So, you want to save the world? Starting a nonprofit is a great place to start. California is thefifth-largest economy in the world and the largest economy in the United States. The California economy includes144,728 nonprofit organizations.
With over a hundred thousand nonprofits, competition for your nonprofit is fierce. If you are well prepared at the beginning, starting a nonprofit will be easier. We have created a step by step guide for you to start a nonprofit in California. Follow each step in order, and use the links we have provided to make this process even simpler.
14 Steps to Starting a Nonprofit in California
- Name Your Organization
- Select Your Corporate Structure
- Appoint Your Board of Directors
- Appoint a Registered Agent
- File California Articles of Incorporation
- File Initial Report
- Apply for an Employer Identification Number (EIN)
- Establish Nonprofit Bylaws
- Register with the California Attorney General’s Registry of Charitable Trusts
- Apply for Federal Tax Exemption
- Apply for California State Tax Exemption
- Register for Charitable Fundraising
- Create a Nonprofit Bank Account
- Submit an Annual Report
1. Name Your Organization
What’s in a name? Well, that depends on what name you choose? Choosing a name for your nonprofit can be the most fun and overwhelming experience when starting your nonprofit. You will want to make sure the name tells people what your organization does and is interesting enough to catch their attention.
Once you decide on your name, the next step is making sure the name is available. There are thousands of nonprofits in California, which means you will want to make sure no one else has your name. The CaliforniaSecretary of State website includes a business search. You will need to enter your nonprofit name into the search to determine whether you can use that name. This website is straightforward and includes tips to help you in your search.
2. Select Your Corporate Structure
The next step in starting a nonprofit in California is choosing a corporate structure. There are four corporate structures a nonprofit corporation can choose from in California:
- Religious Corporations: This corporate structure is used for organizations with religious purposes. Churches, mosques, synagogues, and other religious organizations fall under this structure.
- Public benefit corporations: This is the most common option for nonprofits. Organizations who choose this corporate structure will file for an IRS tax exemption. Nonprofits under this corporate structure are organized for charitable purposes. They act as a civil league or a social welfare organization.
- Mutual benefit corporations: Nonprofits that choose this corporate structure may or may not seek an IRS tax exemption. These corporations also may not create an impression that their organization’s purpose is public, charitable, or religious.
- Mutual benefit common interest development (CID) corporations: This corporate structure was created under theDavis-Stirling Common Interest Development Act. An example of corporations using this structure is a homeowners’ association. These organizations can be unincorporated.
3. Appoint Your Board of Directors
Once you have chosen your name and corporate structure, it is time to decide your organization’s Board of Directors. The Board of Directors is the leadership team of your organization. Board members will be the decision-makers regarding the nonprofit’s policies and activities, human resources, and fundraising, to name just a few. They also have legal and financial duties to the organization and the board.
California requires a minimum of one director, but the IRS will rarely give tax-exempt status to organizations with less than three directors. Depending on the nonprofit’s size and purpose, it is generally recommended that you have three to twenty-five board members.
California does not have a residency requirement, but there are term requirements. Each member is expected to serve at least one year. A board member can serve four years maximum unless the organization has no members, then the maximum is six years.
Any committee formed must include two directors. When calling anything to vote, there must be a majority present, and no director can vote by proxy.
Choosing the right board members for your organization can be tricky, but it is one of the most important decisions when starting a nonprofit organization. To learn more, visit our post on How to Find Nonprofit Board Members.
4. Appoint a Registered Agent
A Registered Agent is responsible for receiving and submitting legal notices and documents for the organization. This can be done by an individual, either on the board or not, or a company that is physically located in the state that maintains an office that is open during regular business hours.
5. File California Articles of Incorporation
This step is when you legally create your corporation in the state of California. When filing your Articles of Incorporation, you will need toinclude the following:
- Organization Name
- Organization Address: The address must be a physical address in the state and not a PO box at this point.
- Registered Agent: You will also need to include the name and address of your Registered Agent.
