In our capitalist economy, businesses are generally designed and operated to earn a profit. These for-profit entities typically sell products or services that are in demand, and they are required to pay income tax on their net income. Any profit that they earn typically benefits that business’ owners, whether it be a single mom who owns a dog grooming studio, or a major stockholder in an international public corporation. And everything in between.

Nonprofit organizations, on the other hand, are designed and operated to benefit the public rather than an individual owner. There are many different types of nonprofit organizations, from chambers of commerce to sports leagues. But by far the most common type of nonprofit is one that is organized and operated for charitable purposes under section 501(c)(3) of the federal tax law. There are close to two million nonprofit organizations in the US today, and close to 80% of those are charitable organizations that are intended to qualify for tax-exempt status under section 501(c)(3).