Starting Your Non-profit
When you're starting a non-profit in California, there are a number of factors to take into consideration. Some may depend on whether you're creating a 501(c)(3) organization, or another type of non-profit.
Creating a Mission Statement
Although you're creating a non-profit 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 non-profit to these goals.
Considerations for Starting a Non-profit
Advantages:
- Incorporation protects your personal assets from lawsuits and creditor claims. It also protects your trustees, officers and volunteers.
- California non-profits are usually exempt from federal tax on any income that's related to your organization's exempt purposes.
- Your California non-profit may also receive California' state tax exemption.
- Certain non-profit organizations can exempt their real and personal property from local property taxation.
- Some sales and purchases are exempt from sales and use taxes.
- Your non-profit may qualify to receive public and private grant money.
Disadvantages:
- 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.
Requirements and Mandatory Forms for Creating a Non-profit
- Name reservation request form
- Articles for a Public Benefit Corporation, or for a Religious Corporation
- Incorporator's statement
- Form SI-100: Statement of Information
- 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 California Attorney General within 30 days after you receive donations.
How to Retain Your Non-profit Status
After forming your California not for profit 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 non-profit and pay separate taxes on them.
- Ensure that the time and resources spent on your non-profit 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 them. This includes close relatives of the director.
- Make sure that when your non-profit dissolves, its assets are distributed to another tax-exempt group.
What it Costs to Form a California Non-profit
- California's Attorney General's office requires a fee of $30 to file non-profit Articles of Incorporation.
- A name reservations fee is $10.
- The California Secretary of State charges $25 to file Form SI-100.
- The IRS charges a $400 application fee to organizations that expect to earn less than $10,000 in total income in each of their first three years. If your projected income is more than that, the fee is $850.
Applying for Grants and Loans
The State of California has more information about applying for grants on behalf of your non-profit.
California & National Nonprofit Resources
California Environmental Protections Agency: This site offers funding opportunities for non-profits that are engaged in activities designed to protect the environment.
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.
Center for Non-profit 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.
USA.gov. for Non-profits: This site offers information and services about grants, loans, management, tax information and funding directories for all states.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
