How to Establish a Nonprofit Corporation in California

Introduction on how to form a Nonprofit Corporation in California.

Updated on
Jan 24, 2024
5
min read
State
California
Topic
Starting a Company

Forming a nonprofit corporation in California to pursue charitable, educational, religious, or humanitarian goals is a straightforward process when armed with the right information. In this comprehensive guide, we will walk you through the steps required to create a nonprofit entity and apply for tax-exempt status.

Step 1: Selection of Initial Directors

In compliance with California law, a nonprofit corporation must have a minimum of one director. However, to form a board committee, you'll need a minimum of two board members. While there are no residency or membership prerequisites, the state imposes term limits. Directors can serve a maximum of one year and are restricted to four terms, unless the corporation lacks members, in which case directors can serve up to six years. The Internal Revenue Service (IRS) mandates a minimum of three board members for nonprofits, without specifying term limits.

Step 2: Choosing a Name

Before settling on a name for your California nonprofit, it's essential to review naming restrictions. The California Secretary of State prohibits names that are misleading, identical to existing corporations, or already reserved by another entity. Additionally, you are not obligated to include "Incorporated," "Inc.," or "LLC" in your nonprofit's name. To check name availability, consult California's business name database, and explore domain name options. Reserving your chosen business name for 60 days is also an option.

Step 3: Selection of a California Agent for Service of Process

A designated agent for service of process, also known as a registered agent, plays a crucial role in receiving legal notices and documents on behalf of your nonprofit. This individual must reside in California, have a publicly accessible local address, and be available during regular business hours. While you can serve as your own agent, it may be impractical to be consistently available. Alternatively, you can utilize a registered agent service for convenience.

Step 4: Filing Articles of Incorporation with California

Your California nonprofit corporation attains legal status upon the submission of Articles of Incorporation. These documents outline your corporation's name, purpose, agent for service of process, address details, operational limitations, tax-exempt status adherence, and dissolution clauses. Foreign nonprofit corporations originating from out-of-state or abroad must file a Statement and Designation by Foreign Corporation with the California Secretary of State, accompanied by a Certificate of Good Standing from their home jurisdiction.

Step 5: Submission of a California Statement of Information

New nonprofit corporations in California must file an Initial Statement of Information (Form SI-100) within 90 days of incorporation. This statement necessitates updates on contact information, membership details, and the identification of principal officers and the agent for service of process. It can be filed online or by mail, along with a $20 fee. Subsequent statements are required biennially before the nonprofit's anniversary month, each incurring a $20 fee.

Step 6: Development of Corporate Bylaws

Your corporate bylaws should articulate your nonprofit's specific purpose, mission statement, core values, and operational guidelines. Typically, they include a roster of officers, with California law stipulating the presence of a president, secretary, and treasurer. Bylaws cover a wide range of topics, including the powers of the board, director duties, election processes, board meetings, officer responsibilities, committee authorizations, voting member rights, legal protections, and reporting procedures.

Step 7: Conducting an Organizational Meeting for the Board of Directors

During the initial board meeting, directors adopt bylaws, establish a fiscal year, elect authorized directors and officers, and approve crucial decisions such as applying for tax-exempt status, opening a bank account, reimbursing startup expenses, and compensating key personnel. Directors may also consent to receive electronic transmissions, a requirement under California law for conducting official business electronically.

Step 8: Establishing a Corporate Records Binder

Maintaining a corporate records binder is essential for organizing and preserving important documents and proceedings. This binder can be a simple three-ring binder or a digital storage system. Included records typically comprise Articles of Incorporation, bylaws, IRS 501(c)(3) approval letter, business licenses and permits, reports, board meeting minutes, and more.

Step 9: Obtaining Tax ID Numbers

After the legal formation of your nonprofit corporation, apply for a Federal Employer Identification Number (EIN) from the IRS. If your nonprofit will employ individuals, you must also obtain a State Employer Identification Number (SEIN) in California through the Employment Development Department (EDD).

Step 10: Pursuing California Licenses and Permits

California nonprofits must secure a general business license to operate, issued at the local level. Depending on your activities, additional licenses or permits may be required, and it is your responsibility to obtain them. Noncompliance can result in penalties, loss of tax-exempt status, and corporate standing. Utilize tools like CalGOLD to identify relevant permits, and consider

Step 11: Applying for Tax-Exempt Status

Attaining IRS tax exemption status as a 501(c)(3) nonprofit organization is a crucial phase in establishing a California nonprofit corporation. The application process, available through Pay.gov, involves legal intricacies and a fee of $600 for Form 1023 or $275 for Form 1023-EZ, depending on eligibility. Following the receipt of your federal determination letter, seek state tax exemption from the California Franchise Tax Board. Usually, the state recognizes your exemption retroactively to the federal approval date. Application for state exemption, using Form 3500A, is free, but a $25 application fee applies without a 501(c)(3) federal determination letter.

Step 12: State Registration as a Charity

Charitable corporations must file Form CT-1 with the California Attorney General's Registry of Charitable Trusts for charity registration. The application should include Articles of Incorporation, bylaws, and must be submitted within 30 days of receiving charitable assets. Registration involves an initial fee of $25, along with subsequent annual renewals and reporting obligations.

Step 13: Acquiring Nonprofit Insurance

Determining the appropriate insurance coverage for your nonprofit is essential, with options varying based on your organization's nature and requirements. General liability, property, auto, product liability, directors and officers, and professional liability coverage are potential considerations. For organizations with employees, compliance with federal and state insurance regulations is mandatory, including workers' compensation, unemployment insurance, and potentially disability insurance.

Step 14: Establishing a Bank Account

Utilize your FEIN to open a bank account for your California nonprofit corporation, ensuring compliance with any additional requirements imposed by the bank. Implement security measures, such as limiting check signatories, requiring dual signatures for significant transactions, and assigning distinct individuals for deposit handling and record keeping. Regularly reconcile your bank account to maintain financial integrity.

Ready to Start Your Journey?

At Stellar, we are dedicated to supporting small businesses through a range of tools and services. Whether you require registered agent services or need assistance with domain registration, we are here to help you on your path to success. Explore our services today and contact us to discover how we can empower your organization's growth.

‍Disclaimer: The content on this page is for informational purposes only and does not constitute legal, tax, or accounting advice. Seek the counsel of a licensed professional for specific questions related to these topics.

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