, follow up actions after donation are very important. After the nonprofit organizations receive donations from donors, the organizations should at least convey their thanks in writing and send to the donors. Besides, personal contacts through phone or in person are necessary to the generous donor. This effort will cause the donors to feel their contributions to the organizations are being appreciated. Moreover, the organizations need to tell and inform the donors on how they spend the money. The purposes and impacts on the use of money needed to be explained to the donors to enable them to understand the entrusted money are used in the proper ways. The demonstration of donor implication enhance the donors' confident toward the nonprofit organizations.

Moreover, build a great and firm relationship between the nonprofit organizations and the donors is also take an important part. Donors usually do not like to just contribute to the organizations' financial. They are likely to be more involved in the organizations and feel more connected to the organizations. As the donors feel being parts of the organizations, they are more willing and passionate in helping the organizations. Thus, personal contact with donors is necessary to discuss together about the organizations' goals and future plans. Through better understanding on the organizations, donors would usually giving additional contributions to finance more activities in the organizations.

Donor achievement recognition is additional effort to encourage the donors to increase their contribution. Like usual people, donors would be happy when they being recognized and being appreciated. Therefore many nonprofit organizations have classified their donors into various levels like silver, gold and platinum donors. This provides an opportunity to the donors to increase their levels and recognition through more funding. Appropriate recognition make donors feel their contribution is notified and taken care of by others. Thus, these enhance the relationship between the organization and its donors and ensure long run moral and financial support from the donors to the organization.

Ethic in Nonprofit Organization

Nonprofit organizations are the agencies being entrusted to manage funds and donations from the donors. The purpose of their existence is fulfilling the social needs and promoting social welfare. In this context, the board members will act as the trustees, who have the legal duties to make use of these assets for accomplishing their organization's goals. When associates with the huge amount of funds entrusted by thrusters, the members of the organization have to ensure that they can behave in the truthful and honest manner. They have to prevent their greed to override their mind so that they would not cause unwanted event to happen. It is the responsibility of the members to ensure that they are ethic in all the games and make all their jobs transparent and ready for inspection at all time as they choose to be part of the nonprofit.

It is very important for a nonprofit organization to be ethical. By being ethical and integrity allows the organization to earn trust of donors for more financial and moral support. This is because donors need to make sure that the nonprofit organization is using the resources for the proper purpose and is financially efficient in using and allocating the resources (Zainon and etc., 2011). Donors will be more generous to donate to a trustable and good reputation organization with the belief that the organization will use their money properly in the correct way. Besides, the donors are also likely to reinvest and recommended to others an organization when the organization has shown that they can be believed on and accountable for their actions. Hence, nonprofit organization is responsible to manage the resources entrusted to them by means of accountability (Zainon and etc., 2011).

In addition to that, the most serious threat to nonprofit organizations is the disappointment of public confidence and betrayed of public trust. They can lead to very serious consequences to the organization and eventually liquidation. However, over the years, there are still so many cases about unethical behavior of the managing people in nonprofit organization are arisen. Those entrusted people have stepped down the trust putting on them by public at large for managing the fund as they misuse their authority for their self-interest. It is common to heard that those involve in the unethical issues are came from higher management of the nonprofit organization like chief executive and board of directors. Due to their high position in the organization, they can manipulate the money without realize by other members. Even worst in some organizations, all the members in the board make collusion to misappropriate the monies. Therefore, the integrity of the nonprofit organizations is very significant.

The organization itself should have some rules that would govern and guide the members in the organization so that they are working in the proper way and in accordance to the rules. Codes of ethic should be implemented in the work place to provide employees, volunteers and board members with guidelines for being ethical in conducting their works on behalf of the organization. Honesty, integrity, fair and truthful is the basis requirements to earn public trust. A code of ethics is then a tool to help the members to express these values in their works. Furthermore, inspections should be carried out periodically by authorized officers to check on the operation of the organizations and the activities of their members when associate with the assets of the organizations. Frequent checking will aware and remind the members to behave properly in their works on behalf of the organization as they are being guarded for every act they have done. Most importantly, every members of the organization should have self-awareness, self-conscious and instill ethical values in their minds. As being an ethical person in jobs, the person will eventually be ethical in his or her living.


