10 Steps in Starting a Nonprofit in California

One of America’s key components is nonprofit organizations. It is considered as one of the United States’ fastest growing sector. In Johns Hopkins Institute for Public Policy’s recent study, about 10.2 percent nonprofit worker comprises the United States workforce.

People tend to want to give back and make the world a better place that is why the idea of starting a nonprofit is their best way to do this. The good news in starting a nonprofit in the state of California is that it would be not too hard and tedious if only you have a concrete plan, an ample start-up capital and the perfect team (it would be easier if you team up with those who is knowledgeable with the state law, for example, a San Diego Nonprofit Attorney).

On the other hand, the bad news is that it is never an easy feat to run a successful nonprofit. You will have to consider on how exactly your nonprofit will benefit the public, acquire sufficient funds, employ staff and/or attract volunteers, establish a board of directors, and abide by the laws that govern nonprofit organizations. If you have already come up with answers on how to run your nonprofit then you will be able to determine whether you are ready to start it.

Listed are the step by step guides on how to start a California nonprofit organization:

  1. Corporation Name

In a nonprofit organization, the name can be a very major asset. A corporation’s name must not be the same or similar with an existing name which can be found in the records of the California Secretary of State and you can also check out the most recent database of names that already exist on any business search page. The name should not also be misleading to the general public. In addition, you should also verify and ensure that your chosen name would not infringe any trademark rights of another person; it might be difficult to determine, but running trademark quick check on the United States is a good start. It would also be beneficial for the founder of the organization to confer with intellectual property lawyers to help guarantee that he or she is not infringing upon the rights of others and, at the same time, it will also protect the nonprofit’s name from being used by other organizations.

  1. Drafting the Articles of Incorporation

A nonprofit corporation can be legally created once the articles of incorporation are filed. It is generally composed of the following:

  • Name of the organization
  • The purpose of the nonprofit
  • Agent for service of process
  • The limitation of corporate powers

The “incorporator” is the primary one who will sign the articles of incorporation and the initial board of directors’ names in the articles could also be signatories.

  1. Appointment of Board of Directors

Under the law in the State of California, the IRS most likely grants the  501(c)(3) status to those nonprofit organizations who have between three (3) to twenty five (25) directors, although the board may consist only of one (1) director but it is not advisable.

The directors should be aware and should acknowledge their responsibilities and obligations to always act with due diligence and always within the organization’s best interests while provide assistance and supervision over the operations, financial affairs and legal regulatory compliance of the nonprofit organization.

  1. Drafting the Bylaws and Policies

Generally, the organization’s bylaws address the basic but very important provisions relating to as to how the management is handling the corporation’s daily operations and dealings. Bylaws are implemented to guide the board and also to assure good governance over the funders, stakeholders, staff and/or volunteers.

  1. Initial Board Members Actions

These are the primary actions that should be taken by the board:

  • Establish bylaws of the organization and the conflict of interest policy
  • Officer election
  • Adopting a fiscal year
  • Approve the following: establishing a bank account, application for federal and state tax exemption, start-up expenses reimbursement, compensation of each member of the board (if applicable)
  1. Obtain Employer Identification Number (EIN)

An EIN should be applied for by an authorized agent of the organization.

  1. Filing of Form CT-1

This form should be filed with the California Attorney General’s Registry of Charitable Trusts. Nonprofit corporations are required to register annually for this. They are obliged to file it within 30 days after receiving their assets. During the initial filing, the articles of incorporation and the corporation’s bylaws must be included.

  1. Filing of Form SI-100

The Statement is filed with the Secretary of the State and should be filed within ninety (90) days from the date of incorporation.

  1. Application of Federal Tax Exemption with the Internal Revenue Service

This is the most perplexing part of the start-up process. This is a comprehensive legal inquiry that covers 11 Parts and 8 Schedules.

This is also the most common reason why founders usually opt to hire nonprofit lawyers. It would also be best if you would hire a lawyer that is knowledgeable with the state’s laws. So in California, you could opt for anyone near your organization’s radius, take for example, a San Francisco or San Diego Nonprofit Attorney.

  1. Application of California Tax Exemption

Application of this form will be through the California Franchise Tax Board (FTB). Nonprofit organizations can send a federal determination letter to request tax exemption under the California Revenue and Taxation Code.

Now that you already have knowledge on how to start a nonprofit organization in California, it would be the best time to carefully evaluate yourself and your dream of giving back to people for their benefit. Although there are a number of alternatives to carry out your dreams, if you are really decided to start up a nonprofit, it is highly recommended to have seasoned professionals involved – lawyers, board members who have experiences with nonprofit and also experienced consultant. Having the right team to start a nonprofit will give you a high chance of having a successful nonprofit organization.