Virginia Laws Regarding Nonprofit Organizations

By River Braun, J.D.

Virginia Laws Regarding Nonprofit Organizations

By River Braun, J.D.

 

Nonprofit organizations in Virginia must follow extremely specific laws to retain their status. Under Virginia laws, nonprofits are referred to as nonstock corporations. The Virginia Nonstock Corporation Act governs everything from the formation to the operation of the organization. Additionally, to qualify as one in Virginia, the officers or directors cannot receive dividends from the organization, but they may receive reasonable compensation for their services. Below are some of the key requirements for a nonstock corporation.

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Define the Organization's Purpose and Draft Articles of Incorporation

Only organizations that are exempt from federal income taxes qualify to be exempt from Virginia use and sales taxes. The objective of the nonprofit organization must focus on an educational, religious, charitable, or scientific purpose. For example, a nonstock corporation may focus on decreasing the dropout rate for high school students, helping the homeless, or preserving public areas.

To begin, Articles of Incorporation must be drafted and filed with the State Corporation Commission (SCC) with the appropriate fee. They must also be given a name, which cannot be too similar to another organization's name. If the name is misleadingly close to another's name, the state will deny the request. The SCC's website can be used to search for name availability.

The Articles of Incorporation must also name a registered agent for the nonstock corporation. The registered agent serves as the person who will accept service of official correspondence from the state and others sent to the nonprofit, so a current address for the registered agent is required in the articles. Also, at least one director must be appointed, with name and address also included in the articles.

Identify Bylaws of the Nonprofit Corporation and Hold Organizational Meetings

Even though there's not a law that governs the specific content of the bylaws of a nonprofit, the provisions in the bylaws cannot conflict with any provisions contained in the organization's Articles of Incorporation. Bylaws are not required to be filed with the state, but they must be maintained at the principal location for the organization and available for public inspection. Items in the bylaws include how grant money will be used, the election process for directors, the day-to-day management, and the size of the board of directors.

There are several specific actions that they must take during the meeting. The bylaws must be approved and adopted, and initial directors, other than the director named in the Articles of Incorporation, may be appointed.

A budget for the upcoming year, a bank, and a conflict of interest policy must also be approved during the meeting. The organization's conflict of interest policy must specifically prohibit any director from privately benefiting from any actions taken by the nonprofit.

If you've decided that a nonprofit organization is the type of business you'd like to run, you should carefully review the Virginia Nonstock Corporation Act. This act outlines any additional requirements and actions that a nonstock corporation must take in order to maintain its status. It's important to ensure all the requirements are adhered to so that you won't be held personally liable for any consequences of failing to setup the nonprofit correctly.

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