Certified Nonprofit Professional Practice Exam

Is the nondistribution constraint applicable only to private foundations?

1. True.

2. False.

3. Only in specific states.

4. Depends on the nonprofit type.

The correct answer is: False.

The nondistribution constraint is indeed not applicable solely to private foundations. This principle applies broadly to all types of nonprofit organizations. The nondistribution constraint essentially prevents organizations from distributing profits to individuals associated with the organization, such as board members or staff. This is a fundamental characteristic of nonprofit organizations, distinguishing them from for-profit entities. It is vital for nonprofits to reinvest any surplus revenue back into their mission rather than distributing it as profits, which ensures that the organization remains focused on its charitable or public service goals. Thus, acknowledging that this constraint applies across the nonprofit sector, not limited to private foundations, reinforces the understanding of nonprofit compliance and governance standards. The other options suggest limitations or conditions that do not accurately reflect the comprehensive nature of the nondistribution constraint across various nonprofit types.