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This question is inspired by the website https://elementary.io where you can set the amount you want to pay to download the product, which is by default set to $20, and you can even set it to $0 in which case, if you look closely, the button to the right will change from "Purchase elementary OS" to "Download elementary OS".

This makes it confusing to me, if I set up a similar business model, are users really "purchasing" my product? Or can I say in my About page that we are a nonprofit who users can donate to if they want, but it's not required to download our app? I don't want donations to be a separate element or page because... if it's more streamlined, maybe one or two more users will consider donating.

Cybervulcan
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    Who or what are they 'donating' to? If you are pocketing the money, you should not claim to be a non-profit. 'pay-what-you-want' and non-profit are not the same thing, and really don't have much if anything to do with each other. – Jason Goemaat Feb 14 '22 at 15:59
  • This is not a request for spercific legal advice and should not IMO be closed as such. – David Siegel Feb 14 '22 at 23:21

2 Answers2

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Being a "non-profit" organization, in the US at least, does not mean you don't make a profit. There are plenty of for-profit companies that don't make a profit.

What it means is that you have filled out the paperwork with the IRS and other interested parties in your city, county, or state, that says your organization is a non-profit. That invokes certain rules as to where and how the funds you receive must be spent. It also relates to your purpose as an organization. If it's to "sell some software" then you likely don't qualify as a non-profit. If it's to reduce illiteracy in your community, that likely does.

If you intend to pursue becoming a non-profit, you should consult a local attorney who is experienced in these matter so that you do it properly.

I also caution you about using the term "non-profit" or "not-for-profit" or any variation of this as you may run afoul of various laws governing such organizations. Presenting yourself or your company as something that it's not is likely to cost you dearly.

What you are describing is more commonly known as "shareware" where users pay for the product, usually software, if they want to. In some cases paid users get more functionality. How much users pay also falls into this category.

jwh20
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    All good information and advice, except the bit at the end about shareware. The pay-what-you-like approach described by the OP is a pricing model. Shareware is a licensing / distribution model. Free-of-charge, reduced-function versions of for-charge software is a promotional approach that is sometimes, but not always, coupled with shareware distribution. They may at times be motivated by similar goals and philosophies, but none of these three is the same as any of the others. – John Bollinger Feb 13 '22 at 16:15
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The answer by @jwh20 is good but does not summarize the nature of a non-profit organization. There are essentially three kinds of private entities.

  1. A natural person is a human being who is looking out for him/herself and his/her family.
  2. A regular corporation has a fundamental goal of making a profit for the shareholders.
  3. A non-profit corporation has a fundamental goal of serving the community in some way that is recognized by law as a worthwhile charitable service. Examples include feeding the hungry, education, and medical services.

Non-profits may raise money by asking for donations, selling goods (for example bake sales and auctions of donated items), and charging fees for the goods and services that are directly related to their fundamental goals. For example, an ambulance service might be non-profit but still charge for transporting patients to the hospital.

What distinguishes a non-profit from a regular corporation is what happens if they are financially successful. If a regular corporation makes a profit, they pay out the profit to the shareholders. If a non-profit makes a profit, they can use it to expand their operations, use it to lower their prices next year, give it to another charity, or something along those lines. They don't have any shareholders, and are forbidden from giving it to their founders, members, directors, or the like.

A natural person cannot be a non-profit.

I live in the US and my vocabulary is what you will find there. Other countries have similar concepts but may use different words.

