Starting a Nonprofit Corporation in California is governed by the Nonprofit Corporation Act of California.
Scope of Nonprofit Corporation Act, California :
The Act is applicable to start 501C3 organizations under the subcategories of charitable, educational, religious, recreational, social or similar purposes organization.
The California Nonprofit Corporation Act is divided into III sections –
I) Sections 5110 onwards: These sections are applicable if you plan to start a public benefit organization. – This primarily includes all public charities that plan to seek federal tax exemption under section 501(c)(3) of the IRS code or state tax exemption under the California Revenue and Taxation Code section 23701(d).
Also included under this sections are social welfare organizations or civic leagues which plan to obtain exemption under section 23701(f) of the California Revenue and Taxation code or under the sections relevant for Social welfare organizations under the IRS code.
II)Section 7110 onwards: These sections will apply if you plan to start a religious organization – like churches, synagogue or other similar religious organization.
III)Section 9110 onwards: These sections will apply if you want to form a mutual benefit organization – This category include organizations which are formed for the purpose of benefiting its members – like clubs, trade unions and cooperatives.
Steps to Start a Nonprofit Organization in California
The following steps are required to start a nonprofit organization in California:
Step 1: Draft the statement of Purpose
Step 2: Select a Name
Step 3: Obtain E.I.N
Step 4: Prepare Organizing Document (Articles) & the Bylaws.
Step 5: Prepare Organization’s Bylaws
Step 6: Filing the documents
Step 1: Draft the Statement of Purpose
The office of secretary of states, California does not require a written statement of purpose.
This has been made compulsory by IRS for all organizations that plan to seek tax exemption.
IRS has also specified certain clauses to be compulsorily included in the statement of purpose.
Step 2: Select a Name :
The California Nonprofit Corporation Act does not specify any rules for naming a nonprofit organization or about using any corporate designators.
However, the following rules are still applicable:
a) The name should be unique and should not resemble the name of any other organization in existence in the state.
b) The name should not indicate of a misleading purpose.
c) The name should not contain negative words – words that refer to any public organization (words like “bank”, “park” etc ).
Step 3: Obtain E.I.N
Before you form a nonprofit organization, you must obtain the Employer Identification Number (“EIN”) from the IRS.
Once you have finalized a name for the organization, obtaining an EIN is a 5-minutes online process.
Step 4: Prepare Articles
The existence of a nonprofit organization is legally evidenced by its organizing document. The organizing document may be called by different names depending upon the kind of organization you decide to form.
If you want to start a nonprofit corporation – the organizing document is called the “Article of Incorporation”. For a nonprofit association – it is called an “Article of Association” and for a trust – you would simply call it the “Trust deed”.
The Nonprofit Corporation Act of California specifies the following rules for drafting the articles:
a) The minimum number of directors for a California organization is 1. There is no upper cap on the number of directors.
b) The articles of Incorporation must clearly specify whether the corporation would be a public benefit, mutual benefit or religious organization.
c) The articles must include the name and exact street address of the initial agent for service of process. (P.O box number is not acceptable)
d)If the organization plans to seek state tax exemption, the articles must include an exact statement as specified by the Franchise Tax Board, California.
e) Similarly, if the organization wishes to seek federal tax exemption – a reference to the section under which the exemption is sought must be made in the articles.
Click here to Download Sample California Article of Incorporation
Note: This is a minimalistic version – add the IRS & other desired clauses.
Step 5: Prepare Organization’s Bylaws
The bylaws of a nonprofit organization specify rules for its day to day operation. It is the second most important document for an organization(after the articles).
Unlike Articles, the bylaws need not be written in any specific format. Do however consider the following while drafting the bylaws:
a) The organization may or may not allow members.
b) The director’s quorum specified in articles or bylaws should not be less than 1/5th.
c) Members quorum specified in articles or bylaws should not be less tan 1/3rd of the total voting membership of the organization.
d) Maximum director’s term should not exceed 3 years for membership corporations and 6 years for non membership corporations.
e) Officer requirements – The organization must appoint at least 3 officers – the president (or designated as the chairman), the secretary and the chief financial officer.
Click here to download a sample bylaw for a California Nonprofit
Step 6: Filing the Formation Documents
A nonprofit organization comes into formal legal existence upon successful filing of the documents with the Secretary of State, Sacramento, CA 94244-2600.
Up-to two certified copies of the filed documents can be obtained from the Secretary of State as an evidence of formal incorporation of the organization.
Filing is required, only if you wish to form a nonprofit corporation. The Articles need not be filed if you start a nonprofit association.
Filing fee : The current filing fee is $30(check with the office for latest rates). A additional special fee of $15.00 is payable(through separate check), if the filing is done in person.
Additional fee is applicable for a pre-cleareance, expedited filing or if you are requesting for guaranteed time frame filing.
Payments can be done through checks, money order or through credit card drawn in favor of the Secretary of State, California.
Where to file: The articles and bylaws, duly signed by all incorporators must be delivered along with the check(s) for filing fee.
Address for filing:
a) By mail: To Secretary of State, Document Filing Support Unit, P.O. Box 944260, Sacramento, CA 94244-2600.
b)In person: To Sacramento Office, 1500 11th Street, 3rd Floor, Sacramento, CA or To Los Angeles Regional Office, 300 South Spring Street, Room 12513, Los Angeles, CA.
(Working hours – 8:00 a.m. and 4:30 p.m., Monday – Friday (excluding holidays).
A nonprofit organization comes into formal legal existence on the date its articles are filed. The organization is required to keep a copy of the filed documents as a proof of its formation.
The process of Incorporation, as detailed above is not the only way to form a nonprofit organization.
A nonprofit may also be organized as an association. An association does not need to file its article – it comes into existence by the mere act of its signing and adoption by the members.
However, California is still reviewing and has not yet adopted the Uniform Unincorporated Nonprofit Association Act (UUNAA).
Until California adopts UUNAA, an association has no separate legal existence from its founders. This can be risky – the members would be personally liable for all the actions of the organization.
If members are ready to share the liabilities of the organization – you may also consider forming a nonprofit association.
- History & Background of nonprofit associations, Nonprofit Central
- The California Association of Nonprofit
- Office of Secretary of States, Business Programs Division, California
- Official website of legislative counsel of California, pursuant to California law
- Internal Revenue Services
- Franchise Tax Board, Sacramento, California
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