A California nonprofit organization enjoys important tax advantages. It may be established only for certain limited purposes, and is subject to special restrictions on its operations. Although a California nonprofit does not have to be incorporated, incorporation protects its members and directors from personal liability and offers tax advantages to the corporation's donors. California imposes a number of requirements on nonprofit corporations beyond the normal requirements for establishing a corporation.
Articles of Inorporation
The articles of incorporation of a California nonprofit must state its purpose specifically, and the organization must actually operate in furtherance of this purpose. If the corporation will be formed for religious, charitable, civic or social welfare purposes and if it will seek state or federal tax-exempt status, its articles of incorporation must include four word-for-word statements. These statements guarantee that the corporation will be nonprofit, that it will operate in furtherance of its stated purpose, that it will not engage in certain political activities and that any assets remaining after dissolution will be distributed to a similar nonprofit organization.
Unlike a for-profit corporation, a California nonprofit does not have shareholders. It may or may not have members, and its members may or may not participate in the management of the corporation. If the corporation has no members, it must be managed by directors. If the corporation will have members, the corporate bylaws should cover member qualifications, how members are selected, meetings, quorums, voting and membership dues.
California Nonprofit Registration
Soon after incorporation, the California Secretary of State will send Form SI-100 to the corporation's registered agent. This form, which requires basic information about the corporation such as the names of the corporate officers, must be returned to the Secretary of State within 90 days of incorporation. The corporation must also register with the California Attorney General within 30 days after receiving any assets, including cash. It must file California Form FTM 3500 to obtain an exemption from California corporate income tax. In some cases, a California nonprofit can also obtain exemptions from state sales tax, use tax and property tax.
Federal Nonprofit Registration
The corporation can apply for federal tax-exempt status by filing IRS Form 1023, a long document that requires extensive information and a filing fee of several hundred dollars. Federal tax-exempt status will relieve the corporation of the obligation to pay federal corporate income tax, and will allow donors to deduct contributions from their taxable incomes. You can obtain federal tax-exempt status either before or after obtaining California tax-exempt status.