Some of the most successful nonprofits in Virginia’s nonprofit sector include Mercy Medical Angels, Divine Mercy Care, and Freedom Alliance. The total number of nonprofit organizations in Virginia is 51,602. Of these organizations, the total number of people employed is 533,440, and the combined revenue of Virginia nonprofits is approximately $80 billion.
While all nonprofits have different types of purposes or missions, they are all developed for one common purpose: the greater good of mankind or the natural world.
Starting a nonprofit organization could take you anywhere between two weeks to three months after completing and filing the relevant paperwork and complying with the relevant federal and state laws.
Once you’ve achieved tax-exempt status, the organization will enjoy various benefits, including tax-exempt status, limited liability, and perpetual existence.
The following step-by-step guide will show you how to start a nonprofit in Virginia.
1. Select a name for your organization
Like every other business entity in the state of Virginia, your nonprofit needs a name. The nonprofit’s name ultimately establishes its brand and image, so it does require careful consideration. Additionally, the name must be easy to find by potential donors and stakeholders.
The following naming guidelines will help you decide on a name for your Virginia nonprofit:
- The name should not contain any words or phrases considered grossly offensive
- The name should not contain phrases or words that imply that your organization was formed for any other purposes other than what they’ve been authorized to conduct
- The Virginia nonprofit name should not contain the word “redevelopment.” The only exception is if it complies with Chapter 190 of the 1946 Acts of Assembly
- The name should not include an organizational designation like Ltd, Inc, Company, or Incorporated
In order to determine whether the name is still available to be used or is already taken by another business in the state, conduct a name availability search on the Virginia Secretary of State website.
Additionally, read through the Secretary of State‘s official guidelines for the complete rules on naming a Virginia-based nonprofit.
You may want to create a website for your nonprofit at a later date, and if so, ensuring that the business name is available as a web domain is highly recommended.
2. Nominate a Virginia registered agent
All businesses in Virginia, be it for-profit or nonprofit organizations, are required to have a registered agent. A registered agent is often referred to as a service of process or statutory agent.
Their primary role is to accept legal papers on the nonprofit’s behalf in the event that it is sued. Therefore, registered agents are responsible for receiving official mail and service of process documents on behalf of the nonprofit organization.
You may appoint anyone as a Virginia registered agent; however, the individual must meet the following requirements:
- They must have a physical street address in the state of Virginia, not a PO Box address
- They must be at least 18 years of age or older
- They must maintain normal business hours
- They must consent to the appointment
3. Recruit your board members
Before you can register your nonprofit, it is required by law that you recruit a board of directors.
Your Board of Directors will be made up of incorporators, initial directors as well as officers. Start by recruiting an incorporator who will be responsible for signing the Articles of Incorporation on the nonprofit’s behalf.
You should have at least one incorporator; however, the law permits you to appoint more than one. When it comes to nominating directors, you need to nominate at least three directors.
They do not need to be residents of the state, nor do they need to be members of the nonprofit. The minimum term of service for directors is one year or until a successor is nominated.
When it comes to recruiting officers, you need to nominate three individuals to fulfill the roles of president, secretary, and treasurer.
Together the incorporators, directors, and officers make up your nonprofit’s board of directors.
4. Consent to bylaws and conflict of interest policy
You need to have important government documents complying with Virginia law prior to filing your nonprofit’s Articles of Incorporation.
The bylaws contain the procedures and rules your corporation will follow when holding board meetings, electing officers and directors, and taking care of certain company formalities required in the state of Virginia.
Additionally, the nonprofit in Virginia will also need to compile a Conflict of interest policy. This policy ensures that all decisions taken by the board of directors and members are always in the nonprofit’s best interest or made to further its cause as opposed to furthering the personal agendas of board directors and members.
Neither one of these documents needs to be filed with the state; however, they must be kept on record and used as the nonprofit’s internal management handbook.
5. Select a Virginia nonprofit startup corporation structure
The state of Virginia has different types of organizational structures. So this step in the process depends on you determining a legal form for your nonprofit corporation.
