How to Form a California NonProfit

In our previous blog, we discussed the benefits of forming a California nonprofit corporation and qualifying for the 501c3 exemption (click here).  Since our previous blog, we have consulted a number of nonprofit founders regarding setting up a nonprofit entity in order to open a company bank account and receive grant funds.  As many of the questions we receive overlap, the ladies of Smith Shapourian Mignano PC briefly discuss the different types of California nonprofit corporations and formation process.

Types of Nonprofit Corporations

Religious Organization.  A nonprofit religious corporation is a corporation organized to operate a church or to be otherwise structured primarily or exclusively for religious purposes.  It is the most straightforward of the nonprofit corporations.

Public Benefit Corporation.  The most commonly requested nonprofit incorporation at our office is the public benefit corporation.  A nonprofit public benefit corporation is a corporation organized:

1. Primarily or exclusively for charitable purposes and which plans to obtain state tax exempt status under Cal Rev & Tax Code § 23701d and/or federal tax exempt status under I.R.C. § 501(c)(3), or
   
2. To act as a civic league or social welfare organization and which plans to obtain state tax exempt status under Cal Rev & Tax Code § 23701f and/or federal tax exempt status under I.R.C. § 501(c)(4).
   

Mutual Benefit Corporation.  We often receive questions about mutual benefit corporations when discussing public benefit corporations with nonprofit founders.  Common mutual benefit corporations include social and neighborhood clubs, theater groups, business and trade associations, automobile and sports clubs, homeowner associations, organizations formed for fraternal purposes, and cemeteries.  A nonprofit mutual benefit corporation is a corporation organized for:

1. Purposes other than religious, charitable, civic league or social welfare purposes and intending to obtain tax exempt status under provisions other than Cal Rev & Tax Code §§ 23701d and 23701f, I.R.C. § 501(c)(4), or
   
2. Not planning to be tax exempt at all.
   

This is not a commonly-requested nonprofit incorporation because most nonprofit founders articulate a charitable and/or social purpose for their organization, as well as desire to obtain 501c3 tax-exempt status.  As a result, we more frequently recommend incorporating as a public benefit corporation.

Incorporation Considerations

Name.  We perform a state and federal name search to determine whether the intended name of the company is already taken, and counsel entrepreneurs on the benefits of trademarking the intended name (and logo, if applicable) of the nonprofit company.

Filing Articles of Incorporation with the California Secretary of State.  We work with nonprofit founders to craft a “Statement of Purpose.”  A broad specific purpose statement provides room for the organization’s mission to evolve without requiring an amendment to the Articles of Incorporation. However, a more specific statement ensures that the organization stays on a specific course, even if the original nonprofit founders leave the company.  

Bylaws.  We draft provisions and consult founders regarding meetings of members (Cal. Corp. Code §§ 7510–7514, 7611, 7613); board of directors (§§ 7220–7224, 7520, 7521, 7615); directors’ meetings (§ 7211; see 10 CCR § 2792.20); officers (§§ 5039, 5213(a), 7213(a), 9213(a)); corporate records ( §§ 7160, 8320, 8330-8334; see 10 CCR § 2792.23(c)-(e)); and emergency powers (§§ 5151(g), 7151(g), 9151(g)).

Board Resolutions & First Minutes.  In the Consent in Lieu of Meeting of the Sole Incorporator, we approve the incorporation, elect the director(s), and adopt the Bylaws and a Conflict of Interest Policy.  In the Action in Lieu of Meeting of the Board of Directors, we appoint officers of the nonprofit.

Miscellaneous Items.  We also obtain a Federal Tax/Employer Identification Number (“EIN”) from the IRS; submit an Initial Statement of Information electronically on the California Secretary of State website; and submit the Initial Registration Form with California Attorney General’s Registry of Charitable Trusts upon receipt of donations, if any.  We work with a nonprofit tax CPA to file the relevant tax exemptions (click here for more information about tax considerations for nonprofits).

Smith Shapourian & Mignano, PC is available to answer any questions or concerns you may have regarding your nonprofit.  

This blog does not constitute solicitation or provision of legal advice, and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter in a timely manner, as statutes of limitations may bar your claim.