Non profit organizations (or Exempt Organizations, in IRS language) are those formed to accomplish a goal or goals that do not include making a profit to be distributed to owners. Exempt organizations are controlled by a board of directors, subject to state and federal laws, but technically do not have owners in the same way as business organizations. When an exempt organization produces surplus income the members are not entitled to a dividend; when the organization is wound up, the members are not entitled to a distribution.

In the US, a nonprofit organization may be a corporation formed under state not for profit corporation law, an unincorporated association of three or more people filed at the county level, a trust, or an LLC. There are two broad categories of nonprofit organizations: charitable nonprofits, as described under Section 501(c)(3) of the Internal Revenue Code, and service or membership organizations formed under other subparagraphs of Section 501(c). Charitable organizations can apply for tax-exempt status under 501(c)(3) by filing Form 1023. If the application is approved, donors to the organization may deduct their contributions from their personal or corporate taxes, subject to the Byzantine rules for charitable deductions.

Non-charitable exempt organizations may file Form 1024 to confirm their exempt status; contributions to these organizations are not ordinarily deductible.

In order to create a nonprofit corporation, state laws and federal rules will require a very specific purpose clause, more than one initial director (usually three or more are required), and in the case of charitable organizations, special language regulating the handling of corporate matters, particularly with regard to distribution of the company’s assets upon dissolution, prohibition of self-dealing and prohibition against engaging in propaganda or attempting to influence legislation or elections.