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 Indiana, a nonprofit business is typically organized as a corporation that does not distribute profits to its owners. Instead, any surplus funds after expenses are reinvested into the organization's operations and charitable activities. Nonprofits in Indiana may qualify for federal income tax exemption under Section 501(c)(3) of the Internal Revenue Code if they are established for religious, charitable, educational, scientific, or other qualifying purposes, including the prevention of cruelty to animals and children, and fostering amateur sports. To maintain this tax-exempt status, the organization must adhere to certain regulations, such as avoiding political campaign activity and ensuring that its earnings do not benefit private shareholders or individuals. Additionally, Indiana nonprofits must comply with state-specific regulations, including registration with the Indiana Secretary of State, and may be subject to state-level tax exemptions. Social or recreational clubs may also be tax-exempt under Section 501(c)(7) if they meet the criteria, but these organizations are distinct from 501(c)(3) charities in purpose and the nature of their tax exemptions.