Frequently Asked Questions
Virginia Nonstock Corporations
Under Virginia law, no dividend or income of a nonstock corporation may be distributed
to its directors, officers or individual members, except as reasonable compensation
for services rendered or upon the dissolution or liquidation of the corporation.
See § 13.1-814
of the Code of Virginia
.
As a result of the foregoing limitation, most corporations that intend to conduct
business for profit are organized as stock corporations.
Does a Virginia nonstock corporation have owners?
How does one form a Virginia nonstock corporation?
Who are the members of a Virginia nonstock corporation?
How are the directors selected?
What is a registered agent?
How does a Virginia nonstock corporation obtain "tax-exempt" status?
Does a Virginia nonstock corporation have owners?
No. Unlike a stock corporation that issues shares of stock to investors who then
become "owners" and are entitled to share in the corporation’s profits, a nonstock
corporation does not have any shareholders or "owners." This is why most nonstock
corporations are formed for non-profit purposes, such as clubs, rescue squads, and
religious and charitable organizations.
How does one form a Virginia nonstock corporation?
By filing articles of incorporation with the Office of the Clerk and obtaining a
certificate of incorporation issued by the Commission. The Clerk’s Office has produced
a guideform to help you prepare articles of incorporation,
Form SCC819, which contains all of the provisions that are needed to meet
the minimum filing requirements under Virginia law. However, the articles may need
to include additional provisions to meet other government standards. For example,
the I.R.S. requires certain provisions in the articles of incorporation in order
for a corporation to be recognized as a § 501 (c)(3) charitable organization. See
the related question, below.
Who are the members of a Virginia nonstock corporation?
A member of a nonstock corporation is a person who has a membership interest in
the corporation. This is not, however, the equivalent of a "member" of the board
of directors. An individual serving on the board of directors is known as a "director."
The articles of incorporation must set forth whether or not the nonstock corporation
will have members. If there will be members, the articles must set forth (i) the
classes of members, if there is more than one class (ii) the qualifications required
to become a member of each class, and (iii) the rights of each class of members,
including the right to vote, if any. In the alternative, the articles may provide
that one or more of these items will be as set forth in the corporation’s bylaws
(which are not filed in the Office of the Clerk).
A nonstock corporation is not required to have (i) members, (ii) more than one class
of members, or (iii) members with voting rights. It is up to you to determine the
appropriate organizational structure for the corporation.
By way of example, consider the following. Suppose you want to set up an organization
for middle school students to perform community service activities. You could establish
a class of members composed of the students and a class of members composed of their
parents. The student members could have limited voting rights, such as the right
to determine the projects that the students will undertake. The parent members could
have the right to vote on all other matters, including the election of the corporation’s
directors.
How are the directors selected?
The articles of incorporation must provide how the directors will be elected or
appointed. It is not acceptable to provide that the directors will be elected or
appointed "as set forth in the bylaws."
Under Virginia law, a nonstock corporation is managed by a board of directors, which,
in turn, appoints the officers of the corporation. In most instances, after incorporation,
the directors are selected by the members, or by the directors in office. When the
directors elect or appoint their successors, this is referred to as a self-perpetuating
board of directors.
It is not acceptable to provide that future directors will be appointed by a named
individual. This arrangement is unacceptable because when the individual dies, no
mechanism will be in place for the selection of subsequent directors.
Another acceptable director selection mechanism in the articles of incorporation
is to provide for an "ex-officio" director. This is an individual who holds a particular
office in another organization and will be a director of the corporation for so
long as he or she occupies said office. For example, an individual serving as the
president of a sister organization could be designated as an ex-officio director
of your corporation. The title of the office and the name of the organization would
need to be identified in the corporation’s articles of incorporation.
What is a registered agent?
Please refer to FAQs regarding Registered Agents
How does a Virginia nonstock corporation obtain "tax-exempt"
status?
"Tax-exempt" status is granted by the Internal Revenue Service. In order to be recognized
as a tax-exempt organization, the articles of incorporation of a nonstock corporation
must include various provisions that are identified in
I.R.S. Publication 557, Tax-Exempt Status for Your Organization
.
When you prepare the articles of incorporation for filing with the Office of the
Clerk, you will need to include the requisite I.R.S. provisions within the document
if the corporation intends to apply for tax-exempt status. The provisions may not
be included as an attachment, nor may they be set forth after the signature of the
incorporator(s). Furthermore, we do not review the sufficiency of your tax-exempt
provisions, and do not return the articles to you for amendment if they are missing.
Accordingly, we strongly urge you to properly include these provisions in your original
articles of incorporation, as adding them later by articles of amendment can be
cumbersome.
For more information regarding tax-exempt organizations, contact the IRS at 877-829-5500.