How to Start a nonprofit corporation in California

Now that you have decided to start a nonprofit, you need to determine the charitable mission and purpose for the business. In order to comply with IRS regulations, it's important that your business is organized for an exempt purpose. Your business may not engage in political activities and must not overcompensate its members.

The next step is to decide on a name for your business. For nonprofits, it's important that you choose a name that clearly represents the mission of your organization. Be sure that the name you choose is easy to pronounce and memorable. Once you've decided on a name for your business, you should conduct a quick trademark search. This can help you find out if the name you want has already been taken and reduce the possibility of rejection. It's also best come up with one or two alternatives, in case the name you want to register is not available.

There are a few rules that California nonprofits must follow in order to register a name.

1. The name you choose must be not "deceptively similar" to the name of any other business. This is to prevent fraud, misrepresentation or confusion. There are cases where substantially similar names that imply an affiliation or relationship would be exempt. For example, First Baptist Church of Sacramento and First Baptist Church of San Francisco would not present a conflict to one another. Neither would Veterans of Foreign Wars Montebello Post 2317 and Veterans of Foreign Wars Inc. Post No. 2627.

   You can find out whether a name is available for registration by searching the California Secretary of State business entity database. Check variations or alternate spellings that could also conflict with your name and cause your application to be rejected. MyCorporation's business name search serviceservice is also available to conduct a more thorough search for trademarks.

2. Your name can also not contain certain restricted words such as "bank," "trust," or "trustee," unless the Certificate of Approval of the Commissioner of Business Oversight is included. You can learn more about business name entity rules and regulations in the business name guidelines and restrictions pdf (PDF(126 KB) provided by the California Secretary of State.

Once you have chosen your name, you can reserve it for 60 days by filing a name reservation request with the California Secretary of State if you are not ready to file right away.

The state of California requires you to designate a registered agent for your business when you complete your Articles of Incorporation. A registered agent (often abbreviated as RA) is responsible for receiving legal and official documents on behalf of your business. An RA acts as the state's means to communicate with your business. This may be an individual or corporation that agrees to accept legal papers on the nonprofit's behalf.

A registered agent can be any individual who resides in California. A third-party registered agent service, like MyCorporation, may also be utilized for the business. An RA must have a physical street address in California as a P.O. Box address is not allowed. A nonprofit corporation may not serve as its own registered agent.

Why designate a third party to act as my registered agent?

Registered agent information is publicly available. This may cause privacy concerns for business owners who do not wish to list their personal contact information for everyone to see. It is also common for the registered agent to become a target of spam or robocalls since this private information is relatively easy to obtain.

Registered agents are highly valued for their discretion. For example, if you did not have a registered agent and your business was served with lawsuit paperwork the documents would be delivered directly to your business address. This could be incredibly embarrassing for the business owner, especially if this happened in front of customers. An RA will accept the documents privately to ensure additional privacy, organize the materials, and then deliver them to the business owner.

This is why many business owners opt for a third-party registered agent service like MyCorporation to act as a registered agent on behalf of their business.

The state of California requires you to file Articles of Incorporation in order to legally create a nonprofit. The Articles of Incorporation is a simple one-page form that contains all the basic information required to register your business. Choose one of three forms from the California Secretary of State website depending on the purpose of your nonprofit.

1. Form ARTS-PB-501(c)(3) for a Nonprofit Public Benefit Corporation ( most common )
2. Form ARTS-RE for a Nonprofit Religious Corporation
3. Form ARTS-MU for a Nonprofit Mutual Benefit Corporation

What information should be included in the Articles of Incorporation?

The information required in the Articles of Incorporation for a nonprofit are straightforward. First, you'll need to provide the name of your nonprofit, the principal business address and mailing address (only if the two differ), and the registered agent name and address. You will also need to include the following statement:

This corporation is a nonprofit public benefit corporation and is not organized for the private gain of any person. It is organized under the Nonprofit Public Benefit Corporation Law for (public or charitable [insert one or both]) purposes.

You can create your own Articles of Incorporation, but for the sake of simplicity we recommend that you use the forms directly available on the Secretary of State's website. The form on the California Secretary of State's website contains all the tax-exempt language required by the IRS and the state of California, as well as other required language. This will help you form your nonprofit without any major issues.

