- Name Your Organization
The first step to starting a nonprofit is to name your organization. While this is a chance for you to get creative and really express your brand, there are a few parameters.
Before deciding on a name, you will want to check that your name is still available and is not already taken by another business. You can start your search on the Virginia Secretary of State Website. You can conduct this search here: VIRGINIA – SCC
You will also want to search your name on the trademark database at the United States Patent and Trademark Office. This database can be found here: Search trademark database | USPTO
Next, you will want to ensure that you are following the guidelines set by the Commonwealth of Virginia. You can find those guidelines here: § 13.1-829. Corporate name (virginia.gov)
Finally, you should also review the guidelines set by the IRS, if your name includes some type of character or symbol. You can find these guidelines here: Online EIN: Frequently Asked Questions | Internal Revenue Service (irs.gov)
As an added note, if you are looking to create a website for your nonprofit, you might want to ensure that your name is still available as a web domain.
- Virginia Registered Agent
A registered agent is required for nonprofits in Virginia. The role of a registered agent is to accept legal papers on behalf of the nonprofit. The registered agent can be an individual or a corporation. Our law firm serves as registered agent for hundreds of organizations and businesses. As your registered agent, we will ensure legal compliance, accept service of process, and be available as part of your team throughout the year.
To find out more information about registered agents go here: Virginia SCC – Registered Agent and Office Addresses
- The Board of Directors
Under Virginia law, to have a nonprofit you only need to have one member on the Board of Directors. However, to be eligible for tax exemption with the IRS, we recommend that you have at least three directors. The directors of your nonprofit should be disinterested and unpaid members who collectively have all the organizational power of the organization.
The Board of Directors will typically have officers. These officers are defined in the nonprofit’s bylaws and are allowed to vote.
They are typically as follows:
- President/Chair: responsible for leading the Board of Director meetings and any special meeting. The President shall oversee the Treasurer and Secretary in the performance of their duties.
- Vice President/Chair: responsible for leading the organization if the President of the Board is not present or able.
- Secretary: responsible for keeping records of actions of the Board of Directors, including overseeing the taking of minutes at all meetings, sending out meeting announcements, distributing copies of minutes from the prior meeting and the current agenda to each member of the Board of Directors before each meeting.
- Treasurer: responsible for filing annual tax returns and assuring that all financial records are maintained. The Treasurer typically makes a report at each Board of Directors meeting and assists in the preparation of the budget, help develop fundraising plans, and make financial information available to all Board of Directors and the public. The Treasurer shall be authorized to sign checks or drafts on behalf of the nonprofit.
- Duties of the Board of Directors
Being a part of an organization’s Board of Directors brings a lot of responsibilities and obligations.
The first is the duty of obedience. The Board of Directors is responsible for ensuring that the organization complies with both state and federal law. The Board of Directors must also ensure that the organization complies with the Bylaws and Articles of Incorporation.
The second is the duty of loyalty. Encompassed under the duty of loyalty is the obligation that a member on the Board of Directors has to ensure they are not making decisions based on personal or familial monetary gain. To accompany the duty of loyalty, an organization should create a Conflict of Interests Policy.
The third is the duty of care. The Board of Directors has a duty to act in good faith in the best interest of the organization. A director’s duty of care includes participating on the Board, taking meeting minutes, ensuring that financial records are well-maintained, protecting assets, and investing claims of misconduct or mismanagement within the organization or on the Board.
Finally, the obligation of disclosure. The Board has the responsibility to make the organization’s documents accessible to the public. These documents include the annual tax returns, tax-exemption application, and the IRS determination letter.
- Non-Voting Officers
Outside of the Board of Directors are the officers of the nonprofit organization. These officers usually consist of the Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer. These positions are normally paid positions, making these officers employees of the nonprofit. Because they are paid and thus have a conflict of interest, they typically do not sit on the Board of Directors. The only person that could be an officer of both would be an Executive Director or CEO, and even then, that officer has specific rules and guidelines to follow.
- Bylaws and Conflict of Interest Policy
Prior to filing your nonprofit’s Articles of Incorporation, you need to have documents complying with Virginia law.
The bylaws will be your main governing document for your organization, an operating manual. Your bylaws must comply with Virginia state law, but also serve as a supplement to the code.
Your nonprofit will also need to form a conflict of interest policy. This policy will ensure that all decisions made by the board and by the members, is in the best interest of the nonprofit.
Note, neither of these documents needs to actually be filed with the state. However, make sure they are kept on record and is the handbook for your nonprofit.
It is essential that your bylaws comply with IRS requirements to obtain tax exempt status.
- Articles of Incorporation
Your nonprofit’s Articles of Incorporation is essential to register your nonprofit and to obtain tax exemption under 501(c)(3).
In order to file Articles of Incorporation you need to complete the Articles of Incorporation of the Virginia Nonstock Corporation Form found here: Virginia SCC – Virginia Nonstock Corporations.
Once completing the form, you will file it with the Virginia State Corporation Commission.
The Articles of Incorporation must include specific information. Including:
- Your nonprofit’s name
- The name of your nonprofit’s registered agent and their address or office location
- The names of the nonprofit’s directors and incorporators
- The purpose/mission of the nonprofit (think mission statement).
- Employer Identification Number
You will need to secure an Employer Identification Number (EIN) for your nonprofit, also known as a Federal Tax Identification Number. The Internal Revenue Service will assign your nonprofit an unique nine digit code, that is used to identify entities in the state.
To secure your nonprofit’s EIN, you need to complete the IRS Form SS-4, found here: https://www.irs.gov/forms-pubs/about-form-ss-4. The application is free.
- Apply for Federal Tax Exemption
As a nonprofit, you should apply for federal tax exemption, under the Internal Revenue Code. In order to do so, you need to complete Form 1023. If you meet the requirements to complete Form 1023-EZ, do that instead. Once you complete and submit the form, the IRS will review your application. If your nonprofit is approved, you will receive a determination letter stating that your nonprofit is exempt from federal taxes.
- Sales and Use Tax Exemption
If your nonprofit is exempt from federal taxes, then it is also automatically exempt from state taxes. However, to be exempt from sales and use taxes, you will need to complete Form NP-1 with the Virginia Department of Taxation. The form is found here: https://tax.virginia.gov/forms/search?category=5
- Additional Registration
In Virginia, nonprofits are required to register for charitable solicitation or undergo Virginia Charitable Organization registration. Register your nonprofit here: https://www.vdacs.virginia.gov/about-division-of-consumer-protection.shtml
All Virginia nonprofit corporations need to submit an annual report. File here: https://sccefile.scc.virginia.gov/
At McCormick Law & Consulting, we partner with nonprofit organizations to become a long-term part of your team. We assist to ensure legal and IRS compliance as well as implement best practices. Are you starting a nonprofit or have a current nonprofit that needs legal support? Contact our office now to schedule a free consultation! We look forward to serving you with excellence!!