- Organization Purpose: It is important this description of your organization’s purpose is the same when you apply for IRS tax-exempt status.
- Limitations on corporate powers.
The Articles of Incorporation will need to be signed by an incorporator or by the initial board of directors named in the articles of incorporation. You will not need to include titles for these board members.
The form to file for California’s Articles of Incorporation isFORM ARTS-PB-501(c)(3). This form is used by corporations seeking tax-exempt status with the IRS. This form does not mean that you are exempt from paying California income tax, which is a minimum of $800 a year. For that exemption, you will need to file Form FTB 3500 with the state of California.
6. File Initial Report
In California, once you file your Articles of Incorporation, you must file an initial report with the formSI-100 Statement of Information. This form is due within 90 days of filing your articles of incorporation and every two years after that.
The online version of this form is filed within one day. Failure to file a Statement of Information in 90 days could mean a $50 fine.
The information required on this form is similar to the articles of incorporation, with a few exceptions. The following information is required:
- Organization Name
- 7-digit file number issued by the California Secretary of State at the time of registration.
This is one of the reasons it is important to follow our step-by-step guide in order.
- Organization Address
Once again, this must be a physical address, not a PO box.
- Name and address of Registered Agent
- Name and address of the Board Directors
The Statement of information requires every corporation to have 3 board officers, but also allows these positions to be held by the same person unless your organization’s bylaws or articles of incorporation say differently. The IRS will likely require your organization to have at least three board members, so you should have the following positions held by separate individuals on your board.
o Chief Executive Officer (President)
o Chief Financial Officer (Treasurer)
7. Apply for an Employer Identification Number (EIN)
The next step is filing your organization with the IRS. You will need an Employer Identification Number (EIN) with the IRS to identify your nonprofit. Fill out the FormSS-4 to apply for your nonprofit’s 9-digit EIN. This step is quick and simple and can be done either online, by phone, or by mail. Make sure to print your EIN paperwork before you close the program for proof of this step.
8. Establish Nonprofit Bylaws
Your organization’s bylaws are the rules your board will use to address the management of your nonprofit’s activities. Your bylaws should include the following:
- Purpose or mission of the nonprofit
This should match the purpose you have written in your Articles of Incorporation.
- Director election process
The state of California requires that all board members serve at least one year, with a maximum of four years, unless otherwise stated in your organization’s bylaws.
- Quorum and majority vote for Board of Directors
The state of California requires a majority vote to meet quorum.
- How board meetings are called
- How board meetings are conducted
- The officers of the organization (Pres, VP, Secretary, Treasurer, etc)
Duties and Responsibilities of each officer
- The authorization of board and non-board committees
- Level of indemnification provided by the corporation to protect its directors, officers, and other agents
Your board of directors will be legally and financially liable for the organization. To provide protection for the organization and your board members, we recommend you read more about the 8 Types of Nonprofit Insurance That Nonprofits Can Buy.
- Reports required
- Membership structure
This is only required if your organization will include members
- Address key management issues
An example of this is a Conflict of Interest clause
- Amendment of bylaws
- Dissolution of the organization
We have written an article,Nonprofit Bylaws Made Easy: Tips and Best Practices, to clear up any questions you may have on the subject.
9. Register with the California Attorney General’s Registry of Charitable Trusts
The next step in this process is essential if your organization plans to fundraise. The state of California requires all charitable organizations that want to solicit funds in the state to register annually. Form CT-TR-1 is expected within 30 days after receipt of assets (cash or any form of property).
When filing form CT-TR-1, you should also include the following:
- Organization’s Articles of Incorporation
- Organization’s Bylaws
- Description of the primary activities of the organization
This list should include funds, property, and other assets of your organization.
- Names and addresses of outside contract fundraisers
This is only necessary if using freelance contract fundraisers.
- All states you will solicit charitable donations
Be sure to include states where you are exempt from registering but still solicit funds.
