Forming a nonprofit corporation is a noble goal. But if you’re just starting out, the process can feel incredibly confusing. Compared to other entity types like LLCs or even standard corporations, a nonprofit has detailed start-up requirements and complicated maintenance procedures.
In this guide, we’ll walk you through the ins and outs of forming a nonprofit in Virginia so you can get back to what truly matters: your cause.
What is a Nonprofit Corporation?
A nonprofit and for-profit corporation both have similar “nuts and bolts,” so to speak. Both businesses have a board of directors, CEOs, bylaws, annual board meetings, and the like.
But what makes a nonprofit stand out is its purpose. A business corporation typically organizes for financial gain; a nonprofit exists not to make money but to further a cause or reach a goal. Additionally, a business corporation gains investors by offering stock, which has the incentive of dividends and financial gain. Nonprofit corporations solicit contributions that don’t generate any income for those investors.
Well-known nonprofits include groups like Doctors Without Borders, Alcoholics Anonymous, and even your local YMCA.
It’s important not to confuse “nonprofit” with “no income.” Most nonprofits generate income from donations or day-to-day services. The distinction is that nonprofits use 100% of their income to pay expenses and reinvest in their cause. For example, the YMCA uses member dues and community donations for exercise programs, youth sport development, and maintaining their equipment and facilities. They also pay their employees.
Because of this, nonprofit corporations may apply for and receive a tax-exempt status (typically a 501(c)(3) designation), eliminating the corporation’s responsibility for income taxes at the federal and state levels.
Should you form one?
Before you dive into the rest of this guide, you should do a little soul-searching: should you even form a nonprofit in Virginia? The goal is a noble one, but it certainly isn’t for everyone. And some concepts simply aren’t right for the nonprofit sector.
Here are some questions to ask:
- Will I be able to convince others to buy into this cause? How hard will it be to attract donors?
- Are there other existing nonprofits with the same goal?
- If so, do they operate in Virginia? Nationwide? Should I form a local chapter of their nonprofit instead?
- Can I further this cause better or differently than they are?
- Can I hire employees for this cause, or will I rely on volunteers? How will I successfully recruit their help?
If you find yourself stumped by any of those questions, you may want to step back and get some help…or simply do some more thinking before diving in. But if you have answers to most of those questions, then you’re well on your way to starting a Virginia nonprofit organization.
Starting a Virginia Nonprofit: Step by Step
Technically, the process for creating a Virginia nonprofit entity is pretty simple. It’s really just a matter of picking a few people and filing some paperwork (it’s the requirements immediately after forming the nonprofit that get complicated).
1. Pick & Claim a Name
Choosing a name is one of the most crucial decisions for starting your business. You want to pick a name that’s memorable, likable, and most importantly, compliant with Wyoming state law.
Virginia has pretty simple laws for nonprofit names:
- Your name cannot include language that states or implies that your nonprofit is conducting activities that are against state law of the purpose stated in the Articles of Incorporation
- A name cannot use the word “redevelopment” unless the appropriate terms have been met
- You may not include words or phrases that belong to other entity types
- Your name must be “distinguishable upon the records,” or distinct from other names in use in the state
If you want more information on Virginia nonprofit names, check out the Corporate Name section of the Virginia Nonstock Corporation Act.
As a result, you have a lot of leeway to pick a name that will resonate with your target audience, potential donors, and of course, with you. The ideal Virginia nonprofit name describes what the organization does, sounds good when said out loud, and just “sticks” in the minds of people who see it.
Whenever you pick a potential name, you should check whether it’s available with a Name Check Availability Search. Typically, if you type in your desired name and no exact matches pop up, your name is available to use. This seems like a very basic step, but it’s crucial to streamlining your filings.
Once you nail down an available name that you like, you can reserve it using the Application for Reservation or Renewal of Reservation of a Business Entity Name form. This optional filing costs $10 to submit, but once it’s approved, your name will be protected for 120 days. That gives you plenty of time to prepare other business documents without losing your name to another business or nonprofit.
You can learn more through our guide on how to reserve a Virginia business name.
2. Assemble your initial board
A nonprofit corporation is only as impactful as the people leading it. That’s why your initial board of directors is extremely important; you’ll want to pick a team of people that are just as passionate about your cause as you are.
More importantly, it’s helpful to choose a group with complementary strengths. For example, a medical outreach group might have a board of directors with three doctors, a nurse, a financial expert, a creative visionary, and a lawyer. The right board of directors will help your nonprofit thrive.
Virginia doesn’t have a bunch of rules about who can serve on the board. The only explicit requirement is that your board must have at least one director at all times. All the other terms for your board will be dictated by your bylaws. For example, your bylaws can dictate how many extra directors you’ll have, how long they’ll serve, how directors will be appointed, the resignation process, and much more. In the end, the bylaws call the shots.
