When you want to help make your community a better place by starting a nonprofit corporation, there are specific steps you must take.
California nonprofit corporations may be for any charitable, educational, religious, humanitarian, or other purpose that’s not going to be for-profit. Learning how to form a nonprofit in California isn’t difficult with the right information. In this guide, we’ll show you how to do it and apply for tax-exempt status.
California law requires a minimum of one director, but to form a committee, you must have at least two board members. The state doesn’t have any residency or membership requirements, but it does set term limits. Terms last one year, and directors can only serve four terms unless there aren’t any members, in which case directors can serve up to six years. The Internal Revenue Service requires nonprofits to have at least three board members, but it doesn’t have any requirements on term limits.
Review naming restrictions for California nonprofit corporations before choosing a name. California’s Secretary of State won’t allow you to choose a name that’s misleading. Your name must be different from the names of any existing corporations or foreign corporations that do business in California. You can’t choose a name that’s already reserved by another corporation. California doesn’t require you to include Incorporated, Inc., or LLC in your name.
Search California’s business name database to check name availability. See if there are any website domain names available that match your nonprofit name of choice. Our domain name service can help with this. You can also reserve a business name for 60 days so you don’t lose it while you decide whether it’s the name you really want.
An agent for service of process may also be called a registered agent. Your agent receives notice of lawsuits and other important legal documents for your nonprofit and makes sure you get them in a timely manner. Corporations and LLCs must appoint a registered agent to act as the primary contact for the Secretary of State.
Your agent must live in California, have a local address that becomes a public record, and be available during normal business hours. You can act as your own agent for service of process. However, it may be inconvenient to always be available at the address on file during all regular business hours. If you don’t want to act as your nonprofit’s registered agent, you can use our registered agent services.
Your California nonprofit corporation is legally created when you file your California Articles of Incorporation. These articles identify the name and purpose of your nonprofit corporation. You must list your agent for service of process, including their name and address. Your articles must include the corporation’s street address and mailing address if it’s different. Limitations on your corporation’s operations matching its tax-exempt status and appropriate dissolution and dedication clauses are also required.
Foreign nonprofit corporations include out-of-state and out-of-country organizations. To do business in California, these corporations must file a Statement and Designation by Foreign Corporation with the California Secretary of State. They must include a Certificate of Good Standing from the agency in the state or country of their corporation’s origin with their application.
New nonprofit corporations must submit an Initial Statement of Information (Form SI-100) to the Secretary of State within 90 days of incorporating in California. On this statement, you’ll update your nonprofit’s contact and membership information, including its principal officers and agent for service of process. You can file your Statement of Information online or by mail along with a $20 fee. You must submit a new statement every other year before the end of your nonprofit’s anniversary month, with a $20 fee each time.
Your corporate bylaws should include your nonprofit’s specific purpose, which is often your mission statement, and the core values of your organization. You’ll also outline rules for handling your nonprofit’s activities and affairs. Bylaws typically include a list of your corporation’s officers. California law requires there to be a president, secretary, and treasurer. Other things your bylaws typically contain include:
During your first board meeting, board members adopt bylaws and the conflict-of-interest policy, establish a fiscal year, elect authorized directors, and appoint officers. They also must approve:
Directors may also sign written consents to receive electronic transmissions, which is required by California law to conduct official business electronically.
Your corporate records binder is where you keep copies of all your corporate records and proceedings. It doesn’t have to be fancy. Many organizations use three-ring binders. Alternately, you can store your records on a computer hard drive, flash drive, or in the cloud. Your records binder typically includes:
Apply for a Federal Employer Identification Number (EIN) from the IRS after your nonprofit corporation is legally formed. You can apply for your Federal EIN online or get assistance from our EIN service. If your nonprofit will have employees, you also must get a State Employer Identification Number. After you get your FEIN from the IRS, apply for your SEIN through the California Employment Development Department.
California businesses must have a general business license to operate. Licenses are issued at the local level. If your business is in an incorporated city, contact the city. If it’s in an unincorporated area, contact the county.
