How to Form a 501(c)(3) Nonprofit Corporation in California

By Cindy DeRuyter, J.D.

How to Form a 501(c)(3) Nonprofit Corporation in California

By Cindy DeRuyter, J.D.

Forming a nonprofit corporation in California includes steps similar to those required to form a for-profit company. After filing incorporation documents with the California Secretary of State's office, many organizations also pursue tax exemption under Section 501(c)(3) of the Internal Revenue Code. To do so, you must also apply for Internal Revenue Service (IRS) and California tax exemptions.

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Follow these steps to form a not-for-profit corporation and to request recognition under section 501(c)(3) in the Golden State.

1. Choose a name for the new company.

When choosing a name for your new nonprofit, make sure it is not already in use by another corporation registered with the state. The Secretary of State's office provides resources to help incorporators review and reserve prospective business names.

2. Appoint a board of directors.

You need at least three unrelated people to serve as directors for the new not-for-profit organization to satisfy IRS requirements. The board of directors serves as the governing body for the business. When appointing the initial board, choose people you believe will help the business meet its purpose and who are likely to make good decisions.

3. Incorporate the new nonprofit.

File articles of incorporation with the California Secretary of State's office. The articles must include, at a minimum, the company's name and address and the name and contact information for the company's agent for service of process. The person or business named as agent for service of process must have a valid California street address.

The articles must also include a statement of purpose that documents your intention to form a nonprofit public benefit corporation. Your statement of purpose must meet IRS and the state requirements.

4. Form bylaws and obtain tax identification numbers.

A nonprofit does not have shareholders in the traditional sense, so you do not need a shareholder agreement. However, you should create bylaws for the company. Bylaws typically include provisions about the appointment and removal of directors and officers, terms of service, the corporate decision-making and voting process, and more.

You also need a federal employer identification number (EIN) for the new nonprofit. Complete an Application for Employer Identification Number (Form SS-4) or request your EIN online. If your corporation will have employees, apply for a California tax identification number from the California Employment Development Department.

5. Apply for exemption under Internal Revenue Code Section 501(c)(3).

Next, file an Application for Recognition of Exemption (Form 1023) to request recognition as a 501(c)(3) tax-exempt organization. When completing this form, you need a considerable amount of information, including information about the business and its purpose, your organizational structure, information about the directors and their relationships to other directors and the company, your governance policies, conflicts of interest, current and intended activities, and compensation for officers and directors.

Certain small not-for-profit corporations can file a Streamlined Application for Recognition of Exemption (Form 1023-EZ). After applying for recognition as a 501(c)(3) organization, you may wait months to receive an IRS determination letter. The IRS may approve your application, reject it, or request additional information.

6. Apply for the state's tax exemption.

After your nonprofit has received a favorable determination letter from the IRS, you can apply for affirmation of that exemption under state law. File a Submission of Exemption Request ( Form 3500A) with the state's Franchise Tax Board to request California income tax exemption for the business.

7. Comply with applicable state fundraising rules and registration requirements.

Most nonprofit public benefit corporations in the Golden State must also file an Initial Registration Form (Form CT-1), registering the company with the California Office of the Attorney General's Registry of Charitable Trusts. You may also need to obtain certain permits and licenses for your organization.

If you're ready to form your own 501(c)(3) nonprofit corporation in California, visit the state's website to learn of the exact steps and requirements for doing so. You can have yours set up quickly and efficiently.

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