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Business

Study Notes

Not-for-Profit Organisations

Level:
AS, A Level
Board:
AQA, Edexcel, OCR, Eduqas, WJEC

Not every business organisation exists to earn profits for its owners. Other organisations engage in business-related activities, but their aims and objectives are different.

Common examples of "not-for-profit" organisations are:

  • Mutual businesses
  • Social enterprises
  • Charities

Mutual Businesses

Mutual businesses don't have shareholders or other owners. They exist only to serve their "members".

The classic example, although there are very few of these left now, is the building societies that developed and thrived in the UK financial sector. Well-known names like the Halifax Building Society, Bradford & Bingley Building Society and the Nationwide Building Society were operated on behalf of members who had taken out mortgages or held savings accounts there. 

In the late 1980s and into the 1990s most of these mutual building societies decided to "de-mutualise" by becoming public companies (which created some large windfalls for members). In turn many were acquired by other financial services businesses and merged into larger organisations.

Only the Nationwide Building Society is left as a mutual of any size after this process.

In other sectors, existing mutual businesses include the RAC (motor breakdown assistance & other member services) and NFC Mutual (over 900,000 members mainly in the farming industry).

Social Enterprises

Social enterprises are businesses with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or community, rather than being driven by the need to maximise profit for shareholders and owners'.

In other words, a social enterprise is a proper business that makes its money in a socially responsible way. These ventures are not necessarily formed to reinvest all profits into the communities. Social entrepreneurs can make a good profit themselves. However, their business model is also designed to benefit others.

Social enterprises compete alongside other businesses in the same marketplace, but use business principles to achieve social aims.

Well known examples of social enterprises include Divine Chocolate, the Eden Project and fair-trade coffee company Cafedirect.

Charities

Many charities undertake business activities. These range from running high street charity shops to operating services and fund-raising events.

Charities have to ensure that the proceeds earned from these activities are spent in accordance with the stated aims of the charity.

Their activities are regulated by the Charity Commission.

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