Starting Your Nonprofit in California: A Comprehensive Guide

Corporate partnerships, regulatory compliances, sponsorships, and the ability to stay afloat amid the rising operational costs – starting a nonprofit can come with a very distinctive set of challenges. 

What type of non-profit you should establish and what are the governing bylaws? How do you operate without losing your focus on helping the community and how to craft the strategy?

Right from Step Zero comprising the groundwork before incorporation to all the legal technicalities, here is a detailed guide for all the do-gooders out there who are looking forward to making an impact on the community and society around them!

Let’s get going with a detailed overview of the basics.

Understanding the Basics of Nonprofit Formation in California

Understanding the Basics of Nonprofit Formation in California

As crucial as it is to establish a business entity that conforms to the State laws of California, knowing of any other similar non-profit comes first. Collaboratively, you can do more with the same number of resources. 

It is important to note that running a nonprofit requires a steady stream of funds, sponsors, volunteers, staff, and a well-defined governing body, like a board of directors. Below, we cover all the basics that you must know to start your nonprofit in California.

Define Your Mission and Vision for Impact

Create a meaningful, concise, and powerful mission statement that defines the core purpose of your non-profit organization. Keep the statement actionable, specific, and value-oriented. 

As a standard rule of thumb, your mission statement should directly answer this question – “What problem are we trying to solve?

For example:

“To provide educational resources and upskilling mentorship for underprivileged single mothers in California.”

Once you have set out a message for “what” you want to do, create a statement that clearly defines the long-term aspirations of your nonprofit organization.

The vision statement should be a clear and precise explanation of this question – “What future state do we hope to achieve with our work?

For example, for the mission statement above, the vision statement would look like this: 

Empowering underprivileged single mothers in California to make a sustainable and respectable livelihood for themselves and their kids.

Choose a Memorable and Meaningful Name

Now that you have created your mission and vision statements, come up with a name that resonates with the sentiment and aspirations in those statements.

It is important to have a name that is easy to remember, and pronounce, and is self-explanatory, without being restrictive in terms of the community you are targeting. For example, instead of having names like “Single Black Moms Success Academy”, aim for more inclusive, compassionate, and humanized names, like “Rise Up Mamas California”.

With millions of nonprofits registered in the US, choosing a name that resonates with your mission and vision statements, as well as stays unique, can be a challenge. Hence, we recommend checking the names that are already taken to ensure uniqueness.

Identify and Appoint Your Founding Board Members

Appointing an awesome board of directors comes next. While you should have a board of directors before filing your articles of incorporation, if you have not named them in the articles, you should (and can) appoint the directors through a written action.

California State Law allows a nonprofit organization to have as little as one director, but the IRS might not grant the 501(c)(3) status to such a nonprofit. Hence, we recommend having anywhere between 3 and 25 directors on your Board. Some common examples of designations that you can keep include – President/Chair, Vice-President/Vice-Chair, Secretary, Treasurer, Committee Officers, etc. 

These directors should be established in thier field, passionate about your organization and should be able to provide direction and oversight over the nonprofit’s organization.

Draft Your Nonprofit’s Bylaws and Conflict of Interest Policy

Bylaws provide guidance to the board of directors and ensures proper governance practices as per the State Government authorities, sponsors, and other stakeholders. So, you should draft the bylaws and conflict of interest policy for your nonprofit organization. 

The bylaws basically contain specific provisions, such as:

  • Detailed explanation of the purpose of the nonprofit
  • Election/selection criteria of directors, like votes, annual meetings, etc.
  • The process by which the Board can take certain actions
  • The process of calling different types of board meetings
  • Board meeting conduction, and responsibilities of each appointed officer toward each other
  • Board and non-board committee authorization, etc.

Depending on the nature of your bylaws and nonprofit organization, you can set conflict of interest and other such policies that eventually support your bylaws and ensure smooth functioning.  

Legal Steps to Officially Start Your Nonprofit in California

Legal Steps to Officially Start Your Nonprofit in California

1. File California Articles of Incorporation

Articles of Incorporation are a pre-requisite for starting a nonprofit organization in California, as they officially establish the existence of your organization under the California State Government. These articles include key information, such as the name and location of your nonprofit, and enable you to apply for 501(c)(3) exemption.

The state of California offers templates for these articles of incorporation, which vary as per the business structure of your nonprofit. 

Here is a quick walkthrough of these templates and the business structure they apply to:

  • Form ARTS-RE: Articles of Incorporation – Common-Interest Development Corporation
  • Form ARTS-MU: Articles of Incorporation – Mutual Benefit Corporation
  • Form ARTS-RE: Articles of Incorporation – Religious Corporation
  • Form ARTS-PB-501(c)(3): Articles of Incorporation – Public Benefit Corporation

You have to submit the form online to the Secretary of State of California and make a fee payment of $30. Your application’s turnaround time will depend on California’s current processing time.

2. Initial Report Filing

The state of California requires nonprofits to file an Initial Report within 90 days of submitting the Articles of Incorporation. You have to do this via Form SI-100 either in person, by mail, or online. However, you must know that the online submission comes with a quick one-day turnaround time and a $20 fee. 

Also, you have to file this form every two years, with the following information: 

  • 7-digit file number issued at the time of nonprofit registration by the California Secretary of State 
  • Name and address of the Board Directors
  • Name and address of your Registered Agent

If you miss the 90-day timeline of filing your initial report, you have to pay a late fee of $50 fee.

3. Get Employer Identification Number (EIN) for Your Nonprofit

Next, you have to apply for an Employer Identification Number (EIN) for your nonprofit organization. It is also called the Federal Employment Identification Number or Federal Tax Identification Number.