Usually, charities take the legal form of a nonprofit public benefit corporation. However, other nonprofits are set up as trusts or associations.
It is advisable to seek legal advice to decide what legal form is best for your nonprofit. Thereafter, you’ll need the relevant forms available on the Virginia Secretary of State website in order to incorporate your organization.
Other types of organizations or types of nonprofits include mutual benefit and religious corporations. Mutual benefit corporations are normally created to benefit their members. This includes business leagues and social clubs.
Religious organizations are usually churches and other places of worship.
6. Prepare and file nonprofit Articles of Incorporation
Your nonprofit’s Articles of incorporation with the state of Virginia are required to register your nonprofit. It’s also an essential step to obtain tax exemption in its ability or apply for 501(c)(3) tax-exempt status.
Essentially, the Articles of Incorporation officially mark the formation of the nonprofit organization. They also document important details such as when and where the organization was formed and verify’s its existence.
The specific language required by the IRS will differ from one state to the other. However, there are some basic provisions to keep an eye out for, as this is what the IRS will look for when reviewing your application for federal income tax exemption.
In order to file Articles of Incorporation, you need to complete the Articles of Incorporation of the Virginia Nonstock Corporation Form or template.
Additionally, the Articles of Incorporation must be accompanied with specific information, including:
- Your Virginia nonprofit organizations name
- The name of the registered agent and their office location
- The names of the nonprofit’s initial directors and incorporators
The articles must also explicitly state the nonprofit organization‘s purpose or the organization’s mission. Think of it as your nonprofit’s mission statement.
It must also include a dissolution statement or clause which must state exactly what the nonprofit organization‘s assets are being used for and what will be the outcome of the assets if the organization is dissolved.
You may file the Articles of Incorporation with the Virginia State Corporation Commission.
7. File an initial report
Nonprofits in Virginia are not required to file an initial report.
8. Secure an EIN (Employer Identification Number)
Your Virginia nonprofit will need an Employer Identification Number. The Employer Identification Number is also referred to as a Federal Tax Identification Number.
It is a unique nine-digit code that the Internal Revenue Service assigns and uses to identify business entities in the state. Think of it as a Social Security number for a nonprofit organization.
In order to receive an EIN, you need to complete IRS Form SS-4 and apply online with the Internal Revenue Service. The application is free of charge.
If done online, you’ll receive your EIN immediately; however, please remember that the IRS website is only available during specific operating hours; therefore, you’ll need to print your EIN prior to closing the session.
With your EIN in hand, you’ll be able to open up a business bank account for your nonprofit, hire employees and submit this number for federal and state tax purposes.
9. Apply for federal tax exemption
Every Virginia nonprofit should apply for federal tax exemption, under the Internal Revenue Code. You need to complete Form 1023 and submit it to the Internal Revenue Service. Alternatively, if the nonprofit is a small business organization, then complete Form 1023-EZ.
However, prior to submitting the application for 501(c)3 tax-exempt status, you’ll need to have eligibility. You’ll need to have elected a minimum of three directors, not each other, obtained your Employer Identification Number, adopted governing policies and filed the Articles of Incorporation.
Once you’ve completed the above-mentioned steps, you’re free to go ahead and apply to obtain 501(c)(3) tax exemption.
Once the IRS receives the application, it will be reviewed, and, if approved, you’ll receive a determination letter. The determination letter will explicitly state that your Virginia nonprofit is exempt from federal taxes or an exempt organization.
However, if the application is declined, you’ll also receive a letter of explanation from the IRS stating why the application was not successful.
10. Apply for Virginia state tax exemption
If you received a federal tax exemption and have your determination letter in hand, there is no need to file to obtain state income tax exemption. This is because existing organizations are automatically exempt once they’ve received their IRS determination letter.
However, you will need to file to obtain sales and use tax exemption. File Form NP-1 with the Virginia Department of Taxation.
