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 Maine, a nonprofit business is typically organized as a non-profit corporation under the Maine Nonprofit Corporation Act. These entities are designed to operate without the primary goal of making profits for owners or shareholders. Instead, any surplus funds after expenses are reinvested into the organization's mission or for charitable purposes. Nonprofits in Maine may apply 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. To maintain this tax-exempt status, they must adhere to certain regulations, such as avoiding political campaign activity and ensuring that earnings do not benefit private individuals. Additionally, Maine nonprofits must comply with state-level regulations, including annual reporting requirements to the Maine Department of Professional and Financial Regulation. Nonprofit organizations that are social or recreational clubs may seek tax exemption under Section 501(c)(7), provided they meet specific criteria, such as being organized for pleasure, recreation, and other non-profitable purposes and no part of the net earnings inuring to the benefit of any private shareholder.