How to Start a California Nonprofit

Nonprofit 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.

Online service providers cannot offer legal advice, so they can’t help you answer crucial questions, such those below.

Should you start a 501(c)(3), 501(c)(4), 527, or some other type of organization?

Picking the right nonprofit tax status is extremely important. Picking the wrong one could limit your organization’s ability to carry out all the activities you hope to. It can also add unnecessary disclosures and government oversight.

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.

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.

Tax-deductible donations can be a powerful incentive for donors, but that doesn’t mean you should assume 501(c)(3) is correct tax status for your mission. 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—or perhaps a hybrid organization might be best.

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 Legal 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 vision.

There are many questions and factors to consider when deciding how your nonprofit will be governed, including whether you will have members, what their powers will be, number of board members, term length for board members, and how new board members are selected.

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.

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 a conflict of interest?
• 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 gets too busy for the organization or stops contributing positively to our mission, but won’t resign the post?
• Can my organization pay officers? How much?

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?

You should consult with your organization’s attorney before engaging in any political activism–even something that seems harmless. Even posting a message on social media 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 Legal can help keep your organization compliant as it engages in political activism that promotes your mission and vision.

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 Legal 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.