Most nonprofits are 501(c)(3) organizations, which means they are formed for religious, charitable, scientific, literary, or educational purposes and are eligible for federal and state tax exemptions. To create a 501(c)(3) tax-exempt organization, first you need to form a Virginia nonprofit corporation. Then you apply for tax-exempt status from the IRS. Here are the details.
To form a nonprofit corporation in Virginia, you need to form a nonstock corporation under Virginia state law (Title 13.1, Chapter 10 of the Virginia Code).
In Virginia, you must have one or more directors on your board.
The name of your nonprofit corporation must be distinguishable from any name that has been designated, registered, or reserved for use by another business entity in Virginia and the names of all active business entities on file with the Virginia State Corporation Commission.
Names may be checked for availability at the Virginia business name database.You may reserve a name for 120 days by filing an Application for Reservation or Renewal of a Corporate Name with the Virginia State Corporation Commission. The reservation may be filed online or by postal mail. The filing fee is $10.
See Virginia Code §13.1-829 for more information on name restrictions for nonprofits.
Every Virginia nonprofit corporation must have an agent for service of process in the state. This is an individual or corporation that agrees to accept legal papers on the corporation's behalf if it is sued. The agent must have a physical street address in Virginia, not a post office box. Small nonprofit corporations typically name a director or officer to serve as the initial agent. The agent must consent to the appointment.
You create your nonprofit entity by filing articles of incorporation for a nonstock corporation with the Virginia State Corporation Commission. Your articles of incorporation must include:
The Virginia State Corporation Commission has a fillable Articles of Incorporation Template for a Virginia Nonstock, Nonprofit Corporation (SCC819NP) on its website which you can use to create your nonprofit corporation. Complete and file your articles following the instructions provided.
The articles form available from the state has the minimal information necessary to create a nonprofit in Virginia. It does not include language required by the IRS to obtain 501(c)(3) federal tax-exempt status. To receive tax-exempt status from the IRS, you'll need to have additional specific language in your articles, including:
To receive tax-exempt status from the IRS, you'll need to add these clauses to your certificate yourself. You can add the purpose clause in the blank space provided in Article II on the form. The prohibited activities and dissolution clauses can be added in Article VII "Limitations and Restrictions," and the dissolution clause in Article VIII. You can find sample language to use approved by the IRS in the Instructions for IRS Form 1023-EZ, (see Part II).
For more information on IRS requirements for tax exemption, including sample language, consult How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
The articles may be filed online or by postal mail. The filing fee is $75.
Before you file your articles of incorporation, you’ll need to have bylaws that comply with Virginia law. Your bylaws contain the rules and procedures your corporation will follow for holding meetings, electing officers and directors, and taking care of other corporate formalities required in Virginia. Your bylaws do not need to be filed with the state -- they are your internal operating manual.
For more information on bylaws, see Nolo's article Nonprofit Formation Documents: Articles of Incorporation, Bylaws, and Organizational Minutes. For help creating your bylaws, see Nolo's book How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
Your first board meeting is usually referred to as the organizational meeting of the board. The board should take such actions as:
After the meeting is completed, minutes of the meeting should be created. Set up a corporate records binder to hold the corporation's articles, bylaws, consent forms, minutes and other important documents. For more information, as well as minutes forms, consent forms, and other resolutions, see Nonprofit Meetings, Minutes & Records, by Anthony Mancuso (Nolo).
Your nonprofit corporation must obtain a federal employer identification number (EIN). You may obtain an EIN by completing an online application on the IRS website. There is no filing fee.
Depending on the type of activities your nonprofit intends to carry on and where it is located, it may need to obtain a state business license. For local licenses, check with the clerk for the city where the corporation's primary office is located (or county if it is in an unincorporated area). For state license information, check Virginia’s Business OneStop website.
Each Virginia corporation is required to file an annual report in the Office of the Clerk by the last day of the 12th month after it was incorporated, and this date in each year thereafter. The annual report can be filed online through SCC eFile or on a form furnished by the Corporation Commission. To obtain a preprinted annual report form to complete and file, provide the requested information on the Electronic Forms Request page
Now that you have created your nonprofit corporation, you can obtain your federal and Virginia state tax exemptions. Here are the steps you must take to obtain your tax-exempt status:
To obtain federal tax-exempt status from the IRS, you will need to complete and file IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. This long and detailed form asks for lots of information about your organization, including its history, finances, organizational structure, governance policies, operations, activities, and more. For line-by-line instructions on how to complete the Form 1023, see How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
Smaller nonprofits may be eligible to file Form 1023-EZ, Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code. This is a much simpler, shorter form that is filed online. Only smaller nonprofits--those with projected annual gross receipts of less than $50,000 and total assets of less than $250,000--are eligible to use the streamlined 1023-EZ application.
See the IRS website for more information on the Form 1023 and Form 1023-EZ filing requirements.
Nonprofits who receive 501(c)(3) tax-exempt status from the IRS are automatically exempt from Virginia’s income tax. Your nonprofit must apply for an exemption from Virginia state sales and use taxes. Check with the Virginia Department of Taxation for details.
Depending on your activities and the size of your organization, you may need to register with the state before doing any fundraising activities. The Virginia Department of Agriculture and Consumer Services, Office of Consumer Affairs, has information and forms about fundraising and registration requirements for nonprofits. For more information about fundraising registration requirements in all 50 states, see Nonprofit Fundraising Registration Digital Guide, by Ronald J. Barrett and Stephen Fishman.