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 Minnesota, a nonprofit organization is typically structured as a corporation that is organized for a public or charitable purpose and not for the private gain of any individual. Nonprofit corporations in Minnesota are governed by the Minnesota Nonprofit Corporation Act, which is found in Chapter 317A of the Minnesota Statutes. These organizations must register with the Minnesota Secretary of State and adhere to state regulations regarding corporate governance, reporting, and operations. If a nonprofit in Minnesota seeks to be exempt from federal income tax, it must apply to the IRS for recognition of tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. This federal designation is for entities operating for religious, charitable, educational, scientific, and similar purposes. The IRS also recognizes other types of nonprofit organizations under different sections of the code, such as social clubs under Section 501(c)(7), which have their own set of qualifications for tax exemption. It's important for nonprofits in Minnesota to comply with both state and federal laws to maintain their tax-exempt status and fulfill their organizational purposes.