How to Start a California Nonprofit
Don’t Reduce Your Mission and Vision to a TemplateNonprofit formation is a complex, confusing process that can intimidate even the most passionate founders. Tuple Legal’s founder, Ryan Hughes, would know. Ryan is both an experienced nonprofit law attorney and a fellow nonprofit founder. Ryan has also served on several nonprofit boards.
Many online services can help you fill out nonprofit formation paperwork, but Tuple does much more. Tuple provides the comprehensive legal and practical guidance nonprofit founders need throughout every step of their mission, starting with formation and continuing long afterward.
Online service providers cannot offer legal advice, so they can’t help you answer crucial questions such as:
What kind of nonprofit should I form?
Should you start a 501(c)(3), 501(c)(4), 527, or some other type of corporation? There are over 30 different types of nonprofit tax statuses, and only an attorney can properly present the benefits and drawbacks of each one for your organization.
Picking the right nonprofit tax status is extremely important for a number of reasons. The first and most obvious is that your organization’s tax status conveys what kind of organization you are to donors, activists, and the public. Telling someone you formed a 501(c)(3) organization conveys a lot to the listener about your organization–before even beginning to explain the organization’s mission.
Will Donations to My Nonprofit be Tax-Deductible?
Also important to consider is that contributions to most types of nonprofits are actually not tax-deductible. Only contributions to 501(c)(3) organizations are tax-deductible. Making sure your organization’s mission fits within the requirements for 501(c)(3) tax status may be crucial to your vision.
The option of a tax-deductible donation can be a powerful incentive for donors, but that doesn’t mean you should assume that a 501(c)(3) is automatically the correct nonprofit type. For example, if a large part of your operations are lobbying your city council for change, a different type of tax status might fit your organization better.
Why You Need Legal Advice Before You Form
Forming a nonprofit with the incorrect tax status can create all kinds of headaches and complications. Consequences may include revocation of tax exempt status, needing to re-file your formation paperwork, upsetting new donors who may be unsure for months if their contributions are in fact tax-deductible, being ordered to pay income taxes on contributions after losing tax-exempt status, or a costly and lengthy IRS audit.
Tuple can give a comprehensive overview of the benefits and limitations for each nonprofit tax status and help you analyze which option is best for your mission and vision. Online document service companies cannot offer legal advice, so they can’t offer advice custom to your mission and your vision.
How should my nonprofit be governed?
There are many questions and factors to consider when deciding how your nonprofit will be governed, including whether you will have members, what their power will be, number of board members, term length for board members, and how new board members are elected.
Online document filing services provide one-size-fits-all governing documents, which can create problems for your organization. Those governing documents are not custom-tailored to your organization, which may affect your organization’s ability to function the way you envision. Worse, if done improperly, it could seriously jeopardize your ability to lead the organization in the event future disagreements emerge between you and other stakeholders.
Who will serve on my board and who will serve as officers?
Board members, collectively, have broad control over your organization. Officers, meanwhile, execute the board’s vision. Online document filing services will list the names you provide them on your formation paperwork. But they cannot advise you on serious legal and practical questions such as:
- How many board members should I have?
- Can board members be related to each other?
- Can board members be compensated for their services?
- One of my board members operates a business whose services my nonprofit may want to use. Is that a conflict of interest? Is there a way to address it and still have that person serve on the board?
- How often should my board meet? Where should the board meet?
- What legal duties do my board members have if they take a role?
- What are my options if one of my board members or members gets too busy for the organization or stops contributing positively to our mission, but won’t resign his or her post?
- Can my organization pay officers? How much?
What does the law say about how much a nonprofit can spend and what it can spend on?
Most nonprofits benefit from volunteer labor and donations, but they still have significant operating expenses. The IRS requires nonprofits to report how they spend their money, and donors often consider a nonprofit’s spending practices when deciding how much financial support they’re willing to offer.
Tuple can counsel you on how to stay compliant with the IRS as well as how your overhead spending may impact your fundraising and relationship building efforts.
The law also may restrict your nonprofit from:
- Contributing even small sums to political candidates
- Spending too much of its operating budget on legislative lobbying
- Soliciting donations for a certain cause, then spending them on any other cause, even if the circumstances are dire or the funds raised are in excess of what was needed
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Are there any conflict of interest issues I should know about or avoid?
Conflicts of interest come up all the time; you just have to address them. Online document filing services cannot help walk you through conflict-of-interest questions, like:
- What if I have board members who are sisters?
- My catering company would like to provide services to my nonprofit for a fundraising event, but I’m on the board. Can we do that?
- I founded a startup nonprofit, and my brother is the Executive Director. Can I partake in setting his salary?
Can my nonprofit engage in political activism?
You should consult with your organization’s attorney before engaging in any political activism–even something that seems harmless, like posting a Facebook message voicing support for a candidate, may jeopardize your nonprofit tax status or trigger an audit.
