IB Business Management HLUnit 1.2 — Types of Business EntityPaper 1 & 2Core idea~9 min read
Charities and Other Non-Profit Organisations
There is a whole set of organisations that belongs to nobody. No shareholders, no government minister, no owner taking money out. They still need premises, staff and accountants, which is exactly why they show up in a business course.
📘 What you need to know
A non-profit social enterprise pursues a social or environmental mission while using business methods to raise money.
These organisations rarely make a surplus, and any surplus stays in the organisation.
NGOs are non-governmental organisations: voluntary, community-based, independent of government.
NGOs are funded by a mix of donations, government funding and their own trading income.
NGOs work locally, nationally and internationally, often in less economically developed countries.
Charities are regulated by a national Charity Commission and have a narrower legal scope than NGOs.
Not every NGO is a charity, and not every charity operates as an NGO.
Three sectors, not two
Most students learn public and private and stop there. There is a third group, usually called the third sector or the voluntary sector.
If a question asks you to identify the sector, ask one question: who would receive the profit if there were any? If the answer is “nobody”, you are in the third sector.
Non-governmental organisations (NGOs)
An NGO is a voluntary, community-based organisation that operates independently of government. It does not aim to make a profit. It exists to meet a need or provide a service.
Running costs sit in the same column as the aid. That is why donors ask what share of their money reaches the project — and why NGOs are so sensitive about salaries.
What NGOs are good at
Small-scale projects that hand control to the local community rather than imposing a plan on it.
Using local skills and knowledge, which usually makes the work cheaper and more likely to last.
Building independence rather than permanent dependence on aid.
Environmental work using local resources and understanding.
Lobbying governments to change policy, which can achieve far more than any single project.
Fewer conditions attached to their aid than large official development agencies typically impose.
Advantages of NGOs
Disadvantages of NGOs
Can win support from a huge global audience
Recipients can become dependent on the help
Employ specialists who work in the country itself
Scope may be narrow or limited to one group
Research and data lead to very targeted projects
Senior salaries and spending attract criticism
Develop skills that help families out of poverty
Income is irregular, so planning ahead is hard
Irregular income is the most business-like problem an NGO has. Donations spike after a disaster is on the news and dry up months later, exactly when the rebuilding work is happening. That is a cash flow problem, and you can analyse it the same way you would for any firm.
Charity or NGO? The difference examiners test
Feature
Charity
NGO
Registration
Registered with a national Charity Commission
No single global register; rules vary by country
Scope
Relatively narrow, set by charity law
Broader — can campaign, lobby and deliver services
Regulation
Tightly regulated, with tax advantages
Depends entirely on where it operates
Overlap
Many operate as a registered charity in one country
The same organisation can be both, in different places
Quick line for the exam: all charities are non-profit organisations, but not all non-profit organisations are charities. The registration and the legal scope are what separate them.
EXAM-STYLE
Explain two reasons an NGO may struggle to plan its finances. [4]
Reason 1: donations are unpredictable
Income depends on news coverage and the state of the economy, neither of which the NGO controls.
It cannot promise a three-year project when it does not know what next year’s income will be.Reason 2: grants come with conditions and end dates
Government money is often tied to one project and one period.
When the grant ends, the staff and the work it paid for may have to stop even if the need has not.Both come down to income the organisation cannot forecast
EXAM-STYLE
Suggest one way an NGO could make its income more stable. [3]
Suggestion
Build a regular monthly giving scheme instead of relying on one-off appeals.
Why it workspredictable monthly income → reliable budgetingIt also reduces the cost of fundraising, because keeping an existing donor is cheaper than finding a new one.Regular giving turns lumpy income into a steady flow
💡 Exam tip
Use business language on charities. Cash flow, stakeholders, objectives and efficiency all apply.
“Non-profit” describes the purpose, not the accounts. A surplus is allowed; paying it out to owners is not.
Name the regulator when distinguishing a charity from an NGO. That is the mark-scoring detail.
Dependency is the standard criticism of long-term aid. Pair it with the lobbying advantage for a balanced answer.
Measure success by mission, not profit. Say what a good year would actually look like for this organisation.
Watch the wording: “voluntary” refers to how the organisation is set up, not to unpaid staff. NGOs employ professionals.
⚠ Common mix-up
Non-profit does not mean no income. These organisations can be large and commercially active.
NGO does not mean international. Plenty operate in one town.
Charities are not part of the public sector. They are independent of government even when they receive grants.
Volunteers are not the whole workforce. Most NGOs employ paid, skilled staff.
A social enterprise is not automatically non-profit. Many are for-profit; that was the previous page.
Receiving government funding does not make an NGO governmental. Independence is about control, not money.
Up next: From Aims to Tactics: How Goals Break Down — how a vague long-term dream turns into something a team can actually do on a Tuesday morning.
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