IB Business Management SLTopic 1 — Types of Business EntityPaper 1 & 2Core idea~9 min read
Charities and Other Non-Profit Organisations
At the far end of the scale sit organisations that nobody owns in the usual sense. They still take money in, still pay wages, still worry about running out of cash — but no surplus is ever handed to an owner. Everything that is left goes back into the cause.
📘 What you need to know
A non-profit organisation exists to meet a need or provide a service, not to make money for owners.
Non-profit does not mean no income. Any surplus is simply kept and spent on the mission.
NGOs (non-governmental organisations) work locally, nationally or internationally and are independent of government.
They are funded by a mix of donations, government and institutional grants, and their own trading.
Charities are regulated non-profits with a narrow, registered purpose. Some NGOs are registered charities; many are not.
Together with social enterprises they form the third sector — neither government nor ordinary business.
What “non-profit” actually means
The name misleads people. A non-profit can take in more money than it spends — in fact it usually should, because an organisation with no reserves cannot survive a bad year. What it cannot do is share that money out among owners, because there are no owners waiting for a payout.
Definition
Non-profit organisation = any surplus is kept and reinvested in the cause, never distributed to owners
Notice that trading income sits alongside donations. Many non-profits run shops, cafes or events, which makes them far less fragile than ones living on gifts alone.
Non-governmental organisations (NGOs)
An NGO is an organisation that works independently of any government. Most are voluntary and community based, and none of them aim to make a profit — they exist to meet a need or deliver a service that would otherwise go unmet.
Money usually arrives from more than one direction: government funding for specific projects, donations from businesses and individuals, and sometimes income the NGO earns itself.
What NGOs are good at
Small scale projects where control stays with the community rather than a distant head office.
Using local skills and local knowledge, which makes projects cheaper and more likely to survive after the NGO leaves.
Building independence — the best projects are designed to remove the need for aid, not to extend it.
Environmental work, using local resources and understanding of the area.
Lobbying governments to change laws in favour of their cause.
Because they are independent, NGO aid usually comes with fewer conditions attached than aid from official development agencies. That matters to the countries receiving it.
Independence is the word to lean on. It explains why NGOs can act faster, why they can criticise governments, and why their funding is less secure. One idea, three marks.
Charities and NGOs: not the same thing
This is the distinction examiners like to test, and most students blur it.
Charities
NGOs
Registered and regulated by a national charity regulator
Independent of government, with rules that vary from country to country
Must stick to a narrow, stated charitable purpose
Can take on a much wider range of activities and campaigns
Usually funded mostly by public donations and legacies
Funded by a mix of grants, donations and their own income
Regulation brings trust, and also restrictions on what they can do
Fewer restrictions, so campaigning and lobbying are easier
Every registered charity is a non-profit organisation
Some NGOs are registered charities in some countries and not in others
Both belong to the third sector. The first sector is private business, the second is government, and the third is everything else: charities, NGOs, community groups and social enterprises. Where the domestic third sector is weak, international NGOs often step into the gap.
Judging an NGO
Strengths
Weaknesses
Can attract support from a huge audience, including wealthy governments
The community receiving help can become dependent on it
Employ specialists who work in the country itself, so aid is better targeted
Their scope may be narrow, covering only one group such as children
Research and data let them make very specific, practical proposals
Senior pay and spending choices attract critical media attention
Develop local skills, which helps families escape poverty for good
Funding is irregular, which makes long-term planning difficult
Independence allows them to speak out where officials cannot
Independence also means no guaranteed income if donors lose interest
Worked examples
WORKED EXAMPLE
Distinguish between a charity and a non-governmental organisation. [4]
Define both, then draw the lineA charity is a non-profit organisation registered with a national regulator and restricted to a stated charitable purpose.An NGO is an organisation that works independently of government, which may or may not be registered as a charity.The difference that earns the mark
Charities face tighter regulation and a narrower scope; NGOs have more freedom to campaign, lobby and work across borders.
4 marks“Distinguish” means the difference must be stated explicitly. Two separate definitions on their own score half.
WORKED EXAMPLE
Explain two problems a non-profit organisation may face because its funding comes mainly from donations. [4]
Problem 1 — income is unpredictableDonations rise and fall with the economy and the news, so the organisation cannot be sure of next year’s income and may struggle to commit to long projects or permanent staff.
Problem 2 — reputation riskDonors watch how the money is spent, so one negative story about salaries or admin costs can cut income sharply, even if the work itself is excellent.
4 marks
WORKED EXAMPLE
A children’s charity is considering opening a chain of second-hand shops. Analyse this decision. [6]
In favour
Shops create a steady trading income the charity controls itself, reducing dependence on donations and making long-term planning realistic. The shops also raise the charity’s visibility on the high street.
Against
Shops need rent, stock and staff. Money spent on running them is money not spent on children, and if the shops lose money the charity has made things worse.
JudgementWorth doing if the charity trials a small number of shops first and measures the surplus per shopA staged decision is a strong evaluation move: it acknowledges both sides instead of picking blindly.
💡 Exam tip
Follow the money. Donations point to charity; sales point to social enterprise; taxes point to public sector. That one test sorts most questions.
Non-profits still have objectives. Talk about growth, survival, awareness and efficiency — not just kindness.
Say who the stakeholders are: donors, volunteers, beneficiaries, staff, regulators. Non-profits have complicated stakeholder maps.
Use independence for NGOs and regulation for charities. Those two words carry most of the marks in comparison questions.
Dependence on aid is a legitimate criticism. Mentioning it shows you can evaluate rather than praise.
⚠ Common mix-up
Non-profit does not mean no surplus. It means no surplus goes to owners.
Non-profits are not in the public sector. They are independent of government, even when they receive government grants.
Volunteers are not the whole workforce. Most large charities employ paid professionals, and that is normal, not scandalous.
Not every NGO is a charity, and not every charity is an NGO. They overlap; they are not the same set.
Do not write that charities have no costs. Rent, wages and admin all have to be covered before a single beneficiary is helped.
Up next: From Aims to Tactics: How Goals Break Down — whatever type of organisation you are looking at, it needs a way of turning a big ambition into something a team can do on Monday morning.
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