nonprofit corporation

A nonprofit corporation is a legal entity incorporated under state law for purposes other than generating profits for owners or shareholders.  Instead of distributing profits, any surplus revenue must be used to further the organization’s stated nonprofit purposes. The laws governing the formation and operation of nonprofit corporations vary by state.

Many states have adopted the Model Nonprofit Corporation Act in whole or in modified form as the statutory framework governing nonprofit corporations. Other states regulate nonprofit corporations under statutes modeled on for-profit corporate law.

The purposes of nonprofit corporations are broad and often overlap with the concept of charity. For example, the California Supreme Court has defined charitable purposes to include: (a) the relief of poverty; (b) the advancement of education; (c) the advancement of religion; (d) the promotion of health; (e) governmental or municipal purposes; (f) other purposes the accomplishment of which is beneficial to the community. See: Lynch v. Spilman, 67 Cal.2d 251 (1967), citing Estate of Dol, 186 Cal. 64, Estate of Henderson, 17 Cal. 2d 853, and Fay v. Howe, 136 Cal. 599. 

State statutes frequently categorize nonprofit corporations by type. In California, Corporations Code §§5000-10841 recognize three principal forms:

  1. Public benefit corporations, formed for public or charitable purposes and not for the benefit of private persons.
  2. Mutual benefit corporations, formed primarily to benefit their members, such as homeowners’ associates or private clubs.
  3. Religious corporations, organized for religious purposes.

These statutes regulate matters such as formation, bylaws, directors, members, fiduciary duties, dissolution, and compliance with the Internal Revenue Code.

Nonprofit corporations may qualify for a federal tax-exempt status under Internal Revenue Code §501(c). For example, public benefit corporations organized exclusively for charitable purposes may qualify under §501(c)(3).

[Last reviewed in December of 2025 by the Wex Definitions Team] 

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