Your nonprofit may need additional licenses or permits, and it’s your responsibility to obtain them. Licensing and permits are mandated by law. Failure to meet requirements could lead to late fees, penalties, loss of tax-exempt status, and loss of corporate status. CalGOLD is an online permit assistance tool that may help you find local, state, and federal permit information, but some licensing is industry-specific. Get help with your licensing and permit requirements with ZenBusiness’s business license report service.
Establishing your IRS tax exemption status as a 501(c)(3) nonprofit organization is a challenging part of forming a California nonprofit corporation. The application contains a lot of legal jargon that can be difficult to understand. You can file your application electronically at Pay.gov. There’s a fee of $600 for Form 1023 and $275 if you’re eligible to use Form 1023-EZ.
After receiving your 501(c)(3) federal determination letter, you can request state tax exemption from the California Franchise Tax Board. The FTB usually recognizes your exemption from state income taxes as of the effective date of your federal tax exemption. Filing Form 3500A is free. You must file Form 3500 and pay a $25 application fee if you don’t have a 501(c)(3) federal determination letter.
Charitable corporations file Form CT-1 with the California Attorney General’s Registry of Charitable Trusts to register as a charity. Applications must include your Articles of Incorporation and bylaws and be filed within 30 days of receiving your charitable assets. Assets include public donations, government grants, property, non-cash donations, or any contribution of value. The initial registration fee is $25, and there are annual renewals and reporting requirements.
When it comes to insurance for nonprofit corporations, one size doesn’t fit all. Insurance requirements depend on the type of organization you have and many other factors. Talk to a qualified insurance agent to help you determine your exact insurance policy needs.
Types of insurance plans you may want to acquire include general liability, property, auto, product liability, directors and officers, and professional liability coverage. If you have employees, you need additional insurance under federal and state insurance requirements. You must have workers’ compensation and unemployment insurance, and you may need disability insurance.
Use your FEIN to open a bank account for your California nonprofit corporation. You may also need a copy of your nonprofit Articles of Incorporation and bylaws. Check with the bank to see if they have further requirements.
Guard your nonprofit’s bank account from theft and embezzlement by limiting the number of people who can sign checks. Also, require two signatures on checks over a certain amount and assign different people to handle deposits and record receipts. Reconcile your bank account regularly to make sure disbursements match entries recorded in your books.
At ZenBusiness, we are proud to support small businesses through a variety of different tools and services. Whether you need a registered agent service or a domain name for your website, our goal is to help you stay on the road to success. Check out our services, and contact us today to see how we can help you grow your company.
The founder of a nonprofit can be paid a fair salary for running the organization. While there aren’t any set rules on how much a founder may be paid, the IRS audits founders’ salaries to see if they’re being overpaid. Make sure salaries match responsibilities, experience, and time spent working for the nonprofit or you risk getting a penalty from the government.
There are various fees when you form a California nonprofit corporation, including a $30 fee for filing your Articles of Incorporation. There’s also a $20 fee for filing your initial Statement of Information. You’ll pay $275 or $600 to file for federal tax exemption based on the form you’re allowed to use. State tax exemption can cost $25, and the initial fee for registering your charitable organization is $25.
Nonprofits make money from their various activities to cover their expenses. If these activities match the nonprofit’s purpose, then any profit they make isn’t taxable as income. Your organization pays taxes like any other business if it makes money from an activity not related to its purpose.
Businesses whose purpose is to prevent cruelty to children or animals, promote amateur sports competitions, or support public safety testing can be nonprofit. Additionally, businesses with literary, educational, scientific, or any charitable purposes that are not-for-profit can be nonprofit.
Nonprofits can sell products, and sales may be tax-exempt if you meet specific qualifications. You can sell tax-exempt products if your nonprofit is for charitable purposes, qualifies for welfare exemption on property taxation, and works to relieve poverty. It must clean, repair, or gather the items to be sold or donated. Contact the California Department of Tax and Fee Administration to check on a Resale Certificate.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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