How to Start a Nonprofit Organization

Tax Exemption and how to start a nonprofit organizationDo you have a cause you are passionate about? Have you always thought about starting a nonprofit but have no idea where to start? We can help. Let’s start from the beginning.

File Articles of Incorporation

Once you decide you are ready to form a nonprofit corporation, it is important that you decide which type of nonprofit corporation to create. There are a few different choices in California, including a nonprofit public benefit corporation, nonprofit mutual benefit corporation and nonprofit religious corporation. In order to create a create a nonprofit entity, you need to file Articles of Incorporation with the California Secretary of State. It is important that the Articles contain specific language which the IRS will be looking for the organization applies for tax exemption.

Obtain Employer Identification Number

The EIN or FEIN is the federal identification number of your nonprofit and will be needed to file tax returns and obtain tax exempt status with the IRS. The EIN can be obtained online through the IRS website.

Elect a Board of Directors

Nonprofits don’t have shareholders or owners of any kind. Instead, nonprofits are managed by their Board of Directors. Nonprofits should ideally have at least 3 directors serving on the board. These individuals are responsible for protecting the charitable assets of the nonprofits and making decisions on behalf of the nonprofit.

Elect Officers

The Board of Directors elects the officers. In California, nonprofits should have at least a President, Secretary and Treasurer. The officers handle the day-to-day operations of the organization and serve at the pleasure of the Board of Directors.

Adopt Bylaws

Bylaws are the governing rules of the organization. The Board of Directors should approve and adopt the bylaws at the first meeting of the board. The bylaws of a nonprofit are extremely important because they create the set of parameters for the nonprofit to follow. It is crucial to have bylaws that reflect the current operations of the nonprofit. Otherwise, the organization may risk having certain actions taken by the officers and directors invalidated because they were not in compliance with the bylaws.

Obtain 501(c)(3) Status

Forming a nonprofit corporation does not guarantee tax exempt status. Nonprofits need to apply with the IRS in order to gain tax exempt status and have donations to the nonprofit be tax deductible. For nonprofits seeking exemption under IRC Section 501(c)(3), this is done by filing a 1023 application with the IRS. This application is quite fact intensive and requires the nonprofit to provide details on its programs, operations, activities, funding, and budget for the next 3 years.

Obtain Tax Exempt Status in California

Many California nonprofits forget this crucial step. After obtaining 501(c)(3) status with the IRS, nonprofits in California must also apply for tax exempt status with the Franchise Tax Board. This is important because California imposes an annual $800 minimum tax unless the organization obtains tax exempt status on a state level.

Register with the Attorney General Registry of Charitable Trusts

Nonprofits in California must register with the California Attorney General. The reason for this is that the Attorney General regulates nonprofits to ensure that charitable assets are not being misappropriated. Each year a nonprofit must submit a filing with the Attorney General to remain compliant.

If you want assistance forming your nonprofit, SLG can help. We represent nonprofits from the beginning. Let us complete the formation and exemption process for you so that you can focus on serving your charitable mission. We offer nonprofit formation on a flat fee basis that can be broken down into affordable installments.  Schedule your free 20 minute consultation today.