Gerard Ashton
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    "are forbidden from giving it to their founders, members, directors, or the like." I don't know very much about business or law, but isn't it a common misconception that non-profits can't pay salaries (including to their founders)? (At least, that's how I'm naïvely interpreting websites like https://theblueheartfoundation.org/how-non-profit-business-owners-get-paid.) – Joshua Grosso Feb 11 '22 at 20:53
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    @JoshuaGrossoReinstateCMs They can certainly pay salaries, but I think this answer is referring to some form of profit sharing. The profits must be used in some legally specified manner, not pocketed by the founders or employers. – nasch Feb 11 '22 at 21:01
  • I agree with @nasch. – Gerard Ashton Feb 11 '22 at 21:34
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    @nasch, as I understand from my wife who has worked in the nonprofit sector her whole career, the salaries of the organization's top officers must also be included in their official filing and are subject to public record. Anyone can check up on how much an executive director is making. There is a lot of regulation to maintain non-profit status. This is in the US. – Seth R Feb 11 '22 at 22:36
  • @SethR Yep that makes sense. – nasch Feb 11 '22 at 22:55
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    Cooperatives and partnerships are also private entities, but do not fit into your list above. In particular, cooperatives are allowed (and often do) refund their profits to their members. – DrSheldon Feb 11 '22 at 23:38
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    Scandals with ostensibly non-profit orgs paying their founders, friends or relatives exorbitant sums, either as salaries or in contracts, are not unheard of. That usually comes to light in one way or another and discredits both the people involved and the org itself. – jaskij Feb 12 '22 at 00:43
  • From some googling, it seems the US distinguishes between a "nonprofit orginisation" and a "not for profit organisation" https://www.uschamber.com/co/start/strategy/nonprofit-vs-not-for-profit-vs-for-profit – Peter Green Feb 12 '22 at 01:49
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    @PeterGreen That site has poorly worded some of the distinctions between Nonprofits and Not-for-profits and so should be taken with a grain of salt. – RBarryYoung Feb 12 '22 at 12:54
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    Charities are not the only type of non-profit organization. Look through the rest of 501(c), particularly (4)-(6). Some sort of social benefit, yes, but "charity" specifically is still mostly defined by Pemsel (1891 AC 531). – obscurans Feb 13 '22 at 00:42
  • For-profit companies don't necessarily pay dividends to shareholders. Many of them reinvest profits in the business to continue growing. Shareholders make money by selling shares for more than they bought them. – Barmar Feb 13 '22 at 00:45
  • It is, indeed, a common misconception. The CEO of IRC makes the lesser of a $1M a year, that of Goodwill makes almost $0.7M. What is described here is how non-profits, in general, should be regulated, but they do not have a sufficiently well-regulated operation to meet these ideas. The salary brackets provided for federal employees should be applied as much as it is possible, in case of doubt, the IRS should make a decision on which bracket a certain position should fall. – kisspuska Feb 14 '22 at 04:35
  • @JanDorniak "discredits both the people involved and the org itself" and public trust in the regulatory bodies. – kisspuska Feb 14 '22 at 04:37
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    @nasch non-profits can, however, have revenue-based bonuses built into their compensation structures. Bonus pay cannot be the primary purpose of the organization raising funds but founders can still have a financial interest in the non-profit's growth, even if not as strong an interest as a director of a for-profit. – Will Feb 14 '22 at 14:55
  • "The salary brackets provided for federal employees should be applied as much as it is possible, in case of doubt, the IRS should make a decision on which bracket a certain position should fall." @kisspuska I take it you are describing hoe you think the law should work. To the best of my knowledge there is no limit on salaries paid by a non profit, provided that they are bona fide wages and not hidden profit sharing. Being in line with salaries for comparable work at large C corporations is good evidence of that. – David Siegel Feb 15 '22 at 00:31
  • @DavidSiegel "Being in line with salaries for comparable work at large C corporations is good evidence of that" I'm not sure if you really need a competitive CEO; for the space these entities are intended to be in, it may not need that much of competitive operations. But maybe you're right. It does feel like it goes against the principle of non-profit operations to hand checks copmeting with for-profit orgs. – kisspuska Feb 15 '22 at 04:59
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    @kisspuska there is no legal "principle" requiring non-profit organizations to pay lower wages than for-profit companies do for similar work. Some do, some don't. No-profits are forbidden to distribute funds earned or donated to founders, organizers, or members. They are not forbidden to pay market rates for goods or services provided. Thewre have been cases where a NP provided "sham" jobs to organizers or their associates to avoid the prohibition. That is unlawful. But as long as the job is real and the pay reasonable for the job, there is no violation. Some jobs reasonably carry high pay. – David Siegel Feb 15 '22 at 16:49
  • @DavidSiegel wasn’t try to argue the legal point, in fact, I’m doubting myself about what I meant to imply: Merely a moral principle, but the IRC and Goodwill ones still feel wrong to me. – kisspuska Feb 16 '22 at 11:42
  • @DavidSiegel would you agree that there isn’t many comparable let alone greater responsibility than having the launch codes? I think the U.S. President’s salary should cap the highest paid non-profit jobs pay, above that should be generally or exclusively considered distribution of profits. – kisspuska Feb 16 '22 at 23:38
  • @kisspuska I don't agree that there should be any particular "cap" on the salaries that a non-profit org pays, nor on those that a for-profit company pays. More to the point (as far as this site is concerned) to the best of my understanding, no law imposes such a cap. It is an interesting question whether such a law would be constitutional in the US. It is hard to be sure, because as far as I know, no legislature has ever tried to impose such a cap. – David Siegel Feb 17 '22 at 15:21
  • @DavidSiegel The fact they are exempt of taxes, I think, clears the way for that. In other words, if they don’t want a cap, they would need to form a for-profit org. Cant see that unconstitutional. (At least we moved the conversation back within the domain of law.SE.) – kisspuska Feb 17 '22 at 17:07
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    @kisspuska Not all non-profits are tax-exempt, although in the US at least many are. Yes, Congress could, I suppose, impose a salary cap as a condition of tax-exempt status. But as far as I know no such law has ever been passed. – David Siegel Feb 17 '22 at 19:23
  • @DavidSiegel that I agree with and that should explain the reason of my first comment. – kisspuska Feb 17 '22 at 21:45