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 West Virginia (WV), a nonprofit business is designed to serve the public interest rather than to earn profits for its owners. Such organizations, if they meet specific criteria, can be exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. To qualify, the nonprofit must be organized and operated exclusively for religious, charitable, educational, scientific, or other purposes outlined in the statute, including the prevention of cruelty to animals or children, and fostering amateur sports. Any surplus funds must be reinvested into the organization's mission rather than distributed to members or stakeholders. Additionally, these entities must apply for recognition of tax-exempt status with the IRS and, upon approval, maintain compliance with both federal and state regulations. This includes filing annual returns and conducting activities consistent with their charitable purpose. It's important to note that 501(c)(3) organizations are distinct from social or recreational clubs, which may qualify for tax-exempt status under Section 501(c)(7) if they are not-for-profit and meet other requirements set forth by the IRS. In WV, nonprofit organizations must also adhere to state laws governing charitable solicitations, registration, and reporting to the West Virginia Secretary of State.