How To Set Up A Not For Profit Organization

How to Start a California Nonprofit

A Step-by-Step Guide & Additional Resources --->

planting-icon2 Congratulations. You've got an idea for making the earth a meliorate place, and you want to start a nonprofit as the means to practice so. The good news is that starting a California nonprofit isn't that hard to practise if you have a audio plan, the right team, and sufficient startup funds.

The bad news is that running a successful nonprofit is not piece of cake. You'll need to recollect through how you lot will bring value to the public, obtain funds, attract staff and/or volunteers, build a board of directors, and comply with the various laws that regulate nonprofits. Your answers to these questions will determine whether yous should beginning a nonprofit or consider alternatives. More on these points later in this article.

Check out the recorded webinar from February 2022 with CalNonprofits CEO Jan Masaoka, where she walks through the major steps and gives communication virtually boards, finding your first funding, and much more! FREE for Members / $15 for non-yet-members.

Questions to consider:

- Do you need to work with an chaser to start a nonprofit?
- Should yous start a nonprofit? What are the alternatives?

10 bones steps for starting a California nonprofit public benefit corporation:

1. Make up one's mind the name of the corporation
two. Draft and file the articles of incorporation
3. Appoint the board of directors
4. Draft the bylaws and disharmonize of interest policy
5. Take the initial lath deportment
6. Obtain an employer identification number (EIN)
7. File the initial registration form with the California Chaser General's Registry of Charitable Trusts
viii. File the Statement of Information with the California Secretary of Land
9. Utilize for federal taxation exemption with the Internal Revenue Service (IRS)
10. Employ for California tax exemption with the California Franchise Tax Board (FTB)
Bonus: Boosted Resources

Nautical chart of the steps with the agencies, forms, and links.

1. Decide the name of the corporation.

A nonprofit is typically formed equally a corporation and its name can exist a valuable asset. A corporation's legal proper noun must exist registered with the state where the corporation is formed. In California, a corporation name may be accepted by the California Secretarial assistant of Country if the name is not the aforementioned as or likewise like to an existing name on the bureau's records and if it'due south not misleading to the public.

You can check the current database of existing names on the concern search page on the Secretarial assistant of State website. You can too reserve a name for 60 days by mailing in a Proper name Reservation Request, which prevents some other person from registering that corporation name with the California Secretary of State while it is reserved. Yous must too make certain the name does not borrow on another person'due south trademark rights. This is not always easy to determine, just a adept start includes running a trademark search on the U.S. Patent and Trademark Office database and a simple Google search. For some founders, it may also be important to confer with an intellectual belongings chaser to help ensure they are not infringing on another'southward rights and to protect their name from being used by other parties.

Too, if you plan to operate the nonprofit in other states in addition to California, some founders may want to check that the corporation'due south proper noun is similarly bachelor in those other states where the nonprofit plans to accept operations and therefore may need to annals as a foreign corporation with the required state agencies in guild to bear business at that place.
[Back to Acme]

2. Draft and file the articles of incorporation.

A corporation is legally created with the filing of the articles of incorporation. Articles of incorporation typically identify:

(a) The organization's name;

(b) Its purpose or purposes of the nonprofit;

(c) The agent for service of process -- that is, a person who tin can receive lawsuits and other official correspondence and other matters, which tin can be an individual whose name and accost are identified or a corporate agent registered with the California Secretary of Country for such purpose;

(d) Limitations on the corporation'due south operations, consistent with its tax-exempt status;

(east) The corporation'due south street address and mailing address, if different; and

(f) Advisable dedication and dissolution clauses.

For California, the articles volition too identify the type of nonprofit corporation beingness formed. There are three types of nonprofit corporations in California: public benefit, common benefit, and religious. A nonprofit public benefit corporation (the focus of this stride-by-footstep guide) is the appropriate choice for a nonprofit formed for charitable or public purposes. The articles of incorporation are typically signed past an "incorporator," which tin can be just one person merely may also be signed by the initial board of directors if they are named in the Articles.

There is a template you can make full in and print on the Secretary of State's website. This is a good starting point but does not provide guidelines or communication on every important consideration. For example, at that place is no guidance on specific purpose statements (y'all'll want to be conscientious about restricting the corporation's activities in the future by a very limiting specific purpose statement) and no option to select whatever 501(c)(iii) purposes other than charitable, educational, and religious. It also does not accost other languages that may be required in the articles if the nonprofit as well intends to seek exemption from property taxes in California.

