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 Wisconsin, a nonprofit business is typically organized as a non-stock corporation under Chapter 181 of the Wisconsin Statutes. These entities do not distribute profits to owners or shareholders; instead, any surplus funds must be reinvested into the organization's operations or used for its designated charitable purposes. Nonprofits in Wisconsin may apply for federal income tax exemption under Section 501(c)(3) of the Internal Revenue Code if they are established for religious, charitable, educational, scientific, or other qualifying purposes. This exemption allows them to avoid federal income taxes on their earnings, provided they adhere to the regulations governing such organizations, including limitations on political activities and requirements for public disclosure of certain financial information. Additionally, they must register with the Wisconsin Department of Financial Institutions and may need to comply with state-level regulations regarding charitable solicitations and annual reporting. Nonprofit organizations that are social or recreational clubs may seek tax-exempt status under Section 501(c)(7), which has different requirements and limitations compared to 501(c)(3) organizations.