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 Tennessee, a nonprofit business is typically structured as a non-profit corporation, which is governed by the Tennessee Nonprofit Corporation Act. These entities are designed to operate without the primary goal of making profits for owners or shareholders. Instead, any surplus revenues are reinvested into the organization's mission, which may include religious, educational, charitable, scientific, or other altruistic objectives. Nonprofits in Tennessee may apply for federal tax-exempt status under Section 501(c)(3) of the Internal Revenue Code if they meet the criteria, which includes being organized and operated exclusively for exempt purposes and not distributing profits to private shareholders or individuals. Obtaining 501(c)(3) status exempts the nonprofit from federal income tax and often makes it eligible for certain state tax exemptions. This is distinct from social or recreational clubs, which may qualify for tax-exempt status under Section 501(c)(7) if they are organized for pleasure, recreation, and other nonprofitable purposes and do not distribute earnings to members.