How to Start a Nonprofit in California

1. Name Your Organization

   Your organization’s name establishes its brand and is also important for incorporating with the state. The legal name of your nonprofit corporation may not conflict with any other organization registered in the state. Make sure the name is available and meets state requirements.

   Name Search:	California Secretary of State - Business Programs Division Name search
   Suffix:	Not required. CCC §5122.a

2. Choose a California nonprofit corporation structure

   California offers four corporate structures for nonprofit corporations.

   • Religious corporations are primarily or exclusively for religious purposes such as a church.
   • Public benefit corporations are those seeking IRS exemptions 501(c)(3) or 501(c)(4) and/or similar California state tax exemptions. These organizations are organized for charitable purposes, act as a civic league, or as a social welfare organization.
   • Mutual benefit corporations are other nonprofits that may or may not seek IRS and California tax exemptions. A mutual benefit corporation may not create the impression that the corporate purpose is public, charitable, or religious, nor create the impression that it is a charitable foundation.
   • Mutual benefit common interest development (CID) corporations are formed under the Davis-Stirling Common Interest Development Act to manage a common interest development (for example, a homeowner’s association). Common interest development associations can also be unincorporated.

3. Recruit Incorporators and Initial Directors

   The incorporator is the person who signs the Articles of Incorporation for your nonprofit. You will need at least one, but can have more than one. Directors make up the governing body of your nonprofit corporation and are stakeholders in your organization’s purpose and success. You’ll want to identify three, unrelated individuals to meet IRS requirements. You will also want to be aware of any age or residency requirements.

   California director requirements:

   Number: minimum 1 Qualifications: None. No residency requirement. No membership requirement. Term: 1 year Quorum: majority Committee: minimum 2 directors No director may vote by proxy

   California officer requirements:

   A corporation shall have a chair of the board, who may be given the title chair of the board, chairperson of the board, chairman of the board, or chairwoman of the board, or a president or both, a secretary, a treasurer or a chief financial officer or both, and any other officers with any titles and duties as shall be stated in the bylaws. Elected by the board Two or more offices may be held by the same individual, except the president may not also serve as secretary or treasurer.

4. Appoint a Registered Agent

   A registered agent is responsible for receiving legal notices on behalf of your organization. The appointed registered agent must be physically located in the state and maintain an office that is open during regular business hours. As a nationwide registered agent, our service is designed to receive your legal documents and provide secure access to those documents through your online account. Our local California registered agent office is located in Redding, CA. We offer registered agent service independently or as part of our nonprofit formation packages.

5. Prepare and File Articles of Incorporation

   Your nonprofit’s articles of incorporation officially mark the creation of your organization. They document where and when the organization was formed and capture other information necessary to verify its existence. While requirements for language vary from state-to-state, there are some basic provisions that the IRS will look for when you apply for 501(c)(3) exemption. It is important to customize the articles for your organization and make sure you meet the state and IRS requirements. Meeting these requirements from the start will help avoid having to make amendments later or risk getting your 501(c)(3) application rejected. Some states will also require you to publish your articles of incorporation, so be mindful of any deadlines and publishing instructions.

   Agency:	California Secretary of State - Business Programs Division
   Form:	The state provides Articles of Incorporation for a Domestic Nonprofit Corporation templates. There are four templates available: Form ARTS-MU: Articles of Incorporation - Mutual Benefit Corporation Form ARTS-PB-501(c)(3): Articles of Incorporation - Public Benefit Corporation Form ARTS-RE: Articles of Incorporation - Religious Corporation Form ARTS-RE: Articles of Incorporation - Common-Interest Development Corporation
   Filing method:	Mail or in-person
   Agency fee:	$30 by mail or $45 in-person + optional $250-$500 preclearance service + optional $350-$500 expedited filing service
   Turnaround:	Current state processing times or pay for preclearance and expedite services
   Law:	California Corporations Code - Title 1: Corporations - Division 2: Nonprofit Corporation Law
   Original Ink:	Not required
   Notarize:	Not required

6. Obtain an Employer Identification Number (EIN)

   This unique, nine-digit number is assigned by the IRS to identify your nonprofit. All types of nonprofits will apply for an EIN, not only those that hire employees. You will use your EIN to open a bank account, apply for 501(c)(3) status, and submit 990 returns to the IRS.

   Agency:	Internal Revenue Service (IRS)
   Form:	IRS Form SS-4
   Filing method:	Mail, phone, fax, or online.
   IRS fee:	$0
   Turnaround:	Immediately online or by phone. 4 business days by fax. 4-5 weeks by mail.
   Original Ink:	Not required
   Notarize:	Not required
   Notes:	The IRS website is only available during certain hours. Print your EIN before closing your session. For additional guidance, see IRS Pub 1635: Understanding Your EIN.