3. Appoint a registered agent
Every Virginia entity—nonprofits, corporations, and LLCs alike—must appoint a registered agent. This individual accepts “service of process” from the state on your behalf. Basically, if the state ever needs to notify you regarding a lawsuit or an upcoming annual report due date, they’ll contact your registered agent. The agent forwards that notice to you.
Virginia has pretty lenient criteria for a nonprofit’s registered agent, as found in The Corporations Title of the Code of Virginia:
- Every entity that files with the State Corporation Commission (both domestic and foreign) must appoint a registered agent
- The agent must be an individual resident of the state; an “officer” of the entity itself, as long as the appointed person is not also a member or manager of the entity; a Virginia state attorney; OR a member of another business entity that has authority to operate in the state
- An agent must be continuously maintained
So you might ask, “Can I serve as my nonprofit’s registered agent?” Technically, you can. But we don’t recommend it. That puts your personal details (and often private details like your address and primary email) on the public record. You’ll also be busy running your nonprofit and pursuing your goals; you won’t want to tie yourself down to a registered address especially for a tedious thing like service of process). We recommend appointing an individual you trust.
Or, if you prefer, you can hire a registered agent service instead. For a small annual fee, these services will act as your agent. That frees you up to focus on running your nonprofit.
4. File your Articles of Incorporation
Up until now, your nonprofit has just been an idea; it’s not recognized by the state government. Technically, businesses don’t “exist” until they file the appropriate paperwork. For Virginia nonprofits, that means filing the Articles of Incorporation.
This online document requires some foundational information about your nonprofit. Here’s the data you’ll need to have on hand:
- Name of your nonprofit corporation
- Provisions for the membership of your corporation
- How the initial director(s) can appoint successors
- Name of your initial corporation
- Address of your initial registered office
- Name and address of each initial director
- Signature and printed name of each incorporator
All told, this form is quite simple to complete; all you really have to do is fill out the requested information, and you’ll be set to go. And if you’ve made it this far into this guide, then odds are you already have this information on hand.
When you file, be sure to have a credit card on hand to pay the $75 filing fee.
Processing speed: 3-5 business days
Expedited processing: $100 for next-day processing, $200 for same-day processing
Congratulations! Your nonprofit is now a recognized entity in Virginia!
Prepare for & Hold Your First Board Meeting
After your Articles of Incorporation form is complete, it’s time to truly get your nonprofit’s activities underway. And that means it’s time for the first board meeting.
No two board meetings will look exactly the same; after all, every nonprofit has different tasks to accomplish. Virginia doesn’t even explicitly require your board to have meetings on a specific schedule; basically, as long as you’re having board meetings as dictated by your bylaws, you’ll be compliant with state laws.
Your bylaws actually call all the shots for your board meetings. For example, they might require your president and CFO to report on the recent accomplishments and financial standing of the nonprofit. For more information on your board meetings, please consult the Nonstock Corporation Act.
Your very first board meeting, however, will look a bit different. Here’s what you’ll need to accomplish:
- Draft and approve the nonprofit’s bylaws: The bylaws dictate exactly how your nonprofit will be run. This includes a detailed rundown of your corporate purpose, how your board will be selected and replaced, how you’ll raise funds, how you’ll hire employees or solicit volunteers, and much more (including a provision for how to amend the bylaws). To save time, you may choose to write a draft before the meeting and revise it when your full board is present. The important thing is that the board approves the final bylaws, making them the governing document for your nonprofit.
- Draft and approve a conflict of interest policy: Occasionally, one of your nonprofit’s contributors will have personal affairs that intersect with the activities of your nonprofit. A conflict of interest policy dictates exactly what happens in those situations, protecting both the nonprofit and the individual contributor.
- Appoint someone to take minutes at each meeting: Every Virginia nonprofit corporation must establish and maintain a corporate record. That’s why every board should appoint someone to take minutes, or a summary of every board meeting, documenting what was said and what decisions were made.
- Finalize responsibilities for each board member: If one board member will be responsible for fundraising while another raises awareness for the cause, you should assign those roles at the initial board meeting.
- Appoint officers for the nonprofit (if needed): Some corporations choose to have their officers, such as the CEO or CFO, be members of the board. Others appoint non-board members to fill these roles, creating a division between the governance and day-to-day operations. Either choice is fine, but these vital roles should be filled.
This initial meeting will be a very full, technical day (or even series of days!), but nailing down these aspects will help you establish a nonprofit that’s compliant with Virginia state law and efficiently run.
Take Care of Taxes
Taxes as a nonprofit are a tricky beast; frankly, we recommend getting advice from a tax lawyer, accountant, or similar consultant to make sure you cover all your bases! But let’s take a quick look at the basics for nonprofit taxes.
