What is a for-profit organization? Definition and examples
A for-profit organization is one whose main goal is to make money, i.e., make a profit. It contrasts with a non-profit organization or not-for-profit organization which focuses on keeping itself going. Non-profit organizations usually have other non-business goals, such as helping the community.
We can write the term either with or without a hyphen, i.e., ‘for profit‘ or ‘for-profit.’
The vast majority of businesses across the world are for-profit organizations. Your local corner shop, restaurant, and supermarket are all for-profit organizations.
We also refer to a for-profit organization as a for-profit corporation.
The Free Management Library has the following definition of the term:
“A for-profit organization exists primarily to generate a profit, that is, to take in more money than it spends.”
“The owners can decide to keep all the profit themselves, or they can spend some or all of it on the business itself.”
Owners of for-profit organizations might also share some of their profit with their workers. In other words, they can have a profit-sharing scheme.
For-profit organization – income
For-profit organizations seek to generate income for their owners. Some also seek to generate income for their employees.
These types of organizations measure their success according to their sales. They also measure their success according to their profit.
If a company has more revenue than costs at the end of the year, it is profitable. A profitable business is a successful for-profit organization.
A company whose revenue is smaller than its costs is making a loss. In the world of for-profit organizations, it is unsuccessful.
For-profit organization types
For-profit organizations can be either private or public companies.
Public companies
A public company is a for-profit organization whose shares members of the public can buy on a stock exchange.
We can also purchase public company shares over-the-counter.
The stocks of a typical public company belong to many different investors. Members of the public, corporations, pension funds, and mutual funds, for example, are investors in public companies.
In this context, the word ‘stocks‘ means the same as ‘shares.’ Hence the term ‘stocks and shares.’
Private companies
A private company is also a for-profit organization (in most cases). Members of the public and other entities, however, cannot buy and sell its shares freely.
The purchase and sale of private company shares take place privately.
For example, if I want to buy shares in John Doe Ltd., I must approach the company directly.
If a shareholder agrees to sell me shares, I can then buy them. However, in many cases, that shareholder will need the consent of the other shareholders.
We also call private companies close corporations or privately held companies.
Video – the for-profit organization
In this video, Bill Gates talks about not-for-profit and for-profit organizations. Gates is the principal founder of Microsoft.
He says that a non-for-profit organization should not necessarily behave like a for-profit one.