A word on specific purpose statements: A wide specific purpose statement provides room for the organization's mission to evolve without requiring an amendment to the manufactures of incorporation. It and may likewise brand it easier to comply with charitable trust laws that require charitable funds to exist used consequent with the specific purpose of the system at the time such funds were originally acquired. If, instead, you adopt a narrow purpose statement such as "to restore and maintain Pomponio Land Beach," you would non exist able to use funds acquired while the articles of incorporation contained this purpose statement to restore any other beaches, but the argument would provide a stronger mission anchor to help ensure that your organization stays on a specific form afterward the founders have left. In this example, the organization could amend its articles with the Secretary of Country to broaden its purposes to include other beaches, though but the funds acquired subsequently that change is in upshot could be used for those broader activities. A better choice might be for the nonprofit to adopt a purpose argument "to restore and maintain California beaches and adjoining habitats."

For boosted information on this issue, read Starting a Nonprofit: Articles of Incorporation and Specific Purpose Statements.

More about the agent for service of process : It is also important to understand that the agent is responsible for receiving lawsuits and mayhap other important legal documents on behalf of the organization and making certain those documents reach the President or other authorized officer or managing director in a timely manner. If the agent fails to exercise then (east.grand., fails to have his or her mail service checked regularly while away for an extended period), the organization could face negative consequences such every bit losing a default judgment for non showing up to defend a lawsuit. An system tin can identify an individual who resides in California who is willing to serve as an agent or may elect to pay for a registered corporate agent, which may be preferred if in that location is no person willing to take this responsibility or if privacy concerns are an issue (an individual amanuensis'southward proper name and street address volition be a matter of public record).
[Back to Top]

3. Engage the board of directors.

If the initial directors are not named in the articles of incorporation, the incorporator tin and should appoint the lath through a written action.

Under California law, a nonprofit board may be equanimous of as few as one manager, but the IRS may take issue with granting recognition of 501(c)(3) status to a nonprofit with but one director. It is unremarkably recommended that nonprofits have between three and 25 directors.

These directors – board members – should understand their legal duties and responsibilities to act with reasonable care and in the best interests of the arrangement while providing direction and oversight over the organization's activities, finances, officers, and legal compliance. Bridgespan offers valuable resources on nonprofit corporate governance, including BoardSource'southward Ten Bones Responsibilities of Nonprofit Boards ($29). Nosotros recommend too looking at the Board Source website and for more information and resource nearly boards, many of which are free.
[Dorsum to Elevation]

4. Draft the bylaws and conflict of interest policy.

A corporation's bylaws provide the fundamental provisions for the governance of the corporation's activities and diplomacy. Bylaws should provide guidance to the board and reassurance of sound governance practices to government authorities, funders, and other interested stakeholders.

Bylaws typically incorporate specific provisions detailing:

(a) The powers of the board and duties of the directors;

(b) How directors are elected or otherwise selected (e.k., past a majority vote of directors at the annual board meeting);

(c) How the board may accept an action (due east.grand., past a bulk vote of directors at a board meeting or by unanimous written consent);

(d) How board meetings are called, noticed, and held (eastward.1000., four times per year with 14 days advance notice by email);

(e) How board meetings are conducted (e.g., the chair of the board presides or pursuant to Robert'southward Rules, which nosotros generally discourage for most nonprofits);

(f) The officers of the corporation (California law requires three officers: a president or chair of the lath, secretarial assistant, and treasurer or chief financial officeholder);

(grand) The duties and responsibilities of each officer;

(h) Whether the corporation has voting members or is a not-membership corporation, either of which should be conspicuously stated in the bylaws;

(i) The say-so of board and non-board committees (east.g., committees tasked to human activity with the authorization of the board versus advisory committees that can only make recommendations);

(j) The level of indemnification provided by the corporation to protect its directors, officers, employees, and other agents; and

(k) The reports due to directors and members, if whatever (eastward.g., financial reports).

Bylaws may likewise include the corporation'south specific purpose or mission argument (which might replicate or make more specific the purpose statement in the manufactures of incorporation) and the corporation's core values if they would be viewed as helpful in guiding the board on its leadership and decision-making – though the corporation should also exist mindful to avoid inconsistencies between the articles and bylaws if mentioning the purposes or mission statement in both places (for which the articles will control).

If the nonprofit has voting members, the bylaws will also need to contain additional provisions regarding member rights and processes. Nonprofits considering a voting membership structure may want to showtime discuss such structure with a lawyer, particularly if they do non expect their members to actively participate in meetings and regularly do their rights to vote for members of the board of directors.

Public Counsel provides an Annotated Form of Bylaws for a California Nonprofit Public Benefit Corporation.