7. Store Nonprofit Records

   

   As you launch your nonprofit, you will receive a number of official documents. Organizing these documents in one place will save you headaches down the road. You will soon have numerous items to keep in your records including your EIN letter, bylaws, meeting minutes, 501(c)(3) determination letter, and more. Consider purchasing a Nonprofit Records Kit that makes it easy to keep track of documents.

8. Establish Initial Governing Documents and Policies

   Your bylaws are the governing document for your nonprofit. They serve as your organization’s operating manual and should be consistent with your articles of incorporation and the law. When your Board of Directors meets for the first time, you’ll review and ratify the bylaws and they will be a roadmap for governance from there.

   At the same time, you’ll also want to create and adopt a conflict of interest policy. A conflict of interest is when someone in a key position in your nonprofit has competing interests and is making choices that could benefit themselves to the harm of the organization. Personal interests should be set aside and organizational interests prioritized. If a conflict of interest does arise, it should be disclosed immediately.

   Your application to the IRS for 501(c)(3) exemption will require that both the bylaws and the conflict of interest policy are approved and adopted. Once they’ve been adopted, safely store them in your Nonprofit Records Kit.

9. Hold Organizational Meeting of the Board of Directors

   The initial organizational meeting of your Board of Directors will be incredibly productive. At this meeting you will approve the bylaws, adopt the conflict of interest policy, elect directors, appoint officers, and approve resolutions such as opening the organization’s bank account. Important decisions are being made so be sure to record them in the meeting minutes.

10. Get California State Tax Identification Numbers/Accounts

    You will need to apply for a California Employer Identification Number if you will have employees.

    Submit to:	State of California - Employment Development Department http://www.edd.ca.go
    Filing method:	Online
    Fee:	$0

    To apply for a seller's permit (if your nonprofit collects sales tax on items sold), use tax account, and other permits and licenses:

    Submit to:	California State Board of Equalization http://www.boe.ca.gov
    Filing method:	Online at eReg
    Fee:	$0

    Until your organization applies for and obtains California tax-exempt status, it is subject to franchise and income taxes. This includes $800 minimum franchise tax. You do not need to register with the Franchise Tax Board, but you may need to pay tax until you receive your exemption.

    Guidance:	Introduction to Tax-Exempt Status
    More Information:	State of California - Franchise Tax Board https://www.ftb.ca.gov

11. Apply for 501(c)

    Applying for 501(c) tax exemption can feel like the most daunting step in bringing your nonprofit dream into reality, but obtaining tax exemption comes with many benefits. You will be able to apply for grants and grow your fundraising success in addition to being exempt from IRS income tax. 501(c) is the chapter of the Internal Revenue Code that regulates nonprofit organizations. Like others, you may be most familiar with 501(c)(3) nonprofits, including charities and foundations. 501(c)(3) nonprofits apply using Form 1023 or Form 1023-EZ. Review the criteria for each application and make sure you meet the eligibility requirements set out by the IRS. Other types of nonprofits, including 501(c)(4)s and 501(c)(6)s, apply using Form 1024. After reviewing and approving your application, the IRS will return a Determination Letter officially recognizing your exemption.

    Completing the federal application for tax exemption is significantly easier with the assistance and support of a professional. Find someone with the expertise to ensure the correct application is being used and is completed accurately. A well-prepared application takes time, over 100 hours by IRS estimates, so put yourself on the path to success by finding a specialist to walk alongside you in the journey - from start to tax-exempt finish!

    Agency:	Internal Revenue Service (IRS)
    Form:	IRS Form 1023, IRS Form 1023-EZ, or IRS Form 1024
    Instructions:	IRS Instructions for Form 1023, IRS Instructions for Form 1023-EZ, or IRS Instructions for Form 1024.  Also see guidance IRS Pub 557: Tax-Exempt Status for Your Organization.
    Filing method:	Mail
    Agency fee:	$275 for organizations filing Form 1023-EZ and $600 for organizations filing Form 1023.
    Turnaround:	1023-EZ average: <1 month. 1023 average: 3-6 months.
    Original Ink:	Not required
    Notarize:	Not required

    

    Tax-Exempt in 2 Weeks!

    Download the case study of how our client, Reform It Now, obtained 501(c)(3) tax exemption in only two weeks using the new IRS Form 1023-EZ!

    From filing the 1023EZ on August 1st to receipt of the determination letter on August 14th is, in my humble opinion, simply breathtaking and I dare say, ONLY Harbor Compliance could have achieved that.

    

    Dr. Bob A.Reform It Now, Inc.

12. Apply for State Tax Exemption(s)

    With your IRS Determination Letter in hand, make sure you familiarize yourself with your state’s requirements for recognizing your nonprofit’s tax-exempt status. This is an area where requirements vary state-by-state. Many states issue their own tax-exempt certificate that can be used for sales and use tax purposes, but it may require application and periodic renewal.

