How To Start a Nonprofit in California: A 12-Step Guide
The process of starting a nonprofit in California can be a bit involved, but the rewards of running one will more than make up for the work you put into it. One thing is for sure, filing your 501c3 application marks just the beginning of an exciting journey ahead. If you are thinking about turning your idea for a nonprofit into a reality, follow this step-by-step guide so that you do not miss a beat. We are here to help no matter where you are in this process!
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Before Starting a 501c3 in California
It is important to do a little background work before you start the process in any state, but it is essential for California, as building a nonprofit here requires a few extra steps. Here are some tasks you can do to prepare ahead of time.
Outline Your Offerings
The whole formation process will be far more streamlined if you go into it with a clear idea of what your mission is and how to support it. For example, if you know that you want to "get homeless people into safe housing," think about how you plan to do that. Where are the funds going to come from? What other resources do you have to make this happen? Be very clear on the who, where, what, how, and when of the vision.
Gain Volunteer Experience
It is essential to understand the operations of a nonprofit from the ground up, especially if you are new to the nonprofit sector. Find an organization of similar scope and vision, and see if you can become a volunteer. If you explain what you are trying to do, some may even allow you to work in different roles so that you can get a strong idea of how every area operates.
Nancy is excited to gain some valuable volunteer experience before starting her nonprofit!
Finally, take some time to understand just what is required to start a nonprofit in California. For example:
There are three corporate structures for California nonprofits: religious, mutual benefit, and public benefit corporations.
In California, your nonprofit will need to register with the Attorney General’s office before participating in any fundraising activities.
You will need at least one director on your board.
The state of California is the largest economy in the U.S. and the fifth largest economy in the world. So naturally, there is quite a bit of competition to launch a successful nonprofit in this state. However, there are a ton of resources that can make it worthwhile if you take the time to prepare yourself at the outset. In addition to our guide, also look into the:
If you decide to create a nonprofit in a different state instead, here are some helpful links to get you started:
Starting a California Nonprofit in 12 Steps
There are some differences in nonprofit formation from state to state. For example, a Texas 501c3 will have slightly different requirements than a Florida 501c3, a Michigan 501c3, or an Ohio 501c3. In this section, we will break down the California process into a series of workable steps so that you can start bringing your nonprofit dream to life.
Step #1: Name Your Nonprofit
Naming your nonprofit corporation is a considerable task, as it is the public’s first impression of you. Your name will essentially be your brand, so choose wisely.
However, you also need to make sure your desired name is not the same as (or even similar to) the names of any other existing corporations in the state of California. As an initial check, you can visit the Business Name Search Database on the California Secretary of State’s website. However, to make it official, you need to mail a letter of inquiry to the office. By filling out a Name Reservation Request form and paying the $10 filing fee, you can reserve your proposed name for up to 60 days.
Step #2: Form Your Governing Body
Next, it is time to decide the structure of your organization’s governing body. Per California regulations, you will need at least one director and one incorporator. The board of directors is a group of individuals that will help guide the direction and operation of your nonprofit. The incorporator is an individual or a corporation that signs your articles of incorporation.
Step #3: Appoint Your Agent
You will also need to find a registered agent for your organization. This is a person or corporation that agrees to accept important legal documents on your nonprofit’s behalf. They must be physically located in your state, be available during business hours, and agree to the appointment. Most organizations will recruit an officer or board member as their initial agent.
Step #4: Draft Your Articles of Incorporation
To become an official nonprofit, you will need to file your articles of incorporation with the state of California. There is a fillable form on the California Secretary of State’s website. You can also draft your own using that form as a model.
Sadie just filed her articles of incorporation and is feeling good!
Whichever method you choose, you will need to file the articles with the Secretary of State by postal mail for $30 — there is no online filing option. Your articles should include the following information:
Name of your nonprofit
Statement reading, "This corporation is a nonprofit public benefit corporation and is not organized for the private gain of any one person. It is organized under the Nonprofit Public Benefit Corporation Law for public or charitable [insert one or both] purposes."
