How to Start a Nonprofit in California
Welcome to our California Nonprofit Startup Guide! If you’re passionate about helping others and have an idea to serve your community, starting a nonprofit is a great way to turn your vision into a reality. There are many different types of nonprofits - religious, educational, human service oriented, animal welfare, and more. What all nonprofits have in common is a focus on helping others and benefiting their community. You are genuinely committed to these goals so you are already well on your way!
According to the National Center for Charitable Statistics, there were over 147,000 nonprofit organizations in California in 2012. Before you start a new nonprofit, make sure you have identified an unmet need in your community and know that there are not any existing organizations serving your cause. If another organization exists, consider working together, as that may be a better way to make an impact in your community and use existing resources.
When you are ready to start your nonprofit, plan to incorporate and apply for 501(c)(3) status, as these are important steps to fully achieve your goals. As a 501(c)(3) nonprofit, you will be able to apply for grants and accept donations, be exempt from federal corporate income tax, and limit the liability of your organization’s officers and directors. Most importantly, you will gain credibility and legitimacy for your cause, instilling the public with confidence in your organization.
This guide will walk you through the basic steps to start your nonprofit in California. Let’s get started!
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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 searchSuffix: Not required. CCC §5122.a
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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.
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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.
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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.
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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
State 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
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File Initial Report
After filing articles of incorporation, you must file an initial report.
Penalties: Failure to file this Statement of Information by the due date may result in the assessment of a $50.00 penalty.
Agency: California Secretary of State - Business Programs Division Form: Filing method: Mail, in-person, or online.
State fee: $20
Turnaround: Online version is filed in 1 business day.
Due: You must file an initial report within 90 days of incorporation.
Law: California Corporations Code section 6210
Notes: - We recommend filing online.
- Every domestic nonprofit corporation formed to manage a common interest development under the Davis-Stirling Common Interest Development Act (for example, a homeowners’ association) must also file a Statement By Common Interest Development Association (Form SI-CID) together with the biennial Statement of Information.
- Original signatures are not required.
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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: Guidance: 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.
Notes: The IRS website is only available during certain hours. Print your EIN before closing your session.
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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.
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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.
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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.
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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.goFiling 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.govFiling 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 -
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: 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
State Fee: $275, $400, or $850, depending on form and annual gross receipts
Turnaround: 1023-EZ average: <1 month. 1023 average: 3-6 months.
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Dr. Bob A.Reform It Now, Inc. -
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:
To file to obtain Sales Tax Exemption:
Agency: California State Board of Equalization Form: Instructions: Pub-18: Tax Tips for Nonprofit Organizations and Pub-61: Sales and Use Taxes: Exemptions and Exclusions
State fee: $0
Notes: California provides some forms for specific exemptions, but nonprofits should make a special request application including: Organization type, a letter describing your practices and activities, letters from the California Franchise Tax Board and the IRS to verify your tax exempt status, and a copy of the organizations articles of incorporation or bylaws. Prior to filing this request, organizations must have obtained 501(c) exemption as well as California Franchise Tax 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 -
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.
To file in California:
Agency: California Attorney General Exemptions: Not many. Even small nonprofits must register. 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. The most common exemptions are:
- Religious institutions
- Educational institutions
Check the law for the full list of exemptions and exemption criteria.
Form: Instructions: Guide for Initial Registration with the Attorney General's Registry of Charitable Trusts and California Attorney General's Guide for Charities
Filing method: Mail
State fee: $25
Due: Your organization must register within 30 days of receiving assets (property, funds, etc) that are held in a trust.
Law: California Government Code §§ 12580-12599.7; California Code of Regulations, Title 11, §§ 300-307,311,999.1
Notes: - 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.
URS: No To fundraise nationally or online, please see our Fundraising Compliance Guide. Our services manage your initial, renewal, and exemption filings in every state.
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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!
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Fast Facts
Below is an overview of the paperwork, cost, and time to start an California nonprofit.
Paperwork
- Articles of Incorporation, either:
- Form ARTS-MU - Mutual Benefit Corp
- Form ARTS-PB - Public Benefit Corp
- Form ARTS-RE - Religious Corp
- Form ARTS-CID - CID Corp
- Form SI-100: Statement of Information
- Bylaws
- IRS Form SS-4: Obtain an EIN
- IRS Form 1023: 501(c) Tax Exempt Application
- IRS Determination Letter
- Form FTB-3500: Exemption Application or Form FTB-3500a: Submission of Exemption Request
- URS Charitable Registration, if applicable
Cost
- Incorporation: $30 by mail or $45 in-person + optional $250-$500 preclearance service + optional $350-$500 expedited filing service
- Statement of information: $20
- 501(c): $400 or $850 IRS fee
- California FTB exemption: $25 ($0 for exemption request)
- California charitable registration: $25
Time
- Incorporation: Current state processing times or pay for preclearance and expedite services
- Statement of information: ~1 business day
- 501(c): 2 weeks to 3 months
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