Being an organization which operates based on the public trust, nonprofit organizations need to understand the potential risk that will be faced by the organization and possible claim that will be made against the organization. There are several legal claims that have frequently troubles the nonprofit organizations. These claims are usually the lawsuits that related with the contract dispute, employment claims and personal injury. The lack of clear and specific regulations that spell out how should the nonprofit organizations operate and being managed have created a lot of argument and misunderstanding among various parties such as donor, public officer, members of organizations and others related parties. Therefore, nonprofit organizations need to obtain sufficient and useful information regarding those legal matters to enable them to perform better in dealing with these kinds of problems and prevent these problems to happen.

Contract Dispute

Contract disputes are the most frequently happened litigation. This is because contracts or agreements will often being made as transactions occur in every day. According to Pakroo (2011), a legal contract is created after the organization sign a lengthy document or just makes an oral agreement with a handshake. Once the contract or agreement exist, one party will probable being sued by another party for failing to fulfill the contract conditions or break of contract at any time. The party that being taken legal action of will usually be required to perform the duties or tasks that have been promised during making the mutual contract or in some situation paying a big sum of money damages to the other party to recover their loss. When the other contractual party has proven the existence of the agreements and the action of nonprofit organization had has that jeopardize the conditions in the contract, then the nonprofit organization will be in a deep trouble. While the lawsuit incur, nonprofit organization not only need to perform what they should be in breach of the contract, at the same time will face the doubt of losing its donors' trust and confident toward the organization. This is because the donors may be dubious on the organization's management strategy, policies and ability to achieving the organization's objective and hence influence their future donation decision. Thus, it is better for a nonprofit organization to consider all the detail of the contract carefully before enter into a legal agreement or deal in order to safeguard itself from future unnecessary claims. The nonprofit organization should also anticipate with any single confusion or disagreement before they turn into worsen situation (Pakroo, 2011).

Employment claim

Employees are often the valued human capital to nonprofit organization. This is because beside helpful and contribute to the organization, employees in nonprofit organization often have more passion in their work and share common value for achieving organization's objective. Moreover, the employees work in nonprofit will usually realize on their duties that carry great responsibility to the society. However, nonprofit organization will also need to be especially careful when dealing with the employees because employees will also be one of the risks that will put the organization in danger position. Similar to the profit organization, the most common employment claims that faced by nonprofit organization are wrong termination, discrimination, wage and hour dispute and sexual harassment.

Most of the employees especially nonprofit organizations' employees are usually being hired at will, in which the employees can choose to leave or being dismissed by the employers at any time for any legal reason (Pakroo, 2011). Besides, the employment contract is often been made under the best interest for both parties. However, the recruitment will eventually lead nonprofit organizations into nightmare when wrongful termination lawsuit comes around. As profit organization, a nonprofit organization is not allow to terminate its employees without propel and legal reasons or else the employees can file a lawsuit against the organization (Pakroo, 2011). Termination due to the reasons of employee's gender, race, religious and other protected characteristic are strictly prohibited. Other than that, in some termination, the employees will take advantages on the organization to earn up "extra benefit" before leaving the organization. Therefore, it is important for nonprofit organizations to watch out carefully and be detail in arranging the employment contract to prevent this kind of trouble in the future.

In Malaysia, federal law has giving the protection to employees in order to protect them for not to being discriminated in their employment based on races, gender, religion, age, citizenship and physical health condition (Pakroo, 2011). Therefore, nonprofit organizations should be very careful in handling its workers in this multi ethic country. This is because a slight misstep may raise sensitive issue among different ethic and cause the organization to be claim for discrimination against the employees. Thus, the matters like hiring, firing, salary payment, job or shift assignment should be provided fairly among the employees based on their ability and the chances of promotions and training opportunity should be given to employees equally with no self-sided feeling.

Moreover, wages and hours claim is another fundamental matter to deal with especially for nonprofit organizations where the wages paid to employees are already lower than other sectors. Therefore, the employees will tend to taken care of their well benefits more. In legal aspect, nonprofit organizations are also required to compile to the rule for rewarding their workers. Hence, nonprofit organizations are reminded to be extra cautious in classifying part time and full time workers, paying overtime wages and pay leave of their employees.

