These are the steps to create a California nonprofit 501(c),(3) corporation.
California nonprofit corporations can be used for charitable, educational, or religious purposes. It is easy to learn how to create a nonprofit in California with the right information. This guide will show you how to create a nonprofit in California and help you apply for tax-exempt status.
Reference Links for California Nonprofits
- California Secretary of State – New Business Checklist
- California Attorney General – Guide for Charities
- California Employment Development Department
- California Tax Service Center
- California Secretary of State – Business Entity Forms
- California Secretary of State – Business Entity Resources
- IRS – Information for Charities & Nonprofits
- IRS – Required Provisions for Organizing Documents
- IRS – 990 Series for Tax-Exempt Organizations
- IRS – Applying for Tax-Exempt Status
- IRS – 501(c)(3) Compliance Guide
- Small Business Administration – License and Permits
Step 1: Choose the initial directors
California law requires at least one director. However, to form a committee you must have at most two board members. Although there are no residency or membership requirements for the state, it does have term limits. Unless there are no members, terms last for one year. Directors can serve only four terms, but can serve as directors up to six years. While the Internal Revenue Service requires that nonprofits have at least three members on their boards, it does not have any restrictions regarding term limits.
Step 2: Select a name
Before choosing a name, make sure you review the California non-profit corporation naming restrictions. California’s Secretary Of State won’t permit you to choose misleading names. Your name cannot be identical to the names of existing corporations or foreign companies that do business in California. You cannot choose a name already owned by another corporation. California does not require that you include Incorporated, Inc., and LLC in your name.
To check for name availability, search California’s business names database. Check to see if any domain names are available that match your chosen nonprofit name. The domain name service may be able to assist you with this. You can also reserve your business name for 60-days so that you don’t lose the name while you decide if it’s what you want.
Step 3: Select a California Registered Agent
In California, a registered agent is also known as an agent for service of process.
Your agent will notify you of any lawsuits or other important documents and ensure that they reach you promptly. A registered agent must be appointed by corporations and LLCs to serve as the primary contact for Secretary of State.
Agents must be located in California and have a public address. They also need to be available during business hours. For service of process, you can be your own agent. It may not be possible to be at the address you have on file during regular business hours.
Step 4: Filing Articles of Incorporation With California
When you file your California Articles of Incorporation, your California nonprofit corporation becomes legally established. These articles define the purpose and name of your nonprofit corporation. Your agent must be listed for service of process. This includes their name and address. If the address is different, your articles should include it. Your corporation must also have appropriate dissolution clauses and dedication clauses in order to limit its operations.
Out-of-state or out-of country organizations can be considered foreign nonprofit corporations. These corporations must file a Statement & Designation by Foreign Corporation with California’s Secretary of State in order to do business in California. With their application, they must attach a Certificate Of Good Standing from the agency in which their corporation is located.
Step 5: Filing a California Statement of Information
Within 90 days of incorporation in California, new nonprofit corporations must submit an Initial Declaration of Information (Form Si-100) to the Secretary of State. This statement will update the contact information and membership information of your nonprofit, as well as its principal officers and agent for service. Your Statement of Information can be filed online or via mail with a $20 fee. A $20 fee is required for each new statement.
Step 6: Establish corporate bylaws
Your corporate bylaws must include the specific purpose of your nonprofit, often called your mission statement, as well as your core values. The rules will govern the organization’s activities and affairs. A list of officers for your corporation is usually included in bylaws. California law requires that there be a president, secretary, and treasurer. Your bylaws may also contain the following:
- The power of the board
- Director’s duties
- How directors are elected
- The board can take actions
- Board meeting details
- Each officer’s responsibilities and duties
- Authorizations for non-board and board committees
- If applicable, details about voting rights and procedures
- Level of legal protections provided to directors/officers/employees
- If applicable, reports to directors and members
Step 7: Call an organizational meeting of the board of directors
The board adopts the conflict-of-interest policy and bylaws at its first meeting. They also establish a fiscal calendar, elect authorized directors and appoint officers. They must also approve:
- Application for tax exemptions in the federal and state levels
- Opening a bank account
- Start-up expenses refunded
- Compensation of the president/CEO/treasurer/CFO, executive directors, etc.
Directors can also consent to electronic transmissions by signing written consents. This is required by California law in order to conduct official business electronically.
Step 8: Create a corporate records binder
Keep copies of all corporate proceedings and records in your corporate records binder. It doesn’t need to be extravagant. Many companies use a three-ring binder. Alternatively you can save your records on a flash drive or computer hard drive. Your records binder usually includes:
- Articles of incorporation
- Approval letter from IRS 501(c),(3)
- Permit(s) or business license(s).
- Annual and biennial reports
- Board member list
- Minutes of meetings in chronological order
Step 9: Get your tax ID numbers
After your nonprofit corporation has been legally established, you can apply for a Federal Employer ID Number (EIN). EIN assistance is available to assist you in applying for your Federal EIN online. You will need a State Employer Identification number if your nonprofit has employees. Once you have received your FEIN number from the IRS, you can apply for your SEIN via the California Employment Development Department.
Step 10: Apply to California permits and licenses
California businesses need a general business license to be able to operate. Licenses can be issued at the local level. Contact the city if your business is located in an incorporated municipality. Contact the county if your business is located in an unincorporated region.
You may require additional permits or licenses for your nonprofit. The law requires permits and licensing. Failure to comply with requirements can result in late fees, penalties, and loss of tax-exempt status. CalGOLD, an online permit assistance tool, may help you locate local, state, and federal permit information. However, some licensing is specific to the industry.
Step 11: Apply for tax-exempt status
It is difficult to establish your IRS tax exemption status for a 501(c),(3) nonprofit organization. It is difficult to comprehend the application because it contains lots of legal jargon. Your application can be filed electronically at Pay.gov. For Form 1023, there is a $600 fee, and for Form 1023-EZ, $275.
Once you have received your 501(c),(3) federal determination letter, the California Franchise Tax Board can grant state tax exemption. The FTB will usually accept your exemption from state income tax as of the effective date for your federal tax exemption. The filing of Form 3500A does not cost anything. If you do not have a federal 501(c),(3) determination letter, you will need to file Form 3500A and pay $25 for the application fee.
Step 12: Register with the state as a charity
To register as charity, charities must file Form CT-1 to the California Attorney General’s Register of Charitable Trusts. Your Articles of Incorporation, bylaws, and applications must be submitted within 30 days of receiving your charity assets. Assets can include property, public donations, grants from the government, and any other contribution of value. There are annual renewals and reporting requirements.
Step 13: Get insurance for your non-profit
Insurance for nonprofit organizations is not the same as traditional insurance. The type of organization and other factors will determine your insurance requirements. To determine the right insurance policy for you, speak to an insurance agent.
You may be interested in general liability, professional liability, product liability, director and officer coverage, and property and auto insurance. Additional insurance is required for employees. You will need to have workers’ compensation, unemployment insurance, or disability insurance.
Step 14: Open an account with a bank
To open a bank account in California for your nonprofit corporation, use your FEIN. A copy of your Articles of Incorporation or bylaws may be required. You should check with your bank to determine if there are any additional requirements.
Limit the number of people that can sign checks to protect your nonprofit’s bank accounts from embezzlement and theft. You should also require two signatures for checks above a certain amount. Also, you need to designate different people to deposit money and keep receipts. Regularly reconcile your bank account to ensure that disbursements match the entries in your books.