# Nonprofit 501(c)(3)

> Organized for exempt purposes, owned by nobody: no equity, no exit, and earnings that may not benefit any private person.

Source: https://lopifi.com/learn/business-entity-types-explained/nonprofit-501c3
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

---

**What is a 501(c)(3) nonprofit?** Organized for exempt purposes, owned by nobody: no equity, no exit, and earnings that may not benefit any private person.

A [501(c)(3) organization](https://lopifi.com/md/glossary/501-c-3-organization) is a nonprofit organized and operated for exempt purposes, with none of its earnings going to any private shareholder or individual. It has no owners, so it has no equity: nothing to sell an investor, nothing to grant an employee, nothing for a founder to exit.

> “To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual.”

— [IRS, Exemption requirements — 501(c)(3) organizations](https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations), What a 501(c)(3) must be

> **Brief, on purpose.** This course is about companies with owners. A founder who wants a 501(c)(3) needs a state nonprofit corporation, the IRS's recognition of exemption, and advice on the restrictions, which are beyond this track.

## Where this page's rules come from

- [IRS, Exemption requirements — 501(c)(3) organizations](https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations) — What a 501(c)(3) must be (irs)
- [SBA, Choose a business structure](https://www.sba.gov/business-guide/launch-your-business/choose-business-structure) — Choose a business structure — the SBA's overview of the options (agency)
- [Wikipedia, “501(c)(3) organization”](https://en.wikipedia.org/wiki/501(c)(3)_organization) — 501(c)(3) organization (reference)

- **Track:** [Entity types](https://lopifi.com/md/learn/entities)
- **Part of:** [The entity menu](https://lopifi.com/md/learn/business-entity-types-explained) — 2 min
- **Terms taught:** [501(c)(3) organization](https://lopifi.com/md/glossary/501-c-3-organization)
- **Previous:** [Public benefit corporation (PBC)](https://lopifi.com/md/learn/business-entity-types-explained/public-benefit-corporation)
- **Next:** [How each entity is taxed, Entities · Lesson 2](https://lopifi.com/md/learn/how-business-entities-are-taxed)
- **The course:** https://lopifi.com/md/learn