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 Washington State, a nonprofit business is designed to operate without the primary goal of making profits for its owners. Instead, any surplus funds after expenses are reinvested into the organization's mission or for charitable purposes. Nonprofit organizations often qualify for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code if they are established for religious, charitable, educational, scientific, or other qualifying purposes, including the prevention of cruelty to animals and children, and fostering amateur sports. To maintain this status, they must adhere to specific regulations, such as not distributing profits to members and ensuring their activities align with their charitable purpose. Additionally, these organizations must file annual information returns with the IRS and often with the state. Nonprofits in Washington are also subject to state laws governing charitable solicitations and may need to register with the Washington Secretary of State's office. 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 certain criteria, such as being organized for pleasure, recreational, and other nonprofitable purposes and providing direct benefits to their members rather than the general public.