Bylaws are the detailed set of rules agreed upon and adopted by the board of directors of the nonprofit. Think of these as an instruction manual to run the business. They include rules and procedures related to meetings you will hold, and notes on the ways you will elect officers and directors of the business.

While a nonprofit corporation is not legally required to create bylaws in California, it is highly recommended. Bylaws help maintain consistency in the way your business operates, as well as communicate organizational rules that help avoid conflicts and disputes. Bylaws are for your records only and are not submitted to the state.

If you are not sure how to create corporate bylaws, you can purchase MyCorporation's customized Minutes and Bylaws package. Inside our package you will find internal documents required to fulfill your corporate formalities and properly operate your business after it has been incorporated.

The first board meeting for your business is often referred to as the organizational meeting of the board. During this meeting, the initial directors of the business will adopt the corporate bylaws, set the fiscal year, and appoint corporate officers.

This meeting and all future meetings of the board of directors must be recorded in corporate minutes. Minutes are documents that detail what was discussed and any decisions the business makes during meetings. They are kept with the corporate records.

Corporate minutes are required for all California nonprofit corporations by law. Falling behind on this critical task can cause your business to fall out of good standing, and even jeopardize its tax-exempt status. It is important to maintain a corporate minute book. Inside you may keep originals or copies of all the signed and approved minutes or Actions by Unanimous Consent from any special or annual meetings of the corporation's shareholders and directors.

An EIN (also referred to as a Federal Tax ID) is a nine-digit number that is issued by the IRS and used to uniquely identify your business for tax purposes. Think of it as a Social Security Number (SSN) for your business, except an EIN is less sensitive. Like an SSN, an EIN allows you to:

• Open business checking, savings, or investment accounts
• File taxes for the business
• Complete payroll for employees if applicable
• Obtain lines of credit and credit cards, and build credit for your business
• Apply for applicable business licenses when required
• File for tax exempt status

You will only need a few pieces of information to file, including your mailing address and legal business name. You can apply online Opens in a new window with the IRS by downloading IRS Form SS-4 (PDF)(116 KB), or work alongside a third party organization like MyCorporation to complete an EIN application.

Your nonprofit corporation is not automatically tax exempt. In order to become tax exempt, you will need to take certain steps to obtain this status. First, you will need to file for exempt status with the Internal Revenue Service using either Form 1023 (PDF)(866 KB) Opens in a new tab or Form 1024 (PDF)(360 KB) Opens in a new tab, depending on the classification of your organization.

In some cases, you may be eligible to file Form 1023-EZ Opens in a new window, a streamlined version of the application for recognition of tax exemption. You can avoid a $25 fee if you file for federal tax exemption before filing with the state.

Even if you have obtained federal exemption for your organization, you still need to submit an Exempt Application form (FTB 3500 Opens in a new window) to the Franchise Tax Board to obtain state level exemption. Although most of California's laws dealing with tax exemption are like those found in the Internal Revenue Code, obtaining state exemption is a separate process from obtaining federal exemption.

You can learn more about the process directly from Publication 557 from the IRS (PDF)(2.1 MB).

Within 90 days of filing the Articles of Incorporation with the California Secretary of State, a nonprofit corporation must also file an initial Statement of Information (Form SI-100) along with a $20 fee.

Your statement of information must include:

• The name of the nonprofit and the California Secretary of State file number
• The registered agent's name and address
• The address of the principal office of the business
• The mailing address of the business (if different from the principal office)
• The names and addresses of the directors

Once completed, this statement is submitted by mail. In most cases, it is processed within five business days from its receipt.

A Statement of Information is filed every two years after that for the life of the business, calculated from your incorporation date. This ensures that the California Secretary of States maintains current information about all nonprofits operating within the state.

All businesses are required to file for a general business license (sometimes referred to as a business tax certificate) in the state of California. If you plan on operating your nonprofit in multiple cities, you will need to apply for a business license in each location. Additional permits may be required along with a general business license and are to be filed with the county or state.

You can find out about the specific licenses applicable to your business by checking with the city offices where you will conduct business, or by using MyCorporation's business license compliance package. Our team of skilled professionals will identify the licenses required by your nonprofit and provide you with all the information you need to file.