Last but not least, sexual harassment is another type of employee-related claim that will put the nonprofit organization at risk. According to Pakroo (2011), sexual harassment is undesirable sexual conduct on the job that creates an unapproachable, unfriendly or offensive work environment for one or more employees. "Quid pro quo" which means deals, is one type of sexual harassment where a worker is asked to comply with some sex-based request or face negative consequences like termination, punishment or others. When the worker is scare of the negative consequence to happen, she will force to agree with the deal to safeguard herself from the negative consequences. In some situation, even though there is absence of such demands in the organization, sexual harassment litigation will still be created if the working environment creates an uncomfortable atmosphere to the other gender in which sexual jokes, pictures, allusions, or comments are allowed to continue in the organization. Therefore, as an entity that is responsible to protecting the social welfare, this kind of litigation is especially harmful to a nonprofit organization. This is because the nonprofit organization will fail to convince others about its roles in helping the nation and promoting social well-being if itself does not show the good and appropriate practices internally.

Personal Injury Lawsuit

Litigation about personal injury is no common but still potentially occurs in nonprofit organizations. The injury claim not only cover up the physically injury but also including the financial loss incur, emotional distress or damage to other's reputation (Pakroo, 2011). As much as any of these injuries occur, no matter it is happen intentionally or unintentionally, the nonprofit organization is still liable for the harm caused to other. The organization will need to compensate the people involved in the injury or their family financially. For instance, one of the workers in a nonprofit organization leaves a toolbox at the side on a table and a visitor comes and is hit by the tools which are dropped due to the sudden fallen of toolbox, then the visitors may filed a personal injury lawsuit against the nonprofit organization to recover his medical bills and compensate for his pain and suffering. Other than that, the untrue information reveal by a nonprofit organization unintentionally against someone may also cause the related person to file a lawsuit on the organization for ruining his or her reputation (Pakroo, 2011). Therefore, nonprofit organization should be extreme careful in every single things that it deals with in order to prevent the future unproductive obligation that will lead to the consumption of nonprofit organization's resources (Pakroo, 2011).


There are a lot of similarity between profit and nonprofit organizations. The most common and obvious elements that differentiate the profit and nonprofit organizations are their significance, sources of funds to finance the operation, ownership and control, human resources management, accounting treatment, assets distribution and used of profit of the organizations.

There are several issues related with nonprofit organization that needed to be handled well. First, it is the fundraising issue of nonprofit organization. Under intensive competition to gain more donations for organization, nonprofit organization will need to invest in this activity from part of the fund. However, interest related parties are scare of the organization has spent too much of resources on fundraising activities which are not productive and neglect about the main objective and responsibility of a nonprofit to the society. Finally, it is proven that fundraising activities are healthy to the organization and will not prevent the organization from achieving its objectives. Moreover, identifying suitable resources of fund may be another concern on fundraising. Thus, the nonprofit organizations need to know about the sources that they may gather the fund from for financing organizations' operations like through donor appeals, grants, fee for services, special events as well as in-kind donation.

Besides, donor management is also significant to a nonprofit organization. Proper management of donors will enable the organization to maintain the existing donors while attracting more other donors. Hence, the organization needs to take look into their donors and understand them. Implementation of useful and effective techniques and methods to associate with their donors is necessary to ensure the success of the organization. Appropriate communication, follow up effort, managing relationships and recognize donors' contribution may be the good alternatives to help the nonprofit organizations in better manage their donors.

Next, the ethical issue within organizations is also another vital influence to nonprofit organizations. Donors supply fund to a nonprofit organization based on their belief and trust on that organization. Hence, it is important for the organization to prove that they are accountable and ethical in managing the fund from publics. The organizations should aware on their responsibility and implement suitable codes of ethic to guide the members in the organizations. Being ethic make the organization gains trust and confidence of public toward that organization and then receives more funding for organization's operation and growth.

Furthermore, it is often difficult for nonprofit to completely free from any litigation as people always have suspicious feeling toward nonprofit organization due to some unpleased past issues that make public alert on nonprofit organizations. Lack of specific regulation for nonprofit organization often creates misunderstandings and arguments among nonprofit organizations and other parties. Hence, nonprofit organizations should obtain sufficient related information to deal with these litigations in order to safeguard themselves from unwanted event that will spoil their reputation.

As a conclusion, it is very critical for nonprofit organizations to understand their stands in the society and trying hard to cope with the difficulties that prevent them for continuous improvement and growth.