We've all used, or at least heard of, the terms nongovernmental organization (NGO) and nonprofit organization (NPO). Most people understand that both aim to make the world a better place. Fewer people know that the two are actually different entities, and fewer still know the differences between the two.
This is, in part, because NGOs and nonprofit organizations are very similar in a lot of ways. However, there are some subtle differences between the two.
We have put together a list of their main differences to help you understand how to differentiate between them and better navigate the world of NGOs and NPOs.
NGO stands for ‘nongovernmental organization’. It can be difficult to comprehensively define because there is no internationally-recognized legal definition for an NGO. There are, however, some typical features of an NGO.
At its most basic level, an NGO is an entity that operates independently from the government. Although it might receive governmental funding (in fact, this is pretty common), the government does not have any influence over the NGO's operations. They operate without any government representation or oversight.
Some examples of NGOs include the World Wildlife Fund (WWF), Doctors without Borders (MSF), ActionAid, Amnesty International, and the International Organization for Standardization (ISO).
NGOs are mainly funded through private donations, memberships, the sale of their services, grants, loans, and governmental funding.
NPO stands for ‘nonprofit organization’. The fundamental feature of a non-profit organization is that it does not generate any profit.
Although members may receive salaries, no profit is distributed to individuals or companies outside of the NPO. Any excess resources and funds remain in the NPO and are used to help the NPO achieve its goals and objectives.
Some well-known nonprofit organizations include Greenpeace, WATERisLIFE, and American Red Cross.
There are also numerous NPOs operating at a small scale in their local communities. For example, sports clubs, local churches, soup kitchens, and social or recreational organizations are all examples of nonprofit organizations.
NPOs may receive their funding from a variety of different sources. These include donors, fundraising events, corporate contributions, membership fees, grants, loans, and tax revenue.
Nonprofit organizations also heavily rely on teams of volunteers to help them achieve their goals.
There is a reason why so many people get confused between an NPO and NGO (and it is not just that they sound similar). Both entities share similar features and there are some big overlaps between the two.
For example, both NPOs and NGOs do not generate profit. They both receive tax benefits. They both aim to make the world a better place. 
An entity can be both an NGO and an NPO. In fact, an NGO is often classified as a type of NPO, which can further complicate the process of trying to distinguish the two.
However, there are some differences between the typical features of an NGO and an NPO that can be used to distinguish them. Understanding these subtle differences is crucial to navigating the world of NGOs and NPOs, especially if you are considering starting one yourself.
A clear difference between an NGO and NPO lies in its registration. All NPOs in the United States are registered under section 8 of the Companies Act of 1956.
On the other hand, there are a variety of ways you can register an NGO. You could register your NGO as a Trust under the Public Trust Act. Alternatively, you could register your NGO as a society under the Societies Registration Act of 1860 or as a non-profit company under the Companies Act of 1956.
The avenue you take depends on the legal structure that would be best suited to your NGO.
Note that if an NGO is registered outside of the United States of America, it will have to use the registration processes that govern the country of its registration.
One of the most common ways to distinguish between an NGO and an NPO is to look at their areas of operation.
An NGO will typically operate on a larger scale than an NPO. They will generally address international efforts. In fact, an NGO has been called a type of NPO that 'engage[s] specifically in international development' in a Harvard research paper. Even if they are based in the United States, an NGO's efforts will typically extend to other countries and concern global issues, like HIV or hunger.
An NPO, on the other hand, will typically operate on a more limited level than an NGO. Most NPOs will work within a specific community or locality, although there are some large ones that do operate on a national and even international scale.
Although using the scope of operation to distinguish between an NPO and NGO is not always definitive, it is a good rule of thumb to use when trying to classify an entity as either an NPO or an NGO.
Both NPOs and NGOs aim to improve society. However, there are some differences that can be found between the two by looking at their core function.
NGOs aim to improve society by combating and raising awareness of certain global issues. Examples of these issues include education, health crises (like HIV/AIDs or Hepatitis B), and women's and children's issues. Other issues include access to water, financial education, animal cruelty, and environmental issues.
NPOs, on the other hand, will usually aim to advance the public interest by contributing to a part of society. For example, NPOs will aim to promote and facilitate religion, art, sport, or scientific research.
It can be difficult to differentiate between an NGO and NPO simply because they have a lot in common. They both work towards making the world a better place. They both do not generate any profit. And they even sound similar!
However, they are not the same thing and should not be used interchangeably. By understanding their different areas of operation, core functions, and registration processes and considering different examples, we can better understand NGOs and NPOs and help them achieve the betterment of society.
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