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 Vermont, a nonprofit business is typically structured as a non-profit corporation, which is organized for a public or charitable purpose. Nonprofit corporations in Vermont do not distribute profits to owners or shareholders; instead, any surplus funds after expenses are reinvested into the organization's operations or used for its designated charitable purposes. These entities can apply for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code if they are formed for religious, charitable, educational, literary, artistic, scientific purposes, or other qualifying activities such as preventing cruelty to animals and children, or fostering amateur sports. Once recognized as a 501(c)(3) organization, they are exempt from federal income tax. This is distinct from not-for-profit social or recreational clubs, which may qualify for tax exemption under Section 501(c)(7) of the Internal Revenue Code if they meet certain criteria. Vermont state law also provides for the regulation and governance of nonprofit organizations, including registration requirements, governance policies, and reporting obligations to the state's Secretary of State and the Attorney General's office.