In this guide on how to start a nonprofit in California we’ll talk about how to setup tax exempt status, what federal tax exemption means and get into how to work with the California Franchise Tax Board. The biggest thing you can to simplify this for yourself is work with Northwest Registered Agent who will help you through this entire process.
Let’s jump into the details of how to start a nonprofit in California that the California Secretary of State’s office will recognize as an official California Nonprofit Corporation.
Name Your California Nonprofit
The first step is always to make sure your name is available for use in the state you’re going to be setting up your nonprofit in. In our case we’re going to need to make sure to check the California Attorney General’s registry for your business name. You can do so by checking here.
Once you’ve been able to determine that your nonprofit public benefit corporation or nonprofit name is available, you’ll want to go make sure to lock down the digital real estate too. The physical world is important of course but with so many California nonprofits out there you will want to make sure your domain is available.
Choose Your Registered Agent
Once you’ve locked down your California nonprofit name you’re going to need to follow the law which means getting a registered agent or a registered agent service like Northwest Registered Agent. Whether you’re one of the public benefit corporations or an LLC you’re going to need to have a registered agent and make sure you’re filing articles of incorporation too. We’ll get to that in a bit but by having your individual or business entity following the right process you’ll be fine. You typically need either a local law firm or some type of California registered agent to be the business entity responsible for this.
They need to accept legal notices on your behalf and be open during regular business hours. Typically when someone wants to act as their own registered agent it can get a bit messy because state and federal law enforcement officers can end up at your front door because you’re showing up as the registered agent.
Select Your Board Members & Officers
This is one of the most important steps when building one of the nonprofit corporations in your state. As you decide on board members one of the top things will be fundraising. I would highly recommend someone who can be your fundraising leader. You’re also going to need to focus on someone who is going to be your bookkeeper. This person will need to have a firm grasp on the books and being organized.
The last piece of the puzzle is going to be your president or CEO. They’ll oversee everything that’s going on and make sure you hit deadlines and goals. If you can find someone with experience in the business world you will want to make sure it translates over to the nonprofit. The last thing you need is someone trying to give you business advice delivered straight when you’re really just trying to focus on charitable trusts and your tax exempt status.
There will be people that don’t understand the internal revenue code or what an exemption request is and that’s ok. Make sure your Chief Financial Officer isn’t one of those people otherwise you’re going to end up in a heap of trouble.
Adopt Bylaws & Conflict of Interest Policy
Your bylaws are going to need to be written in order for you to be approved as a nonprofit. The state will want to see these before they approve your articles of incorporation. Additionally, you’ll need a conflict of interest policy so that everyone knows where they stand and if there’s any type of personal gain going on behind the scenes.
I’ve used this example before but if you’re running a nonprofit school where you have parents on the board making decisions for the community which aren’t the best for the overall group but a small subset based on their personal needs -that’s a problem.
You’ll need to address this in your bylaws and make sure your conflict of interest policy is setup the right way. Typically in your bylaws you’ll see things like:
“All board members must declare any conflicts of interest and refrain from voting on or participating in any discussions surrounding the conflict.”
This is just a small snippet but you’ll want to make sure everything is above board and everyone knows what’s going on. The worst thing that could happen is someone finding out later that there was some sort of personal gain or ulterior motive and it could really damage your reputation as a nonprofit.
File the Articles of Incorporation
If you’re looking for federal tax exempt status or state income tax exemption you’re going to need to make sure you’ve filed for the right articles of incorporation. It’s a simple step but it must be done.
I would highly recommend using a lawyer for this as they’ll know exactly what needs to be done.
The cost is typically around $750 and it will need to be sent in with your application fee which is another $850. If you want to file on your own you can but I wouldn’t recommend it unless you really know what you doing. You can also go talk to Northwest Registered Agent who will help you make sure you’re doing this the right way.
Get a Federal Employer Identification Number
The Internal Revenue Service (IRS) is going to want to make sure your nonprofit has one. It’s your social security number for your nonprofit so focus on making sure you get this. It will help you setup a bank account, track federal taxes and focus on making sure your doing everything in your power to have what you need to run a successful nonprofit.
Setup a Nonprofit Bank Account
Yes it’s true you will need a bank account for activities related to what you’re going to be doing. A business bank account or nonprofit bank account really is the same thing. You just need t make sure you’ve got a bank account setup to follow California law and do your best to track your nonprofit’s gross annual revenue and associate it to the Federal Tax Identification Number you got in an earlier step.
Apply for 501C3 Tax Exemption Status
The final step is to apply for your 501C3 Tax Exemption status from the IRS. This will give you the ability to focus on what’s important, exempt income tax and get donations which are both tax deductible. This is a process that can take up to 6 months but it’s worth it in the long run. You can do this with the federal government and make sure you’re following all the right steps to have the right nonprofit setup in the right way.
How much does it cost to start a nonprofit in California?
The cost to start a nonprofit in California can vary depending on the type of organization and how complicated the incorporation process is. Generally, it will cost between $750 and $850 to file the necessary paperwork with the state, plus any legal fees associated with setting up the organization. Additionally, you will need to apply for federal tax-exempt status, which has a filing fee of $850.
How long does it take to start a nonprofit in California?
The incorporation process can take several weeks to complete, and the application for federal tax-exempt status can take up to six months. However, the actual time commitment required to get everything up and running will depend on the complexity of what you’re trying to accomplish.
How many people do you need to start a nonprofit in California?
Under California laws a 501c(3) nonprofit organization can consist only of 1 director but the IRS might disagree; it’s possible the organization would get 501C(3) status from 501c3 if it has only 1 director. Most nonprofit organizations recommend having a minimum number of three to 25 directors.