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 Massachusetts, a nonprofit business is typically structured as a corporation that is organized for purposes other than generating profits for its owners. Such organizations must adhere to the provisions of Massachusetts General Laws Chapter 180, which governs the operation of nonprofit corporations in the state. To be recognized as a tax-exempt entity under federal law, specifically under Internal Revenue Code section 501(c)(3), a Massachusetts nonprofit must be organized and operated exclusively for religious, charitable, educational, scientific, or other purposes outlined in the statute. It must not distribute any profits to its owners or shareholders and must use its funds to further its exempt purposes. Upon dissolution, its assets must be distributed for an exempt purpose. Additionally, the nonprofit must apply for and receive recognition of tax-exempt status from the IRS to be exempt from federal income taxes. Nonprofits in Massachusetts may also be eligible for certain state tax exemptions. It's important to note that 501(c)(3) organizations are distinct from social or recreational clubs, which may qualify for tax-exempt status under section 501(c)(7) if they meet specific criteria, such as being organized for pleasure, recreation, and other nonprofitable purposes and providing club services or facilities to members.