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 South Carolina, a nonprofit business is typically structured as a non-profit corporation, which is organized for purposes other than generating profit. To be recognized as a 501(c)(3) tax-exempt organization, a South Carolina nonprofit must be created for religious, charitable, educational, scientific, or other purposes outlined in the Internal Revenue Code section 501(c)(3). These organizations must apply to the IRS for tax-exempt status and, once approved, are exempt from federal income tax. Additionally, they may be eligible for certain state tax exemptions. Nonprofits in South Carolina must comply with state statutes governing non-profit corporations, including registration, reporting, and governance requirements. This is distinct from not-for-profit social or recreational clubs, which may qualify for tax exemption under section 501(c)(7) if they meet specific criteria, such as being organized for pleasure, recreation, and other non-profitable purposes and providing no net earnings to any private shareholder or individual.