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 Delaware, a nonprofit business is typically structured as a non-stock corporation under the Delaware General Corporation Law. These entities do not distribute profits to owners, and any surplus funds must be reinvested into the organization's mission or for charitable purposes. To be recognized as a tax-exempt 501(c)(3) organization, a Delaware nonprofit must be organized and operated exclusively for religious, charitable, educational, scientific, or other purposes outlined in the Internal Revenue Code section 501(c)(3). They must apply to the IRS for this status, and upon approval, they are exempt from federal income tax. Additionally, they may be eligible for certain state tax exemptions. It's important to distinguish these 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 non-profitable purposes and do not have the same charitable focus as 501(c)(3) organizations.