If you want to start a nonprofit in California, there are certain steps you will need to take. Here’s what you need to know.
How To Start A Nonprofit
In California, there are two parts to the process of starting a nonprofit, forming a nonprofit corporation, and getting your federal and California state tax exemptions.
- Forming A Nonprofit Corporation - Here are the steps to form a nonprofit corporation.
- Choose The Initial Directors - You must have at least one director on your board.
- Choose A Name - The name of your nonprofit corporation can’t be the same as or too similar to an existing corporation name on record with the California Secretary of State. To check if the name you want is available, you can check the Business Search database on the Secretary of State's website. To do an official name availability check, mail a Name Availability Inquiry Letter to the Secretary of State's office. If you want to prevent another corporation from registering the name you want while you prepare and file your articles, you can reserve a name for 60 days by filing a Name Reservation Request Form.
- Prepare And File Articles Of Incorporation - In order to create your nonprofit entity, you will have to file articles of incorporation for a nonprofit with the California Secretary of State. Your articles of incorporation must include information such as:
- the name of your nonprofit
- the following statement: "This corporation is a nonprofit public benefit corporation and is not organized for the private gain of any person. It is organized under the Nonprofit Public Benefit Corporation Law for (public or charitable [insert one or both]) purposes."
- the name and street address in California of the corporation's initial agent for service of process
- the initial street address of the corporation
- the initial mailing address of the corporation, if different from the initial street address.
To receive tax-exempt status from the IRS and the state of California, you'll need to have certain specific language in your articles, including:
- a statement of purpose that meets IRS requirements
- statements that your non-profit will not engage in prohibited political or legislative activity, and
- a dissolution of assets provision dedicating your assets to another 501(c)(3) organization upon dissolution.
- Prepare Bylaws - Before you file your articles of incorporation, you'll need to have bylaws that comply with California law. Your bylaws contain the rules and procedures your corporation will follow for holding meetings, electing officers and directors, and taking care of other corporate formalities required in California. Your bylaws do not need to be filed with the state, they are your internal operating manual.
- Hold A Board Of Directors Meeting - Your first board meeting is usually referred to as the organizational meeting of the board and should include actions such as:
- approving the bylaws
- electing directors (if not named in your articles)
- appointing officers
- setting an accounting period and tax year, and
- approving initial transactions of the corporation, such as the opening of a corporate bank account.
- After the meeting is over, make sure to create accurate minutes that record the actions taken by the board.
- Create A Corporate Records Binder - Set up a corporate records binder to hold important documents such as articles of incorporation, bylaws, and minutes of meetings.
- Getting Tax Exemptions - Here are the steps for getting federal and California state tax exemptions.
- File Your Federal Tax Exemption Application - You will need to complete and file IRS Form 1023, Application for Recognition of Exemption. This form asks for information about your organization, including its history, finances, organizational structure, governance policies, operations, activities, and more. Smaller nonprofits can file Form 1023-EZ, Streamlined Application for Recognition of Exemption.
- Get Your California State Tax Exemptions - Once you have your federal tax exemption, you can get your California state tax exemption. This can include exemptions from income, property, sales, and other state taxes. The website for California's tax agency, the Franchise Tax Board, will have the form you need to file to obtain your state tax exemption, FTB 3500A, Submission of Exemption Request.
- Other State Reporting And Registration Requirements - Depending on your activities and the size of your organization, you may need to register with the state before doing any fundraising activities. The Office of the Attorney General, Registry of Charitable Trusts division, has information and forms about fundraising and registration requirements for nonprofits in California.
If you want to learn about our charity program, you can read, “How Local Charities Can Benefit from Ellipsis Charity Program”, or contact us.
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