How to Start a Nonprofit Corporation in California
Thinking for forming a nonprofit corporation?
If you desire to serve your community, forming a nonprofit is a great way to turn your vision into a reality. Nonprofits focus on assisting others and providing a benefit to the community. The steps for forming a 501(c)(3) tax-exempt nonprofit corporation in California involve the following:
Determine the charitable purpose and mission statement of the organization.
Identify possible fundraising sources.
Determine the appropriate corporate and governing structure.
Determine the name of the nonprofit organization. The name cannot be the same as or too similar to an existing corporation name on record with the California Secretary of State. Check the Business Search database on the Secretary of State’s website to see if a certain name is available. This is not an official name availability check. A free preliminary check of the availability of a name can be requested by mailing a completed Name Availability Inquiry Letter to the California Secretary of State’s office. A name can be reserved for a period of 60 days by filing a Name Reservation Request Form which will prevent another corporation from registering the name while you prepare and file your articles. Learn more here. See Cal. Corp. Code §5122 for more information on name restrictions for nonprofits.
Prepare and file Articles of Incorporation. Also known as "corporate charter," "articles of association" or "certificate of incorporation," Articles of Incorporation is a formal document that is necessary to establish your corporation as a separate business entity. Articles of Incorporation are submitted to The California Secretary of State and become a public record, providing important information about your corporation, including its name, contact information, and information about its shares of stock.
Prepare the Bylaws. Bylaws are a required legal document when forming a corporation. They can be thought of as your organization's operating manual or guidebook.
Prepare a conflict of interest policy. A nonprofit's board of directors should not benefit financially, personally or otherwise from board service. A conflict of interest policy prevents directors with conflicts from participating in discussion, voting, or reporting on any issue where there is a conflict (real or perceived). The IRS requires nonprofit entities to have a written conflict of interest policy and nonprofit boards must fill out the IRS Form 990 annually, acknowledging that they have a written conflict of interest policy.
Appoint the board of directors. In California, you must have at least one director on your board.
Take initial board actions, including electing officers.
Obtain an employer identification number (EIN). Every organization must have an EIN, even if it will not have employees. Follow the link to learn more about applying for an EIN.
Determine if any state licenses or permits are necessary.
Register the organization with the Attorney General Registry of Charitable Trusts within 30 days of initially receiving assets (funds, property, etc.) in/from California. View the General Guide for Initial Registration for more information.
File the initial Statement of Information with the Secretary of State. The Statement of Information is submitted to the Secretary of State and contains details regarding your corporation’s contact information, including the registered agent for the company, the principal officers and incumbent directors, along with other details of the organization. If the State of California wants to serve you with legal notification, it will use the latest Statement of Information records to know where to find your registered agent. Newly formed or registered companies must file a Statement of Information within 90 days of forming or first registering.
Apply for 501(c)(3) tax-exempt status from the Internal Revenue Service. You can view exemption requirements here. The IRS also offers tax-exempt status online training and tools at stayexempt.irs.gov. Visit their “starting out” section to learn more about applying for section 501(c)(3) status.
Apply for 501(c)(3) tax-exempt status from the Franchise Tax Board. You can learn more about the steps needed to apply for tax-exempt status in California on the FTB website.
Calendar dates for annual meetings and governmental filings.
Identify an accountant to assist with annual tax return filings.
Should you start a nonprofit?
Now that you know the steps involved in forming a California nonprofit, you should consider whether this is the right choice for your ideas and for the public benefit. You’ll want to understand what a nonprofit corporation is and how a charitable organization is different from a for-profit organization. You’ll also want to understand the paperwork needed to incorporate, to apply for income tax exemption, and the ongoing corporation maintenance for the organization.
Want to learn more about forming a nonprofit corporation?
Navigating your way through starting a nonprofit corporation in California can often be overwhelming. A nonprofit attorney can help guide you through the required legal documents and steps and help ensure that you start your nonprofit on the right path.
At Henderson, Caverly, Pum & Trytten LLP, our lawyers are well-versed in nonprofit law and we understand the unique challenges organizations face in this ever-changing sector. We will work closely with your nonprofit as trusted advisors to help your nonprofit organization thrive.
If you desire to form a nonprofit corporation and have questions regarding the process or the benefits, please call our team of nonprofit attorneys at (858) 755-3000 or email us via the contact button below.