Non-distribution constraints prevent not-for-profit organizations from distributing profits to employees, managers, or company directors.

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Non-distribution constraints are a key feature of not-for-profit organizations, which are dedicated to pursuing social or charitable objectives rather than generating profits for shareholders or owners. As such, these organizations are legally prohibited from distributing profits to individuals in the form of dividends or other payments. Instead, any residual funds must be reinvested in the organization's mission or held in reserve for future use. This helps to ensure that the organization remains focused on its core purpose and avoids the potential conflicts of interest that can arise when individuals seek to benefit personally from its activities.

Non-Distribution Constraints Prevent Not-For-Profit Organizations from Distributing Profits to Employees