Separately articulated policies ordinarily supplement the bylaws in addressing key governance and management bug. For case, although non required by federal tax constabulary, it is considered past many to exist a all-time practice for any nonprofit to have an adopted conflict of interest policy. Additionally, if a nonprofit does not take a disharmonize of interest policy, it must describe its policy regarding conflicts of interest in the IRS Form 1023. Accordingly, it would be advantageous for most nonprofits to adopt a policy. The IRS provides a sample policy in Appendix A of the Instructions to Class 1023, which can be a helpful starting point though note that this sample policy does not necessarily account for country law requirements such every bit the procedural requirements under California constabulary for approval certain self-dealing transactions involving directors.
[Back to Summit]

5. Take the initial board actions at a board meeting or by unanimous written consent of the directors.

The board should accept the following actions:

(a) Adopt the bylaws and conflict of involvement policy;

(b) Set the exact authorized number of directors if the bylaws provide for a range for the size of the board;

(d) Approve establishing a bank account;

(e) Corroborate applying for federal and state taxation-exempt condition;

(f) Approve reimbursement of startup expenses (if applicable); and

(g) Corroborate the bounty of the president (CEO) or the treasurer (CFO) and anyone performing the functions of such officers, like an executive director (if applicable).

The incorporator may accept already taken some of these actions at the time that he or she appointed the initial board, in which instance the lath tin review and confirm those prior deportment if desired.

At this footstep, the directors may as well consummate some initial forms for the organization'south records (which may besides be required of the corporation's officers) such as their completed almanac disclosure of any potential or actual conflicts of interests, which is usually required by any well-drafted conflict of involvement policy, and also providing a signed written consent to receiving electronic transmissions from the corporation every bit required past California law in guild to carry official business organisation electronically (eastward.g., receiving meeting notices by e-mail).
[Back to Pinnacle]

6. Obtain an employer identification number (EIN).

An officer or authorized third-party designee may apply for and obtain an EIN online.
[Back to Top]

vii. File the initial registration grade (Form CT-1) with the California Attorney Full general's Registry of Charitable Trusts.

The initial registration must exist renewed annually, is required for the majority of nonprofit public benefit corporations, and must exist filed within 30 days afterward receipt of assets. The CT-ane Form and Instructions are bachelor online. The corporation's articles of incorporation and bylaws should exist included in the initial filing. For corporations that are in the process of applying for 501(c)(3) tax-exempt status, you tin can submit copies of the Course 1023 application and federal determination letter (Step 9) after receiving the determination letter to complete your filing with the Registry.
[Back to Top]

8. File the Statement of Information (Grade SI-100) with the Secretary of Land.

The Argument must initially be filed within 90 days of the date of incorporation. This biennial filing requirement, which identifies the organisation'south address, principal officers, and agent for service of process, can exist filed online or by post. (You lot tin can find information and instructions on completing the Statement of Information here.)
[Back to Top]

9. Use for federal taxation exemption with the Internal Revenue Service (IRS) and receive a conclusion alphabetic character from the IRS.

Completing the Class 1023 awarding for exempt condition under Internal Acquirement Code (IRC) Section 501(c)(3) may be the most challenging part of the startup process. Information technology is a legally-driven and comprehensive enquiry covering x Parts and eight Schedules.

As of January 31, 2022, the IRS revised Form 1023 to be an online fill-in form that must be filed electronically at Pay.gov. While substantively the new electronic Course 1023 is mostly similar to its paper version predecessor, in that location are some new changes with the electronic form and eastward-filing procedure and some wrinkles that may be addressed in the future. Luckily, the IRS has added new tools and instructional videos to their website to help y'all understand the e-filing process. Y'all will exist required to create an business relationship at Pay.gov in which you will be able to preview and download the course, salve your progress, and return to the grade at a after time. Please notation that although you will be able to save your progress, the application will not let you to advance to the next folio until yous have completed all of the questions on the current page, including inbound required descriptions or explanations or completing required schedules.

A disquisitional section for careful completion is Part Four, Narrative Clarification of Your Activities, which asks: for each past, present, or planned activity, include information that answers the following questions.

What is the activity?
Who conducts the activity?
Where is the activity conducted?
What percentage of your full fourth dimension is allocated to the activity? (Combined time percentages should add upward to 100%.)
How is the activity funded and what percentage of your overall expenses is allocable to this action?
How does the activity further your exempt purposes?

