Nonprofits! We’ve all heard of them, but how do you set one up and what are the requirements to become one?
Well, at minimum a 501(c)(3) entity must be organized and operated exclusively for one or more of the following purposes:
Charitable
Scientific
Educational
Literary
Religious
Testing for public safety
Foster national or international sports competition
Prevention of cruelty to children or animals
The requirement of “exclusive” means you must organize your nonprofit and primarily operate only for these purposes.
How to Create a Nonprofit Organization in California, Step by step:
- Come up with a name for your organization, and do a search on the Secretary of State website to ensure that it’s available for use.
- If you plan to use the same name to refer to your services, you should get a trademark clearance search as well to make sure you’re not infringing on someone else’s brand.
- Once you’ve cleared your name for use, reserve the name with the Secretary of State if you don’t plan on submitting your articles and other requisite information right away. In California, this reserves the name for you for 60 days.
- Draft your Articles of Incorporation and file with the Secretary of State. Draft carefully because your articles are difficult to change.
*You can also order a minute book, seal, and membership certificates at this time.
- Draft your corporate bylaws, and appoint your initial directors (unless you already appointed them in your Articles).
- Apply for your EIN number. It’s like a social security number for your business, a tax identification number for the IRS.
- Apply for Federal Tax Exemption using Form 1023. Tax exemption is often used synonymously with the term nonprofit but nonprofit is the kind of entity, whereas tax exemption is the tax status. Tax exemption is not usually not granted automatically, and a requirement for most nonprofits, thus you must fill out Form 1023 and apply for tax exempt status.
Form 1023 requires you to submit things like a description of the activities that your organization has done so far, and what it intends to do in the future. The activities must comply with tax-exempt purposes under 501(c)(3) and you’ll have to give a lot of information about the relationships of the directors, officers, and key employees.
For smaller organizations expecting to make less than 50k a year and have less than 250k in assets, you may look into the 1023-EZ.
- If you’re in California, notify the California Franchise Board of the IRS to determine tax exemption.
- File a Statement by Domestic Nonprofit Corporation with the Secretary of State.
- Register with the Attorney General’s Registry of Charitable Trusts. There are exemptions to this requirement if you’re a religious organization, educational institution, hospital, etc. But if you need to register, you file a form CT-1 within 30 days of first receipt of assets (usually when you open a bank account and despoit funds), then Form RRF-1 with the Attorney General’s office every year after with your annual return filed with the IRS.
This IS a requirement, and many NPO’s are not aware of this rule and do not comply thus the AG office is cracking down on this so please do so if you don’t meet any of the exemptions.
*Other registrations may be required depending on the type of NPO you are, applicable exemptions you qualify for, and which states you solicit donations from, or which states you perform activities in.
- Obtain necessary business licenses and permits to operate or solicit funds for your non profit organization.
- Start doing good for society!
Let us know if you need help setting up a 501(c)(3) charitable organization!
Catherine Tang
Attorney at Law
+1-808-397-9999
mail@USAatty.com