As a nonprofit organization evolves and its leadership team changes over time, moving the organization’s legal home from one state to another may be a relevant topic of consideration. In some cases, leadership may decide for one or more reasons to re-domesticate to another state. For example, compliance requirements in the organization’s original home state may become overly burdensome, leading a nonprofit board to conclude that a move to another state would be an appropriate course of action. Regardless of the reason, Virginia law makes it relatively easy to redomesticate a nonprofit organization from another state to the Commonwealth. If your organization is considering such a relocation to Virginia, there are three options to consider:
- Redomestication. If the original home state’s law permits it, the procedure of redomesticating your nonprofit to Virginia involves two steps:
- Filing Articles of Domestication and Articles of Incorporation with the Virginia State Corporate Commission (SCC)
- Filing dissolution in the original home state (or having the nonprofit “domesticated out,” depending on the original home state’s laws).
The process of redomestication permits the organization to cut ties with the original state while allowing it to retain its tax identity. In other words, the nonprofit’s EIN will remain the same, and the organization will NOT need to reapply for tax-exempt status. However, amendments to the organization’s Bylaws may be necessary to properly document the change to its new state of incorporation. Further, the change will have to be reported to the IRS on the organization’s next IRS Form 990 filing.
2. The Two Step: Form a New Entity in Virginia and Get Rid of the Original Organization Via Dissolution or Merger. If the original home state’s laws do not permit a simple redomestication, the existing out-of-state organization can form a new nonprofit organization in Virginia and merge into it. In the alternative, if there is no reason to maintain its corporate identity and existing history, the out-of-state organization can dissolve and contribute its assets to the new entity in Virginia. Please note that this approach tends to be more time consuming and expensive as it requires the newly formed Virginia nonprofit organization to incorporate, obtain a new EIN, and apply for tax-exempt status. Further, if you opt for merger, once the new entity is approved, Articles of Merger must be prepared and filed in both states. Please note that some states require Attorney General approval before merging (Virginia does not have such a requirement).
3. Register as Foreign Corporation in Virginia. If the original state’s laws do not permit a simple domestication AND the organization does not want to incur the expense of forming a new entity, it can simply register to do business in Virginia as a “foreign” (i.e, out-of-state) corporation. Registering as a foreign corporation in Virginia allows it to legally operate in the Commonwealth. However, the downside is that the nonprofit will have to comply with all applicable entity maintenance requirements both in Virginia AND its original state of incorporation. For example, the organization will have to maintain a registered agent in both states, file annual reports in both states, and may be required to register to solicit charitable donations in both states.
In short, a nonprofit’s initial legal home is not permanent. If and when it makes sense to move a nonprofit organization’s legal home to Virginia, or another state, there are options. If you are involved with a nonprofit organization that is considering a move to Virginia, please contact Eric Perkins at [email protected] or (804)205-5162 to discuss.