    To file to obtain exemption from state income tax:

    Agency:	California Franchise Tax Board
    Form:	Form 3500: Exemption Application or Form 3500A: Submission of Exemption Request
    Instructions:	https://www.ftb.ca.gov/forms/misc/3500bk.pdf
    Agency fee:	$25 ($0 for exemption request)
    Original Ink:	Not required
    Notarize:	Not required
    Notes:	Use form FTB-3500a if you have received an IRS Determination Letter and form FTB-3500 if you have not.

    To file to obtain Sales Tax Exemption:

    Agency:	California Department of Tax and Fee Administration
    Original Ink:	Not required
    Notarize:	Not required
    Notes:	Few nonprofits are eligible for sales tax exemption in California. Volunteer fire departments, veteran's organizations, qualifying youth organizations, religious organizations, and few others may be eligible for exemption. See the Sales and Use Taxes: Exemptions and Exclusions guide to see if your organization is eligible to apply for an exemption.

    Exemption from local property taxation, known as the Welfare Exemption, is available to qualifying organizations through a program jointly administered by the Board of Equalization and county assessors' offices in California.

    Guidance:	California Tax Service Center - Nonprofit/Exempt Organizations
    More information:	California State Board of Equalization http://www.boe.ca.gov

13. Register for Charitable Solicitation (Fundraising)

    This is another area where laws differ from state to state, but most states require any nonprofit soliciting donations to register to do so on an annual basis. This means registering in the state prior to soliciting any resident of that state. Registering in your home state in essential, but you may also need to register other states depending on the scope of your organization.

    California Charitable Solicitation Registration

    Agency:	California Attorney General - Registry of Charitable Trusts
    Law:	California Government Code § 12585; California Code of Regulations, Title 11 § 300

    One-Time Exemption Registration

    More Details

    Exemption Eligible Organizations:	Religious organizations Most educational institutions Nonprofit hospitals
    Original Ink:	Not required
    Notarize:	Not required
    Notes:	If you believe you are exempt, make a request in writing to the California Attorney General's Office prior to soliciting. You will receive an exemption letter in return.

    Initial Registration

    More Details

    Form:	Form CT-1: Initial Registration Form
    Instructions:	Initial Registration Guide
    Filing method:	Mail
    Agency fee:	$25
    Original Ink:	Not required
    Notarize:	Not required
    Notes:	Your organization must register within 30 days of receiving assets (property, funds, etc) that are held in a trust. Note the list of attachments required. Any authorized or director may sign. Signature need not be notarized. Some California counties and municipalities may require charities that solicit in-person to register prior to fundraising.

    Registration Renewal

    More Details

    Form:	Form RRF-1: Annual Registration Renewal Report
    Filing method:	Mail
    Agency fee:	$0-$300 depending on gross annual revenue.
    Due:	Renewal is due annually 4 months and 15 days after the close of your organization's fiscal year. If your fiscal year closes December 31, then renewal is due May 15.
    Original Ink:	Not required
    Notarize:	Not required
    Penalties:	Failure to submit renewal on time can result in loss of tax exemption and assessment of minimum tax of $800, plus interest, and/or fines or filing penalties. The Attorney General will notify the California Franchise Tax Board to disallow your state tax exemption. Directors, trustees, officers, and return preparers are personally liable for these fees and penalties - you cannot use charitable assets to pay them, they must be paid out of of pocket!
    Notes:	Note the list of attachments required. Any authorized or director may sign. Signature need not be notarized.

    Change of Fiscal Year

    More Details

    Form:	Form RRF-1: Annual Registration Renewal Report
    Agency fee:	Varies
    Original Ink:	Not required
    Notarize:	Not required
    Notes:	File the renewal application for the new fiscal year along with a letter stating that the organization has changed their fiscal reporting period.

    To fundraise nationally or online, please see our Fundraising Compliance Guide. Our services manage your initial, renewal, and exemption filings in every state.

14. Obtain Other Business Licenses & Permits

    Running your nonprofit corporation legally also means securing all applicable licenses and permits. The range of local, state, and federal requirements is wide. Access resources like the Small Business Administration Business License & Permit look-up tool and search by your business type and locality.

    In California:

    • Bingo is subject to state and local oversight. Apply for a bingo license in your city and/or county. The California Registry of Charitable Trusts ensures that the funds go towards charitable purposes.
    • Raffles require an additional filing and fee when filing your annual registration form with the Attorney General's Registry of Charitable Trusts.

You’ve made it! You turned your passion into a legitimate nonprofit corporation exempt under IRS 501(c) and are benefiting your community. That solid foundation on which you built your organization requires ongoing maintenance. Investing in maintaining compliance with all of the government agencies is an ongoing responsibility and commitment needed to ensure your vision continues long into the future. Check out our compliance guide to learn more!

Once you have registered your nonprofit per the steps listed above, you will need to maintain compliance with all of the government agencies. Staying current with the IRS and state requirements is an ongoing responsibility. Continue reading our California nonprofit compliance guide to learn more!

Continue reading "California Nonprofit Compliance"

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