A nonprofit business is a business whose owners do not receive distributions of profits—and any money remaining after payment of the business’s expenses must be retained and used for its own expenses and for charitable purposes. Nonprofit businesses are often charitable foundations and exempt from federal income tax under Internal Revenue Code section 501(c)(3). A tax-exempt 501(c)(3) is a charitable organization that is formed for religious, charitable, educational, literary, artistic, or scientific purposes, or for preventing cruelty to animals and children, fostering amateur sports competition (locally and internationally), or testing for public safety. These charitable organizations are distinct from not-for-profit social or recreational clubs that may be exempt from federal income taxation if they meet the requirements of Internal Revenue Code section 501(c)(7).

In Virginia, a nonprofit business is typically structured as a non-stock corporation under the Virginia Nonstock Corporation Act. These entities are designed to operate without distributing profits to owners or shareholders. Instead, any surplus funds after expenses are reinvested into the organization's operations or used for its defined charitable purposes. Nonprofits in Virginia may apply for federal income tax exemption under Internal Revenue Code section 501(c)(3) if they are organized and operated exclusively for religious, charitable, educational, scientific, or other qualifying purposes. Upon receiving 501(c)(3) status, they are exempt from federal income taxes and may also be eligible for certain state tax exemptions. It's important to distinguish these charitable organizations from social or recreational clubs, which may qualify for tax-exempt status under section 501(c)(7) if they meet specific criteria. These clubs are organized for pleasure, recreational, or other nonprofitable purposes and do not have the same charitable objectives as 501(c)(3) organizations.