How to Form a 501(c)(3) Non-Profit Corporation in California

By Shelly Morgan

Some organizations may consider becoming 501(c)(3) corporations because their leadership believes that doing so will increase fundraising capabilities. According to the Internal Revenue Service, donations to 501(c)(3) nonprofit organizations are tax-deductible. For this reason, many individual donors and philanthropic organizations only donate to 501(c)(3) entities. Becoming a 501(c)(3) corporation involves successfully navigating a blend of state and federal law. In California, the organization must comply with the California Corporations Code as well as guidelines established by the IRS.

Some organizations may consider becoming 501(c)(3) corporations because their leadership believes that doing so will increase fundraising capabilities. According to the Internal Revenue Service, donations to 501(c)(3) nonprofit organizations are tax-deductible. For this reason, many individual donors and philanthropic organizations only donate to 501(c)(3) entities. Becoming a 501(c)(3) corporation involves successfully navigating a blend of state and federal law. In California, the organization must comply with the California Corporations Code as well as guidelines established by the IRS.

Step 1

Call a meeting of the organization's board of directors. The board should consist of at least three people to satisfy Section 312(a) of the California Corporations Code, which specifies that a corporation must have a chairman of the board or a president, or both, a secretary and a chief financial officer. The board of directors must agree to form a corporation and be willing to serve as its initial directors.

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Step 2

Draft your articles of incorporation. A model for the articles of incorporation with the required language is available on the California Secretary of State's website. The articles must state the name of the corporation, its mailing address, and the name of its agent for service of process, who must have a street address in California. If the corporation is sued, the agent for service of process is the person who receives the legal papers. The articles must also state that the corporation is formed as a nonprofit public benefit corporation or a religious organization.

Step 3

File your articles with the Secretary of State and pay the required fee. The articles can be filed by mailing the document to: Secretary of State Document Filing Support Unit P.O. Box 944260 Sacramento CA 94244-2600 Include a stamped, self-addressed envelope and a cover letter stating the name of the corporation and your contact information. The Secretary of State will stamp the articles and return them to you. At this point, your organization is a legally recognized corporation.

Step 4

Prepare your bylaws and develop a budget. Working with an attorney or an online legal firm that provides this type of service can be very helpful in assuring that your documents comply with California state law as well as federal requirements. The board of directors must approve the bylaws and the budget.

Step 5

Obtain an Employer Identification Number (EIN). Just as you file your personal taxes using a Social Security Number, you'll file the nonprofit corporation's taxes and other forms using an EIN. You can apply for an EIN at the IRS website (link in Resources).

Step 6

Prepare a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. Completing this form is a lengthy task that requires submission of the bylaws and budget information. In addition to disclosing information about the nature of the organization's activities, you must disclose information about how the officers and directors are compensated.

Step 7

Assemble your Form 1023 and related documents, enclose the filing fee and mail your paperwork to: Internal Revenue Service P.O. Box 192 Covington KY 41012-0192 If you are using a delivery service or express mail service, send the documents to: Internal Revenue Service 201 West Rivercenter Blvd. Attn: Extracting Stop 312 Covington KY 41011

Step 8

Watch for a response from the IRS. This could take at least a few months. The IRS could reject your application, request more information or grant you 501(c)(3) tax-exempt status. If the IRS requests additional information, provide it promptly to ensure timely processing of your application. If you are granted tax-exempt status, you'll receive a determination letter. You should file this important document with your corporate records.

Step 9

Obtain Form 3500A from the California Franchise Tax Board and complete the application form. Have it signed by one of the nonprofit corporation's officers or directors. Send the completed form and a copy of the determination letter from the IRS to: Exempt Organizations United MS F 120 Franchise Tax Board PO Box 1286 Rancho Cordova CA 95741-1286

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References

Resources

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