The IRS requires 501(c)(3) and other tax-exempt nonprofits to work toward to exclusive benefit of those it serves, not the private interest of any individual. When private interests are served, it is usually considered private benefit or private inurement, both of which are prohibited.
Private benefit is best described as actions by a nonprofit that benefit someone (or a business entity) other than those the organization is established to serve, and outside the scope of the nonprofit’s exempt purpose. An example may include a charity actively advertising the products or services of a for-profit business.
Private inurement is similar, but specifically addresses situations where influential insiders (disqualified persons) use the resources of the nonprofit for their own benefit. This can include excessive compensation, the private use of assets, or nonprofit funds used for personal benefit.
It is important to point out that there is no acceptable level of inurement. The existence of any level of it can result in severe penalties, called Intermediate Sanctions. These penalties are assessed by the IRS against the individual board members, not the organization itself. Penalties start at 20% of the determined amount of inurement, and can rise to 200% if the causal situation is not fixed in a timely manner.