Each type of nonprofit has different restrictions and disclosure requirements for engaging in political activism. For example, 501(c)(3), 501(c)(4), and 527 organizations each have different requirements for the amount of activism work they may undertake: 1) supporting candidates, 2) supporting ballot measures, and 3) lobbying. Tuple can help keep your organization compliant as it engages in political activism that promotes your mission and vision.
How do I comply with California nonprofit tax and filing requirements to stay compliant?
Compliance is key to maintaining your tax-exempt status, protecting your nonprofit’s reputation, inspiring confidence in donors, and avoiding costly audits.
After you form your organization, Tuple offers ongoing compliance services, so that you can focus on your nonprofit’s vision and mission. You won’t get bogged down in annual document filing requirements or filling out lengthy tax forms (e.g., IRS Form 990). Online document filing services cannot offer those services.
Steps to Start Your New Nonprofit Organization
Below are all the steps required to start 501(c)(3), 501(c)(4), and 527 organizations and the government fees associated with each step.
| Obtain an EIN (IRS Form SS-4) | Every organization must establish a tax identification number with the IRS. | No fees |
| Prepare and File Articles of Incorporation | Articles of incorporation are filed with the California Secretary of State. | $30 fee |
| Prepare Your Organization’s Bylaws | Every organization must have bylaws that specify how it will be governed. These can be customized to meet the needs and structure of your organization. | No fees |
| Prepare an Agenda for Your First Meeting | An organization must hold a meeting in order for it to be legally formed, which requires your board of directors to take several actions. I will customize the agenda to your organization's needs. | No fees |
| Prepare Meeting Minutes for Your First Meeting | The events of each meeting must be memorialized. | No fees |
| Prepare and File Application for Federal Tax Exemption (Form 1023 or Form 1023-EZ) | In order for your organization to receive tax-free income and for contributions to be tax-deductible, the IRS must grant you 501(c)(3) status. | $275-600 fee, depending on the size of the organization |
| Prepare and File Application for California Tax Exemption (Form 3500 or Form 3500A) | In order for your organization to receive tax-free income and for contributions to be tax-deductible, California regulators also must approve your organization. | $0-25 fee, depending on the size of the organization |
| Prepare and File Initial Statement of Information with the California Secretary of State (Form SI-100) | You must publicly declare your place of business and agent for service of process. | $20 fee |
| Register with the California Attorney General's Registry of Charitable Trusts (Form CT-1) | Each charitable organization in California must register with the Attorney General's office. | $25 fee |
| Obtain an EIN (IRS Form SS-4) | Every organization must establish a tax identification number with the IRS. | No fees |
| Prepare and File Articles of Incorporation | Articles of incorporation are filed with the California Secretary of State. | $30 fee |
| Prepare Your Organization’s Bylaws | Every organization must have bylaws that specify how it will be governed. These can be customized to meet the needs and structure of your organization. | No fees |
| Prepare an Agenda for Your First Meeting | An organization must hold a meeting in order for it to be legally formed, which requires your board of directors to take several actions. I will customize the agenda to your organization's needs. | No fees |
| Prepare Meeting Minutes for Your First Meeting | The events of each meeting must be memorialized. | No fees |
| Prepare and File Notice of Intent to Operate Under Section 501(c)(4) with IRS (Form 8976) | New legislation now requires an organization to notify the IRS of its intent to operate as a Section 501(c)(4) organization. | $50 fee |
| Prepare and File Application for California Tax Exemption (Form 3500) | In order for your organization to receive tax-free income, California regulators must approve your organization's tax status. | $25 fee |
| Prepare and File Initial Statement of Information with the California Secretary of State (Form SI-100) | You must publicly declare your place of business and agent for service of process. | $20 fee |
| Register with the California Attorney General's Registry of Charitable Trusts (Form CT-1) | 501(c)(4) organizations should register with the Attorney General's office. | $25 fee |
| Obtain an EIN (IRS Form SS-4) | Every organization must establish a tax identification number with the IRS. | No fees |
| Prepare and File Articles of Incorporation | Articles of incorporation are filed with the California Secretary of State. | $30 fee |
| Prepare Your Organization’s Bylaws | Every organization must have bylaws that specify how it will be governed. These can be customized to meet the needs and structure of your organization. | No fees |
| Prepare an Agenda for Your First Meeting | An organization must hold a meeting in order for it to be legally formed, which requires your board of directors to take several actions. I will customize the agenda to your organization's needs. | No fees |
| Prepare Meeting Minutes for Your First Meeting | The events of each meeting must be memorialized. | No fees |
| Prepare and File Political Organization Notice of Section 527 Status (Form 8871) | Political organizations must register with the IRS to receive tax-free income. | No fees |
| Request Recognition of Tax Exemption by Franchise Tax Board | The Franchise Tax Board must recognize your organization's tax-exempt status in order to receive tax-free income. | No fees |
| Prepare and File Initial Statement of Information with the California Secretary of State (Form SI-100) | You must publicly declare your place of business and agent for service of process. | $20 fee |