People from other parts of the US may scoff at the ways of certain Californians, but then the people of the Golden State can at least be proud of their philanthropic tradition. Hollywood celebs are famous for this, along with other state bigwigs and national icons.
But you don’t have to be famous to help out with your charitable efforts. In fact, for optimal results you may even go with a nonprofit organization. You gain greater credibility, tax-exempt status, access to grants, and also limited liability protection for members
Forming a nonprofit organization is no small matter, especially if you are not familiar with the process. There are some very confusing things that you need to understand to successfully start a non-profit organization.
Depending on your state, the process may change slightly, although most of the steps remain the same.
Here are the steps on how to form a non-profit organization in California
Step #1: Come Up with Your Organization’s Name
This holds for any state in the U.S. The first step of forming an organization is to come up with a compelling name for it. Remember that the name is the very first thing people will see. It serves as the first impression. Thinking of a suitable name for your non-profit organization is no simple task.
It is generally a good idea to make a list of names you think are good. After which, collaborate with other people and ask for their opinions. Narrow down your list until you only have three options remaining. Why three options? Because before you settle down on a name, you must first check if another business has already used it.
To do so, go to the California Secretary of State website and run the name on the business entity search, and search it by entity name. If another organization has already used your first chosen name, move on to the second and verify it again.
Once you have settled on your name and have verified that it is available, it is time to solidify it and complete your brand. You do this by registering a URL. Your URL is where you will start to build a website with your selected name so that no one else can use it.
Step #2: Appoint an Incorporator and Select an Initial Board of Directors
To start forming your non-profit organization, you need to appoint an incorporator. The job of the incorporator includes signing, preparing, and filing your organization’s Articles of Incorporation. The Articles of Incorporation is the document that formalizes your organization to the state.
Next, you need to select your initial board of directors (Minimum 1).
The board must consist of
- Competent, responsible, and knowledgeable people.
- Qualifications: No residency requirement. No membership requirement.
- Quorum: Majority
Step #3: Select a Registered Agent
All non-profit organizations in California must designate a business or a person to manage all the organization’s legal notices. This third-party business or person is known as the registered agent of the company. When filing for the Articles of Incorporation, you will need to fill out the registered agent’s name and address.
You can’t just choose anyone to be your registered agent. First, your agent must have his permanent address in California and currently reside in the state of California in a location wherein legal notices and mail can be forwarded during the usual business hours. You can hire an accountant to serve as your registered agent. You can choose a service to be your registered agent, or you can even be your registered agent.
We highly recommend that you use a professional registered agent service to act as your registered agent. In doing so, you will have less junk mail, and your name and address will not be available to the public.
Step #4: Fill out the Domestic Nonprofit Corporation Certificate of Formation
The Certificate of Formation is the official document that is required to officially form your non-profit organization in the state of California. This document has three pages in total and is inclusive of all the important information that describes your non-profit organization’s organizational structure.
You will be required to fill out your non-profit organization’s name, a copy of the certificate of your name reservation, and the number of members in your organization, whether you have members or you don’t have members. The person filing the form must also input his name and his address.
In the document, you are also required to include the following:
- Name and address of the organization’s registered agent
- The number of directors that form the initial board
- All the names and the addresses of the initial board members
- The name and the address of the incorporator
- The signature of the incorporator
Step #5: Acquire and Employer Identification Number
Every organization is required to acquire an Employer Identification Number or EIN as mandated by the IRS. Having an EIN means that your non-profit organization can now hire employees, file for tax-exempt status, and open a business bank account. You can find the form here. It is free to get an EIN.
Step #6: Create Your Organization’s Bylaws
Bylaws are made so the organization runs smoothly. With it, everyone in the organization has a basis for decisions and actions. For example, in matters wherein board members have a conflict of interest, you follow the procedures in your bylaws to ensure that internal conflict will be resolved immediately.
Bylaws also determine how procedures for other processes must ensue. This includes board meetings. It also defines the boundaries and responsibilities of each member of the board.
You must be patient and thorough when creating your bylaws. We highly recommend asking assistance from a lawyer or another professional who is knowledgeable in bylaws to help you.
There are several topics you should include in creating the bylaws. You should include how board meetings are run and the voting system in board meetings in the bylaws. It should also include how new board directors are to be elected and when, and how many board meetings there should be in a year.
The incorporator usually creates the bylaws. However, we highly recommend that the educator ask help from other professionals who are experts in creating bylaws. Take note that bylaws serve as the backbone of an organization, so as much as possible, there should be no loopholes. The board members should then be made fully aware of the bylaws during the initial board meeting.
Step #7: Have the First Meeting of the Board and Establish Your Organization’s Corporate Record
In the first meeting of the board, it is the incorporator’s job to arrange it. The incorporator must also be present in the first board meeting. It is pretty common in many companies that the incorporator is also a part of the initial board of directors.
In the first board meeting, the administrator presents his drafted bylaws, and the other board members deliberate and discuss it. There may be some proposals for change, and voting might occur. Once everyone has approved the bylaws, you can then proceed to other important matters.
Same as any corporation, the details of the first board meeting must be recorded. It will then be made into an official document and sent to be signed by all members of the board and other persons present in the first board meeting.
A copy of the document will then be placed in the organization’s corporate record. The corporate record is a storage of all the key decisions and important changes of the organization. Of course, the corporate record is highly confidential and must be kept in a secure location.
Step #8: Apply for the 501(c) Tax Exemption in California
In California, there are certain schools, government agencies, and organizations that are qualified to file for tax exemption. As the name suggests, when you are approved for the tax exemption and have your exempt status, your organization will be exempted from paying use and sales tax in the state of California. You can find more information about tax exemption facts here.
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Step #9: Charitable Fundraising Registration
The procedures for this step are similar to step number 8. Before you can start soliciting any financial donations to your non-profit organization, you must first register in the state of California for charitable fundraising. You need to file a certificate of registration and send it to the Attorney General. In this filing, you must include your annual financial report.
Step #10: Acquire the Necessary Business Licenses and File Form 990
There are more than a hundred licenses specific to the different businesses. Figure out what kind of business permit or license you need and obtain it. There are also some permits and licenses that are specific to only one location. Contact your local municipality for any business license or permit you need to start your non-profit organization.
File Form 990, which is due approximately 3 months after the end of the fiscal year. Check the IRS website for exact dates
Step #11: Sign up for an Insurance
All companies, organizations, and businesses in California employers are required to sign up for insurance. There are two different insurance policies you should abide by in the state of California. The first is unemployment insurance, and the second is workers’ compensation insurance.
For more information regarding unemployment insurance and workers’ compensation insurance, you can visit the Department of Labor website and go to the respective pages. Regardless of the nature of your business, you are required to acquire these insurance policies.
Where Can I Find Help for My California Non-Profit?
As with any business or company formation, there are numerous confusing procedures, and some questions might occur to you. In the state of California, you can go to the California Association of Nonprofits. This association aims to strengthen the non-profit sector of California. They will assist and answer any questions regarding non-profit organizations that you might have.
However, to avail of their help and services, the California Association of Nonprofits requires you to be a member of their association. We highly recommend that you consider being a member of this association. The services and benefits they offer can go a long way in helping you in your non-profit organization. They have a plethora of learning tools available and several non-profit advocacy programs for their members.
There are also several services that you could avail to help you incorporate your non-profit organization. Some of these services will handle almost all of the formation process, making it very convenient for you.
Starting a non-profit organization is indeed not an easy feat. However, with the steps mentioned above, the process can be much more manageable for you. Just remember not to be overwhelmed and always do thorough research for each step to ensure that everything will be smooth sailing.