10. Apply for Federal Tax Exemption
As a nonprofit organization in the United States, you are exempt from paying all federal taxes under 501(c)(3). In addition to the appeal of not paying taxes, this exempt status also offers you the opportunity to apply for grants and funders who are looking to donate to exempt nonprofits.
To achieve tax-exempt status, you will need to fill out eitherForm 1023 orForm 1023-EZ. This application is long and can feel daunting, but the benefits far outweigh the trouble. The most detailed part of this application is the Narrative Description of Your Activities. The following will be asked:
- What is the activity?
- Who conducts the activity?
- When is the activity conducted?
- Where is the activity conducted?
- How does the activity further your exempt purposes?
- What percentage of your total time is allocated to the activity?
- How is the activity funded?
After filing for federal tax exemption, you will receive a determination letter anywhere from one to six months.
11. Apply for California State Tax Exemption
After you receive your federal determination letter, you can request California’s tax exemption usingForm 3500. If you have not received your IRS determination letter yet, you will need to fill out the more complicated form to get state tax-exemption.
If you have not received your determination letter yet, you will need to fill out a more complicatedForm 3500 for state income tax exemption.
12. Register for Charitable Fundraising
California requires that you register with the Attorney General’s Registry of Charitable Trusts, which you have already done. You will need to renew this annually by filing CT-TR-1.
Every charitable nonprofit corporation in California is also required to file FormRRF-1, even if the organization does not file Form 990s annually
This form must be filed within four months and fifteen days after the organization’s accounting period. Fees for this form are based on your nonprofit’s gross annual revenue that was reported on IRS Form 990. This is also where you must report all in-kind donations.
13. Create a Nonprofit Bank Account
After you have filed all required forms with the IRS and the state of California, you need to start a bank account for your nonprofit organization. Some banks require a resolution from your board to open a bank account, especially if you have several directors. Make sure you have done your research with the bank and bring along this resolution if required. Other forms the bank will need to include the following:
- A copy of your California nonprofit articles of incorporation
- Copy of your nonprofit’s bylaws
- Your California nonprofit’s EIN
14. Submit an Annual Report
As a nonprofit, you are required to file a 990 with the IRS every year. This filing will fulfill the Annual Report requirements for most nonprofits, but there are other reasons to create an Annual Report and include it on your website and other fundraising websites likeGuidestar.
We have written a step-by-step guide toWriting an Effective Nonprofit Annual Report on our blog.
Starting a nonprofit in California may feel overwhelming, but the process is straightforward. With enough preparation, you should have few problems. A few rules and regulations shouldn’t stop your great idea. Saving the world is a big task, and we hope our step-by-step guide helps you start this process off on the right foot.
Starting a Nonprofit in California- FAQs
1. How much does it cost to start a nonprofit in California?
Starting a nonprofit in California does not cost as much as you may fear. The following is a list of fees you can expect when starting a nonprofit:
- California Articles of Incorporation :$30
- Initial Report
- Statement of Information Form – SI-100: $20
- Federal Tax Exemption
- Form 1023-EZ: $275
- Form 1023: $600
- California State Tax Exemption
- Form 3500A: $0
- Form 3500:$25
- Form RRF-1
These fees are based on your gross annual revenue: $0-$300
*must be filed at the end of your fiscal year
2. How long does it take to start a California Nonprofit?
Once again, this process takes less time than you may expect. If you file online for your Articles of Incorporation and Initial Report, the process takes 1-3 days. Your tax-exempt status with the IRS will take the longest to arrive. You can expect a determination letter anywhere from one to six months after filing.
3. Do California nonprofits need a Registered Agent?
Yes, your organization will need a Registered Agent to be responsible for receiving legal notices for the organization. A Registered Agent can either be an individual or company based in California who has regular business hours.
4. How many board members are required for a nonprofit in California?
The state of California requires a minimum of one board member for each organization. It is recommended that your organization have at least three since the IRS will most likely not give 501(c)(3) status to an organization with less. 3-25 directors are recommended based on the size and purpose of your nonprofit.