You have to submit the IRS Form SS-4 to obtain your EIN. The submission can be done online, or by fax or mail. The average processing time for form submissions done by mail is around 6 days.

Having an EIN is necessary to: 

  • Open a business bank account for a nonprofit in California
  • Hire staff and volunteers
  • Submit 990 returns of your nonprofit

4. Hold Your First Board Meeting

Next, you need to hold your first board meeting to review the progress and discuss plans for what comes next, such as formal approval of bylaws & conflict of interest policies, choosing the right business bank account for your nonprofit, establishing an accounting period, gathering documentation for record-keeping, etc.

5. Open a Bank Account for Your Nonprofit

You need to open a bank account to ensure complete distinction between personal and non-profit finances and transparency. 

Getting a business bank account will require the following documents: 

  • Copy of your bylaws
  • EIN
  • Copy of your articles of incorporation

Some banks might also require additional supporting documents, such as a resolution statement from the Board of Directors. Check this detailed list of various documents to open a business bank account.

6. California Attorney General’s Registry of Charitable Trusts Registration

As a nonprofit organization, you might need to raise funds at any point of time in the future. You have to register with the California Attorney General’s Registry of Charitable Trusts for the same. 

This is done by filing Form CT-1, within 30 days of receiving any type of funds/donation. The initial registration fee for Form CT-1 is $50. 

Remember that you have to renew your filing every year by submitting Form RRF-1. The fees for this submission will vary as per the amount of money raised by your nonprofit in the year.

7. Apply for Federal Tax Exemptions

To apply for exemptions from Federal Tax as a nonprofit, you have to get registered as a 501(c)(3) organization, which is any charitable organization exempted by the IRS from taxes. To get the status, you have to file two forms – Form 1023 ($600 fee) and Form 1023-EZ ($275 fee). The Form 1023-EZ is for smaller nonprofits that have total assets of less than $250,000, and annual gross receipts of less than $50,000.

In order to qualify for 501(c)(3) status in California, your nonprofit’s mission should be Charitable, Scientific, Religious, Educational, Preventing Crulety to children/animals, Literary, Fostering national/international amateur sports competition, etc. 

8. Apply for Exemption from California State Tax 

To start a nonprofit in California, you have to submit California Form 3500A. You have to attach your Federal Determination Letter (you get this after filing for tax federal tax exemption) as the supporting document to this form and send this to the following address:

Exempt Organizations Unit MS F120

Franchise Tax Board

PO Box 1286

Rancho Cordova, CA 95741-1286

If you want to file the California State Tax Exemption before getting your approval for Federal Tax Exemption, you have to file a special version of Form 3500 and pay a fee of $25. You dont have to pay any fee if you file for exemption from State Tax later. 

9. Apply for Other Relevant Licenses

Starting a nonprofit organization in California requires you to obtain certain licenses and permits, including bingo licenses. You also have to complete additional filing and pay extra fees for raffles. This is critical to ensure compliance with the California Registry of Charitable Trusts. You can get more information and complete details on all such licenses, on the official website of the Attorney General of California.

We recommend getting in touch with a professional consultant or registered agent to ensure ongoing compliance.

Crafting Your Nonprofit’s Strategic Plan

Now that you are all set with the filing and registration formalities, you need to create a strategic plan for your nonprofit organization. You can get together with all the members and other associated stakeholders to brainstorm over a definite and reasonable strategy for working.

Figure out which person can do which task better and delegate keeping the short-term and long-term goals in mind. Identify the key areas of improvement and set clear, attainable, and measurable goals.

Make a plan as per the nature of your nonprofit and do regular catchups with the team and different stakeholders to ensure a proper functioning and tracking of tasks.

Fundraising and Financial Management for Your Nonprofit

Fundraising and financial management are as important as proper registration and documentation. You must diversify your income by looking into multiple sources, such as grants, sponsorships, donations, and even volunteers instead of staff. 

Utilize online platforms and social media to reach a wider audience, and maintain accurate records of all types of financial transactions, expenses, income, etc. Create a realistic budget, do reasonable resource planning, and take professional guidance whenever required, to ensure mindful consumption of funds. 

Building Your Nonprofit’s Presence and Credibility

Building Your Nonprofit’s Presence and Credibility

Build an online presence and share the success stories of your nonprofit organization. Talk to the people you help and capture their experience via podcasts, short videos and share them publicly.

This will motivate other people to take initiative and join your nonprofit in any form they consider relevant. Further, encourage people you help to spread the word and connect other people to your ecosystem.

Establish a reasonable and affordable reward system for the volunteers and staff members to boost productivity, such as payment toward education fee, or any other compensation you deem fittest for the individual.

Navigating Ongoing Compliance and Legal Requirements With doola

When to Choose doola

Once your nonprofit organization is up and running, you have to ensure ongoing compliance and fulfill legal obligations as they come. Some common examples include Annual Reports, Corporate Reports (SI-100) or Statement of Information, Annual Return (FTB-199), Federal IRS Form 990, and Charitable Solicitations Renewal (Form RRF-1). 

To ensure continued compliance and error-free completion of legal obligations, we recommend joining hands with tax and company formation experts like doola.

We offer a highly comprehensive and competitively priced suite of different solutions, such as tax compliance, bookkeeping, business formation, and tax consulting for organizations of all sizes. With doola as your partner, you can put your filings and documentation formalities on autopilot and unlock truly seamless operations.

To know how we can assist you grab a free consultation with our experts today!

doola's website is for general information purposes only and doesn't provide official law or tax advice. For tax or legal advice we are happy to connect you to a professional in our network! Please see our terms and privacy policy. Thank you and please don't hesitate to reach out with any questions.

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