Social concerns are often the reason nonprofit organizations are formed. The heart of a nonprofit organization is often raising funds to serve a community, such as scientific research funding, or helping solve a community wide problem. In California you must meet certain requirements to operate as a 501(c)(3) organization. Here’s a guide for you to use as your California nonprofit checklist.
1. Determine Your Nonprofit Type
California recognizes three types of nonprofit organizations: public benefit, mutual benefit and religious. A public benefit organization operates as a charity or works toward community goals. A mutual benefit organization, by contrast, serves its members instead of the public. Homeowners’ associations and fraternities are examples of mutual benefit entities. A religious nonprofit is typically a corporation that operates a church or other faith-based program.
All three types of nonprofits can obtain tax-exempt status, but only public benefit and religious corporations can obtain charitable tax-exempt status. Most nonprofit organizations in the state fall under the public benefit umbrella. At the start of 2020 California had 144,728 nonprofit organizations, of which 123,321 were public charities. The number of private and public foundations stood at 11,891.
2. Form Your California Nonprofit Organization
To launch a California nonprofit corporation, you’ll need to take the following basic steps:
- Choose a name: The organization’s name should reflect its cause. Make sure it hasn’t been taken yet in California. You can find out by putting name ideas in search engines and using the Secretary of State’s online tools.
- File Articles of Incorporation: This document creates your nonprofit organization as a corporation once it’s filed and approved by the Secretary of State. It should include the firm’s name, street and mailing address, purpose, agent for service of process, operational limitations and relevant clauses.
- Get an EIN: Every organization will need an Employer Identification Number (EIN) whether you have employees or not. It is essentially a tax identification number for businesses and other entities similar to how our social security number is the tax identification number for us as individuals. You can apply for this number online at the IRS.gov website.
- Appoint board members: You will need a Board of Directors. It’s best to appoint at least 3 directors and the appointment process can be done by naming directors in the articles of incorporation or through an official act of the person who filed the articles.
- Hold your initial board meeting. Corporate governance is all about authority, and nonprofit organizations are no different. The governing authority is held and exercised by the board of directors through board meetings. The initial board meeting should be spent passing all the necessary resolutions to enable the organization to legally operate.
- Establish Bylaws: Bylaws should primarily be about corporate authority and governance. They should identify how authority is distributed among members, directors, committees, and officers. Most important is that your bylaws comply with the California Corporations Code. If not, then that particular section of your bylaws is invalid which can lead to significant problems for board members or the organization.
- File Form CT-1: You can get your CT-1 form from the California Attorney General’s website. It serves as your organization’s initial registration with the state. This form is required for most public benefit organizations.
- File Form SI-100: The Statement of Information form must be filed with the Secretary of State within 90 days of the incorporation date. You can file online.
- Apply for Federal Tax Exemption with IRS Form 1023: In order to gain tax-exempt status for federal income taxes, you’ll need to submit Form 1023 to the IRS. This step is the most complicated part of the process. Then wait for a determination letter from the IRS.
- Apply for State Tax Exemption with FTB Form 3500A: This final step in setting up your nonprofit organization requires that you obtain tax-exempt status from the California Franchise Tax Board (FTB). You’ll need to send Form 3500A along with a a copy of your determination letter from the IRS to the FTB. Organizations that lack a federal determination letter need to file the longer form 3500 to finalize exemption from state income tax.
3. Work with an Attorney
Many nonprofit organizations are set up without the help of a legal professional, but you might consider hiring an experienced attorney if you want your startup to run seamlessly. Some of the typical problems that disrupt a nonprofit organization early on are bylaws that don’t comply with the law or boards of directors that don’t understand the hierarchy of governing authorities necessary to follow in governing the organization. An attorney can help prepare bylaws and train board members that will bring clarity and understanding.
4. Promote Your Nonprofit Organization
There are many ways to promote your nonprofit organization through online channels and traditional media. Your group’s cause will play a major role in the types of partners you attract who can help spread the word. Just like with building a commercial brand, you need to reach a mass audience with your messages. For many nonprofit startups the low-cost solution is to rely on digital marketing techniques.
Any organization can gain online visibility through search engine optimization, along with pay-per-click (PPC) online ad campaigns. While SEO techniques such as crafting a blog series help develop long-term loyal followers, PPC can accelerate traffic to your website faster. Be sure also to become familiar with the IRS rules concerning substantiation of donor gifts.
5. Funding Solutions
The easiest way to get a nonprofit organization moving is to start with all volunteers. As money comes in from fundraising activities, you can eventually determine with your board members if money should be used to hire staff.
Developing fundraising strategies for your cause may come in the form of donations, sponsorships, program fees, and government grants. Donations can be raised online with crowdfunding platforms and through forms on your website. Sponsorships can come from businesses interested in promoting your cause. Government grants can be the largest source of funding for a nonprofit organization, up to millions of dollars. You can find applications for grants of various sizes at Grants.gov.
Start Creating Your California Non-Profit With One Call
Developing a California nonprofit organization can improve the quality of life for members of your community. It can even create good-paying jobs. The main purpose of a charity is to concentrate on raising tax-free money for a specific cause. Filling out forms and finding board members are the initial steps to getting your nonprofit organization off the ground, and are best handled when overseen by a trusted and experienced legal team. At Daryl Reese Law, we are here to walk you through the startup process, and help see your nonprofit organization achieves its long term goals. That’s why the first step in the road to a thriving and beneficial nonprofit is contacting your trusted legal source at Daryl Reese Law today.