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 North Carolina, a nonprofit business is typically structured as a non-profit corporation and is governed by the North Carolina Nonprofit Corporation Act. Nonprofit corporations in NC are formed for various purposes, including religious, charitable, educational, scientific, and literary activities, among others. To be recognized as a tax-exempt entity under Section 501(c)(3) of the Internal Revenue Code, a North Carolina nonprofit must apply to the IRS and demonstrate that it is organized and operated exclusively for exempt purposes, and that any earnings do not inure to the benefit of private shareholders or individuals. If approved, the nonprofit would be exempt from federal income tax and potentially eligible for certain state tax exemptions as well. It's important to note that while 501(c)(3) organizations are prohibited from engaging in political campaigns or substantial amounts of lobbying, they are distinct from 501(c)(7) organizations, which are social or recreational clubs that may also be tax-exempt but serve different purposes and have different restrictions.