Certified Nonprofit Professional Practice Exam

Which of the following is NOT a defining characteristic of a nonprofit organization?

1. Profit-making entity

2. Charitable purpose

3. Lack of shareholder profit

4. Community service orientation

The correct answer is: Profit-making entity

A defining characteristic of a nonprofit organization is its primary focus on serving the public good rather than generating profit for owners or shareholders. Unlike for-profit entities, nonprofits are established to fulfill a charitable purpose, such as providing community services, advancing education, or promoting social causes. The lack of shareholder profit indicates that any surplus revenue generated by a nonprofit must be reinvested into the organization's mission rather than distributed as profit. This characteristic is foundational to the structure of nonprofits, emphasizing their commitment to their cause over profits. Additionally, a community service orientation is crucial for nonprofits, as they are often formed to address specific societal needs, enhance community well-being, and contribute positively to society at large. This orientation helps differentiate them from for-profit entities, which prioritize financial gain. Given these points, identifying profit-making entities as a defining characteristic clearly demonstrates a misunderstanding of the fundamental principles that guide nonprofits.