Learn More About Nonprofits
Frequently asked questions about starting, maintaining and growing nonprofit organizations.
I want to start a nonprofit organization, but don’t know where to start. What are some things I should focus on?
A few preliminary issues to consider include:
- What do I hope to accomplish?
- Are there other organizations in my area that do something similar? If so, could I volunteer with that organization to accomplish my objectives?
- Who can I count on to help me get this new organization off the ground? HINT: Don’t kid yourself into thinking you can do everything yourself.
- Do my objectives fit within an accepted category of tax-exempt status or, more specifically, within the definition of a “charitable” organization under Section 501(c)(3) of the Internal Revenue Code?
- Have I read Eric Perkins’ “Twenty Questions to Address When Starting a Nonprofit Organization in Virginia”?
What’s the difference between “nonprofit” and “tax exempt”?
These terms are often used interchangeably but actually mean different things.
The term “nonprofit” is a state law concept, referring to provisions of Virginia law that authorize the formation of nonprofit or nonstock corporations. Unlike for-profit corporations, Virginia nonstock corporations do not have shareholders.
The term “tax exempt” relates to the Internal Revenue Code which includes approximately 60 different categories of tax-exempt status (i.e., organizations that are not required to pay Federal income tax).
What are the different types of legal structures for a nonprofit organization?
The three basic structures for a Virginia nonprofit are:
(i) nonstock corporation
(ii) unincorporated association
(iii) charitable trust
What are the advantages of the Virginia nonstock corporation?
Organizing as a Virginia nonstock corporation offers several benefits:
- Limited liability protection to officers and directors (with few exceptions) for debts and obligations of the organization
- More statutory and judicial clarity and guidance on numerous issues such as volunteer immunity and corporate governance
- Perpetual life (i.e., the organization survives its founders)
- This is perhaps the most commonly found structure for a tax-exempt organization
- This structure indicates a greater sense of sophistication, organization, and commitment.
Who owns a nonprofit organization?
Virginia nonstock corporations do not have shareholders, so in a technical sense, no one owns the organization.
On the other hand, the public as a whole (or the class of intended beneficiaries set forth in the organization’s mission statement and Articles of Incorporation) can in some respects be considered as de facto “owners” of the organization in the sense that they can challenge the actions and omissions of the organization and its leaders.
The paradox is thus that, in a sense, no one owns the organization, but everyone owns the organization.
Who makes decisions for a nonprofit organization?
With very few exceptions, it is the board of directors that controls the organization.
The board sets policy and gives direction to the officers, staff, and volunteers who implement that policy on a day-to-day basis in furtherance of the nonprofit’s charitable mission.
Nonprofit boards often delegate certain tasks and authority to committees, task forces, and others, but ultimately the final decision-making authority resides with the board of directors.
Do you currently serve on a nonprofit board? Take this self-assessment test for nonprofit board members to assess how well you know your organization.
How many people are needed for the initial board of directors?
Under Virginia law, it is technically possible for a nonstock corporation to operate without a board of directors at all (see Section 13.1-852.1 of the Code of Virginia).
As a practical matter, though, a nonprofit organization needs at least a handful of committed leaders representing a cross section of the community to function at a high level. The exact number will vary from one organization to the next, but a range of 5-11 directors is common.
Do all nonprofits have to apply to the IRS for tax-exempt status?
Not all do (e.g., churches are not required to file Form 1023 with the IRS), but for most nonprofit organizations it is a good idea to do so even if not legally required.