Grade 1023 also requires information regarding (a) organizational structure; (b) bounty and other financial arrangements with officers and directors, and certain highly paid employees and independent contractors; (c) members and other individuals and organizations that receive benefits from the system; (d) organizational history (e.thou., an arrangement that was spun off or previously fiscally sponsored by another organization may need to complete an additional schedule as a successor organization); (e) specific activities; and (f) bodily and/or projected statement of revenues and expenses (which should exist consequent with any identified activities).

Role Viii is designed to determine the organization'due south classification as either a private foundation or a public clemency. Public charity condition is generally the more favorable tax status but requires an system to encounter certain requirements. For almost organizations, this means passing a public back up exam over an ongoing v-twelvemonth measuring period. For organizations that will receive a large bulk of their support from few sources over their first 5 years, monitoring and managing of the public support ratio may exist critically important. Public Clemency Status Simplified (a footling) is a helpful online resource from Insight Eye for Customs Economic Evolution.

If yous recall that your nonprofit will not bring in gross receipts of more than $50,000 per year during the next iii years, and has not had gross receipts of more than $l,000 in whatever of the past 3 years, y'all may be eligible to file Form 1023-EZ. The total criteria are explained here. Like Course 1023, the 1023-EZ must be filed electronically. Y'all tin can find instructions on this site.

The filing fee for Form 1023 is currently $600. The filing fee for Grade 1023-EZ is $275. Fees are paid online hither.
[Back to Superlative]

10. Employ for California tax exemption with the California Franchise Tax Board (FTB) and receive an affidavit of exemption letter from the FTB.

Organizations with a 501(c)(3) federal determination letter tin can asking California recognition of tax exemption under California Revenue & Tax Code section 23701d from the FTB by filing Form 3500A along with a copy of the IRS decision letter. Y'all can notice instructions hither. The FTB volition more often than not recognize the organization'due south exemption from land income taxes equally of the federal constructive date. An system that does not accept a 501(c)(3) federal conclusion letter is otherwise required to file the more complicated Course 3500 for land income revenue enhancement exemption. There is no fee for either Grade 3500A or Form 3500.
[Dorsum to Summit]

Bonus: Additional Resource

IRS "StayExempt.org" especially for 501(c)3s
Nolo Press: How to Class a Nonprofit Corporation in California
California Attorney General'south "Guide for Charities"
Nonprofit Kit for Dummies
Why Join the California Association of Nonprofits

[Back to Top]

Do y'all need to piece of work with an chaser to start a nonprofit?

Although the majority of nonprofits are set up without the assistance of lawyers, it's easy to brand mistakes that get costly to correct subsequently (such every bit unwisely creating voting membership structures, adding unlawful provisions to template bylaws, violating the commerciality doctrine, etc.). We recommend having experienced professionals involved -- such as attorneys, board members with nonprofit incorporation experience, and experienced consultants. Don't discount the value of a knowledgeable attorney. You tin can find a list of firms and consultants who are CalNonprofits members in the Professional Directory online. (Search for "Starting a Nonprofit and Staying Compliant.")
[Back to Top]

What are some alternatives to starting a nonprofit?

Now that y'all know how to starting time a California nonprofit, you should thoughtfully consider whether this is the right choice for your ideas and for the public benefit. There may be other ways to deport out your dreams, including working under the umbrella of an existing nonprofit. One often-overlooked culling is fiscal sponsorship, a relationship that may let a group to house a charitable project within an existing nonprofit with the ability to spin it off at a later on date. For more than information on financial sponsorship, see Fiscal Sponsorship Basics from the Bar Association of San Francisco. Very small operations may consider forming themselves as an unincorporated association. You may as well find that starting a for-profit company will serve your purposes better than a nonprofit structure.

Once yous accept started your nonprofit, be sure to look at CalNonprofits' Nonprofit Compliance Checklist, a regularly updated listing of all the federal and land forms required from nonprofits, including links to all the forms.
[Back to Top]

Well-nigh THE AUTHORS: Emily Chan and Factor Takagi

Attorneys Emily Chan and Gene Takagi wrote this guide for the California Association of Nonprofits as part of their commitment to pro bono piece of work and customs service.

Emily Chan is of counsel with Adler & Colvin and a former recipient of the Outstanding Nonprofit Lawyer – Young Attorney laurels recognized by the Nonprofit Organizations Committee of the American Bar Association. Gene Takagi is a principal attorney of NEO Constabulary Group, a part-fourth dimension lecturer at Columbia University, and a contributing editor of the Nonprofit Law Web log.

You can reach Emily at world wide web.adlercolvin.com or 415-421-7555
Yous tin accomplish Cistron at www.neolawgroup.com or 415-977-0558
[Back to Peak]