Street address of your corporation
Mailing address of your corporation, if different than the street address
Name and address of your agent for service of process
The IRS and the State of California will also require that your articles contain three clauses to obtain tax exemption. These include:
Statement of purpose that is aligned with required IRS language
Statements that declare your nonprofit will not be involved in prohibited legislative or political activities
Clause of dissolution that dedicates your organization’s assets to another 501c3 upon dissolution
Step #5: Draft Your Bylaws and Conflict-of-Interest Policy
You do not need to file your nonprofit bylaws with the state — rather, your organization will compile and use them as an operating manual. Bylaws will set down how you run officer elections, how you hold board meetings, and more.
Included with these bylaws should be a conflict-of-interest policy. This document should go over in detail the procedures in place for when a conflict arises within the organization.
Step #6: Get Your Employer Identification Number
Every nonprofit must file with the IRS to obtain an Employer Identification Number, or EIN. The IRS uses this nine-digit identifier to differentiate you from other corporations on a number of legal documents. There is no filing fee, and the process is fairly quick — you can do it online, through the mail, or even over the phone.
Step #7: Host Your First Board Meeting
In the initial board meeting, you will take a number of first actions that will set the foundations for how your nonprofit operates. These tasks include electing your officers, approving your bylaws, approving your initial transactions, and choosing your accounting period and tax year.
Pro Tip: Record what you talk about and at what time for this meeting as well as any future ones. Store a physical copy of these details in a corporate document binder in your office. Also keep a digital copy on a secure server.
Step #8: File Your Initial Registration
The vast majority of nonprofits that hold assets must file Form CT-1. Exemption from this form depends on whether your organization solicits and receives public contributions or if its members fund it entirely. If you are not exempt from this form, you must file it within 30 days of receiving your receipt of assets as well as annually after that. You have to include copies of your bylaws and articles of incorporation in your first submission but not in your renewals.
Step #9: File Your Statement of Information
Nonprofits must file Form SI-100 within 90 days of their incorporation date. Afterwards, they must file it every two years, at which point it is considered a "biennial report." This report keeps the state apprised of the contact information for your corporation, agent for service of process, and officers. You can file it by mail or online.
Step #10: Apply for Your Federal Tax Exemption
Now that you are officially a legal corporation in the state of California, it is time to apply for federal tax exemption. This is done when you file Form 1023 with the IRS. This form is a complicated form that, upon completion, typically contains between 50 and 100 pages of information. You can find filing guidelines on the IRS website, and the filing fee is $600.
Anthony is surprised how long a Form 1023 takes, but he's up for the task!
If you are a smaller nonprofit, you may be eligible to file a shorter version of the 1023 called the 1023-EZ. This form is reserved for nonprofits that have less than $250,000 in assets and anticipate less than $50,000 in annual gross receipts. This truncated form has a filing fee of $250.
Pro Tip: If you can avoid using the 1023-EZ, do so. The depth of information the original form requires will assure others (including grant funding sources) of the legitimacy of your organization.
Step #11: Apply for Your California State Tax Exemption
After you have received federal tax exemption, your nonprofit may then apply for state exemption. Depending on your organization, this can include exemptions from property tax, income tax, sales tax, and others. Visit the Franchise Tax Board website to find out which forms you need to file.
Step #12: Register for Your Business Licenses
Your nonprofit may have to register with the state before commencing any fundraising activities. This will depend on both the size and purpose of your nonprofit. To figure out whether your organization needs to register as well as to find the necessary forms, visit the part of the Attorney General’s website that is for the Registry of Charitable Trusts Division.
It can be intimidating to read through all of the rules and regulations required to start your California nonprofit. But do not despair — the process is reasonable to manage if you break it down into workable steps. If you take away one piece of information from this process, it should be to get help. A tax professional with nonprofit experience is invaluable in assisting your organization formation. With passion, patience, and knowledge, you will be well on your way to sharing your mission with the world!
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💡How do I form a nonprofit in California?
First, you have to create an official corporation in compliance with all California state laws and regulations. This process requires filing several pieces of paperwork, including your articles of incorporation and statement of information. Once you are incorporated, you can then apply for federal and state tax exemption. Find out more.
🔑 How much does it cost to start a nonprofit in California?
There are a number of expenses associated with starting a California nonprofit. First, you will need to pay filing fees on several documents. Depending on the size and type of your nonprofit, this can run anywhere from $400 to $800. Then, you will have to factor in operating costs. Find out more.
📝 What are the three types of nonprofits in California?
California defines the three types of nonprofits as religious corporations, public benefit corporations, and mutual benefit corporations. Find out more.