First, apply for tax-exempt status on the federal level
If you don’t file for tax-exempt status, you’ll technically be liable for corporate income taxes. And that’s the last thing a non-profit wants. That’s why you’ll need to start out by filing Form 1023 or Form 1024, which are the applications for charitable, religious, or educational groups and other nonprofits respectively. After that application is completed, you’ll play the waiting game. The IRS can take up to 180 days to approve or reject your application, so we highly recommend completing the application correctly the first time.
Once your application is approved, you’ll receive a letter of tax-exempt status from the IRS. This letter exempts you automatically from both state and federal income taxes. But if you’d like an exemption from state sales taxes, you’ll have to qualify and apply for it. Most charitable organizations can obtain it, but it is an extra step you don’t want to overlook. You can learn more about this process with Virginia Tax.
Obtain an EIN
An EIN, or an Employer Identification Number, is an important identifier to get; it acts a bit like a Social Security Number, but for a business entity. Unfortunately, you aren’t assigned one automatically.
Thankfully, it’s free to apply for an EIN online with the IRS. Even if you don’t plan to have employees right away, it’s a good idea to have this number from the get-go. Miscellaneous forms, such as license applications or even bank accounts, may request this number.
Account for employment & miscellaneous taxes
No two businesses are alike, so each nonprofit will have slightly different taxes. That said, Virginia nonprofits with employees will need to account for withholding taxes and unemployment insurance taxes, among other things.
There are also miscellaneous industry-specific taxes in Virginia, such as fees for soft drinks, sheep assessments, and more. In most cases, these taxes won’t apply to your nonprofit, but it’s still a good idea to double-check with the Virginia Department of Taxes just to be sure you’ve covered all your responsibilities.
That’s the basic gist of nonprofit taxes in Virginia. We still recommend consulting with a tax professional, as they’ll be able to give you specialized advice for your unique situation.
Register for Licenses and Permits
Licenses and permits are especially important for nonprofits. And there are three major categories of potential permits and licenses: fundraising, lobbying, and licensing. Let’s walk through Virginia’s requirements for each of those three areas.
A lot of states require you to register in order to solicit charitable contributions, and Virginia is no exception. You’ll need to complete this registration with the Virginia Department of Agriculture and Consumer Services; the registration fee is $100 for new entities.
Once you’re registered, you’ll be expected to renew your registration annually. The registration fee varies between $30-$325 depending on the contributions you receive throughout the year. For more information, please check out the state’s Charitable Solicitation page.
If your nonprofit will be lobbying for its cause in a formal capacity, then you’ll need to ensure that each person has the appropriate registration. In Virginia, this registration is handled by the Conflict of Interest and Ethics Advisory Council. The fee is $100, and the registration expires every year on April 30th.
Lobbyists are also required to complete lobbyist disclosure statements every year (on top of renewing the registration itself). For more information, check out the guide to completing the lobbyist’s disclosure statement.
3. General licensing
Nonprofits are tax-exempt, but they aren’t exempt from licensure requirements, whether that’s for an industry-specific license or a state general business license. So you’ll need to get the licenses that apply to your unique organization.
Virginia, unlike some states, doesn’t have a general business license that every entity in the state needs to obtain. Instead, Virginia lets cities and counties administer a general license if they choose. So we recommend consulting with your local government to learn what the requirements are in your area.
So the bulk of the state’s licensing requirements actually come on the industry level instead. For starters, Virginia upholds all federally regulated industry licenses, and the Department of Professional and Occupational Licensing is a great place to check out the state-level license requirements. It’s up to you to learn if there are any licenses for your industry, so be sure to complete this step!
Whenever you apply for a license or permit, we recommend inquiring about the requirements for renewing your licenses. That way you’ll know exactly how often you’ll need to renew your licenses (if applicable).
Meet Insurance Requirements
We highly recommend that every business entity maintain at least some sort of general liability policy — even nonprofit entities. There’s always a chance that something can go wrong (no matter how careful you are).
A natural disaster can happen, a break-in might cost you some important equipment, or an accident during day-to-day operations might cause a broken bone and damaged property. A general liability policy will protect your business if something like that happens.
Virginia state law also requires you to get a workers’ compensation insurance policy if you have two or more employees working for your nonprofit. You can learn more about this requirement with the Virginia Workers’ Compensation Commission.
Top Resources for Virginia Nonprofits
Nonprofit work isn’t always easy, but you never have to go it alone! There are dozens, if not hundreds of nonprofit resources available to Virginia organizations.
On the national level, there’s the National Council of Nonprofits. They exist to advocate for and strengthen nonprofits throughout the country by providing nearly comprehensive resources, teaming up with each state’s nonprofit network, and keeping you aware of the trends in policy and public opinion. It’s also a great place to peruse the latest reports and data about charitable giving and advocacy in the U.S.
On the state level, you can always turn to the Center for Nonprofit Excellence. In their own words, the CNE exists to “provide education, consulting and resources to create strong leaders, effective managers and healthy collaborators.” The CNE does require membership, but joining grants you several advantages, including increased access to grant opportunities, networking, and more, so joining will be worth your while.