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 Ohio, a nonprofit business is typically structured as a corporation that is organized for a public or charitable purpose. These organizations do not distribute profits to owners or shareholders. Instead, any surplus funds after expenses are reinvested into the organization's mission or held for future use. Nonprofits in Ohio may apply for federal income tax exemption under Internal Revenue Code section 501(c)(3) if they are formed for religious, charitable, educational, scientific, or other qualifying purposes. To maintain this tax-exempt status, they must adhere to certain operational constraints and reporting requirements. This exemption allows them to avoid federal income taxes, but they may still be responsible for other taxes such as sales and employment taxes. Additionally, Ohio law provides for state-level tax exemptions for qualifying nonprofit organizations. Nonprofits that do not qualify under section 501(c)(3) but are organized for social or recreational purposes may seek exemption under section 501(c)(7), which has different requirements and benefits.