How to start a California nonprofit

Start by doing research. Is your nonprofit serving a mission in the community? And do you have the means to maintain it? Then make your case: write your mission statement, think about a name, and select your directors carefully. After that, all there’s left to do is file. 

Advantages and disadvantages of having a California nonprofit organization

A nonprofit is an entity or association created to promote and maintain the well-being and greater good of a community, in which profits (or surplus) are directed towards the business and mission rather than divided among the owners and shareholders. Here are the pros and cons of having one in California:
 

PROS

CONS

A nonprofit protects your personal assets from lawsuits and creditor claims. It also protects your trustees, officers, and volunteers. California nonprofits are usually exempt from federal tax on any income that's related to your organization's exempt purposes. Your California nonprofit may also receive California's state tax exemption. Certain nonprofit organizations can exempt their real and personal property from local property taxation. Some sales and purchases are exempt from sales and use taxes. Your nonprofit may qualify to receive public and private grant money.

Because you and your shareholders don't own your nonprofit, you won't have individual control and autonomy over your organization. More paperwork is involved, such as creating bylaws, and recording and maintaining corporate minutes. You'll need time and money to apply for the federal tax exemption, and you'll need an accountant or legal professional to help you operate your nonprofit. Your nonprofit's finances are subject to public inspection.

How to form a nonprofit in California

1. Developing a business plan for your California nonprofit

• Define the purpose and goals of the organization.
• Research the issues and determine what resources you have and need.
• Establish your priorities.
• Market your idea to possible volunteers and board members.
• Create a budget and timeline.

2. Writing a mission statement 

A mission statement clarifies your goals and explains how you plan to meet them. As a guideline, describe what, where, when, and how your nonprofit's purpose will be met, as well as who is going to help your nonprofit meet it. It may take a few tries to narrow your ambitions down into a workable plan.

Although you're creating a nonprofit because you want to give back to your community, you still have to meet certain requirements to protect yourself and to ensure that you achieve your organization's goals. When you create a mission statement, you can explain your organization's purpose. Consider what problem or issue your organization wants to address, then focus your statement on including the efforts and values that will guide your nonprofit to these goals.

3. Choosing a unique name 

Your nonprofit's name must be distinguishable from existing names registered with the California Secretary of State. This means it shouldn't be the same as or too similar to another organization's name. The name should also not be misleading to the public – it must accurately reflect the nature and purpose of your organization.

4. Filing your Articles of Incorporation in the state of California

This is the legal document that brings the business to life. It includes important information like the nature of the company and the location of the corporate headquarters. Once accepted, the corporation becomes its own legal entity.
 

Other forms and requirements for California nonprofits: Name reservation request form. Articles for a Public Benefit Corporation, or for a Religious Corporation. Incorporator's statement. Form SI-100: Statement of Information. Nonprofit Bylaws. IRS Form 1023: Application for Recognition of Exemption. Form SS-4: Application for employer identification number. IRS determination letter. Form FTB 3500A to obtain California income tax exemption. Form 990. Form CT-1: Registration form to be filed with the California Attorney General within 30 days after you receive donations.

5. Applying for grants and loans in California 

Grants and loans from federal, state, and private sources are a major source of funding for California nonprofits. A not-for-profit corporation is responsible for complying with grant requirements and keeping appropriate records. It's important for nonprofits to keep money received from grants separate and apart from the nonprofit's general fund. A good reputation in administering grant monies helps nonprofits obtain more funding from these sources. 

The State of California has more information about applying for grants on behalf of your nonprofit.

What to do after forming a nonprofit organization in California

After forming your California nonprofit organization, you must follow specific guidelines to retain your status:

• Keep detailed records of all sources of income.
• File annual reports.
• Keep unrelated activities separate from your nonprofit and pay separate taxes on them.
• Ensure that the time and resources spent on your nonprofit are related to your organization's exempt status.
• Maintain detailed records of corporate meetings.
• Ensure that your organization does not generate substantial income from unrelated activities.
• No more than 49 percent of your board of directors may be interested persons, or directors who provide non-director services and receive payment for them. This includes close relatives of the director.
• Make sure that when your nonprofit dissolves, its assets are distributed to another tax-exempt group.

California nonprofit resources

1. California Environmental Protection Agency: This site offers funding opportunities for nonprofits that are engaged in activities designed to protect the environment.
2. California Attorney General's Guide for Charities: (PDF) The Attorney General's Guide for Charities has information regarding your duties as a director or officer of your nonprofit, as well as a directory for legal representation, government agencies, and fundraising information.
3. Center for Nonprofit Management: This resource center provides comprehensive services and support to California nonprofits, including how to write grant proposals and links to other resources for grants. It also tells you how to successfully manage your organization so it complies with all state requirements and meets its goals.

Still have questions? Learn more about how to register your own nonprofit with Rocket Lawyer and get started today!
 

Key takeaways Starting a nonprofit takes planning, like creating a mission statement, picking a name, and choosing responsible directors to lead the group. There are good things about having a nonprofit in California, like tax breaks and protection from personal lawsuits, but it also comes with extra paperwork and public financial records. After forming a California nonprofit, it’s important to stay organized, follow state laws, and stay focused on helping the community to keep your nonprofit status.

Additional resources

Learning how to enforce a contract is just one step. Explore these additional topics to learn more and take the next steps.

• What is a nonprofit organization?
• How to start a nonprofit organization
• How are nonprofits taxed?
• How to get 501(c)(3) tax-exempt status
• How to register a nonprofit by state