11. Other applicable permits and licenses
A statewide business license may be required based on the type of activities your nonprofit plans to carry out and where it is located. Ensure that you check with the clerk for the city where the corporation’s primary office is based and visit the Virginia Business OneStop website for local licenses.
Additional state registration and reporting requirements
All nonprofits in the state of Virginia are required to register for charitable solicitation or undergo Virginia charitable organization registration.
Therefore, prior to soliciting funds, allowing tax-deductible donations or carrying out fundraising activities, you need to register the nonprofit with the Virginia Department of Agriculture and Consumer Services Office of Consumer Affairs.
For further information on Virginia nonprofits’ required forms and registration requirements, check with the Virginia Department of Agriculture and Consumer Services Office of Consumer Affairs.
12. Submit an annual report
Annual reports need to be submitted by all Virginia nonprofit corporations. The annual report must be submitted to the office of the clerk by the last day of the 12th month after your nonprofit was incorporated. And you need to stick to this date each year thereafter. File the annual report online through SCC eFile.
Costs of starting a new nonprofit in Virginia
The following filing fees are applicable to all public charities or charitable organizations in Virginia:
- Filing Articles of Incorporation: $75
- Application for federal tax exemption or 501(c): $275 or $600 IRS fee
- Virginia charitable registration: $100 + $30-$325 depending on contributions ($10 if exempt)
After you’ve started your nonprofit, there are a few necessary steps that you should take to keep your organization running smoothly. Let’s take a closer look at them below:
Open a business bank account
- Maintain accounting and tax filing
- Ensure that your personal assets are kept separate from your nonprofits’ assets
To open a bank account, you will need to provide:
- Your EIN
- A copy of your articles of incorporation
- A copy of your organization’s bylaws.
Hire a business accountant
- Simplify payroll and bookkeeping
- Prevent your nonprofit from avoiding penalties and tax errors
- Manage your nonprofit’s funding
- Focus on growing your nonprofit
- Manage risks
You may opt for General liability, Personal liability, or Worker’s compensation insurance.
Build a website
As we mentioned earlier, you may want to create a website for your organization to legitimize your business or give it more credibility. A dedicated website is also one of the best ways to share your nonprofit’s vision, mission, and story with supporters. Consequently, it’s also a great way to announce upcoming events and goals.
Sign legal documents
One aspect that tends to get overlooked is signing legal documents in your personal capacity instead of as an authorized representative of your nonprofit.
If you’ve appointed yourself as a registered agent of the nonprofit, then the following tips will help avoid personal liability:
- State the registered name of your nonprofit
- Use your name and signature
- State your position/role in the organization as its authorized representative
When signing legal documents on behalf of the nonprofit, it is important that you do so in your capacity as the registered agent, as opposed to your capacity as an individual.
Example: Instead of signing your name only, state the name of the nonprofit and then your name and position within the organization before signing.
Nonprofits need business plans to help them figure out the direction that the organization will take. Ultimately, when you compile a business plan, you’ll determine the resources needed to run the nonprofit and the quickest path to success. Therefore, a business plan is necessary to streamline your business as well as attract donors and other potential partnerships.
Nonprofit organizations need to adhere to compliance laws in order to ensure that once they receive tax-exempt status, they are not abusing their financial privileges. The compliance laws are also put in place to protect the public. 501c Nonprofits are held to a high standard by the government due to their federal and state tax privileges. Refer to the IRS compliance guide to ensure that you maintain your nonprofit’s tax-exempt status.
The executive director is, in most cases, also the founder of the organization. They are responsible for overseeing programs and strategic planning of the nonprofit as well as overseeing the administration. Other key duties include marketing, fundraising, and community outreach.
Yes, nonprofit organizations should compensate their employees for their time and service towards the nonprofit’s cause. The founder may also pay themselves a fair salary for their work running the organization. However, please note that all salaries paid out must be disclosed to the IRS in order for the organization to remain compliant.
Some of the ways most nonprofits choose to raise funds for their organization include asking for sponsorships, enabling recurring donations, hosting fundraising events, creating donation pages, and attempting peer-to-peer fundraising.