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Starting a nonprofit in California requires careful planning, strategy, and a whole lot of forms. To learn how to launch your own charity, follow these 11 steps and best practices.
What are the types of nonprofits you can start in California?
In California, you can start various types of nonprofit organizations, including:
Public benefit corporations
Public benefit nonprofits, also known as charitable nonprofits, focus on helping the public or specific communities instead of individuals. They work on issues like healthcare, education, poverty, or the environment to make society better. These nonprofits get their funding from donations, grants, and fundraising.
Examples include the American Red Cross, Habitat for Humanity, and local food banks.
Mutual benefit corporations
Mutual benefit nonprofits serve a particular group, like a club or professional association. Unlike public benefit nonprofits, which help everyone, mutual benefit nonprofits serve the needs of their members. They offer things like networking, advocacy, or professional development. Members pay fees or dues to support these nonprofits.
Examples include trade associations, alumni groups, and social clubs.
Religious nonprofits
Religious nonprofits are linked to a religious group, like a church or mosque. They focus on religious, charitable, or educational goals based on their faith's teachings. These nonprofits offer things like spiritual guidance, community outreach, and charity work. They rely on donations and offerings from their members.
Examples include churches, religious charities, and faith-based social services.
How much does it cost to start a nonprofit in California?
The cost of starting a nonprofit in California can vary depending on several factors, including the type of nonprofit, the services it plans to offer, and the organization's size and complexity. Here are some typical expenses associated with starting a nonprofit in California:
Incorporation fees: To legally establish a California nonprofit, you'll need to file Articles of Incorporation with the California Secretary of State. The filing fee for Articles of Incorporation is $30, but this fee may change over time.
Federal tax exemption application: To apply for tax-exempt status in California, you'll need to file Form 1023 or Form 1023-EZ with the IRS and pay the associated filing fee ranging from $275 - $600).
State Tax exemption application: Nonprofits in California also need to apply for state tax-exempt status with the California Franchise Tax Board (FTB). There is no filing fee for this application, but you'll need to submit Form FTB 3500, Application for Exemption, along with supporting documentation.
Statement of information: The Statement of Information must be filed within 90 days of the nonprofit's initial registration with the Secretary of State and must be updated annually or biennially, depending on the organization's filing schedule. It typically costs $20.
Legal and accounting fees: You may incur additional costs for legal and accounting services to help with incorporating your nonprofit, drafting bylaws, preparing tax-exempt status applications, and ensuring compliance with state and federal regulations.
11 steps to start a nonprofit in California
To start a nonprofit in California you’ll need to research and plan dome foundational elements, like deciding your name and what kind of organization you want to be classified as.
Then, you’ll appoint a Board of Directors, incorporate your nonprofit, draft by-laws, and obtain an EIN. Lastly, you file a Statement of Information, apply for tax-exempt status and register with the California Attorney General's registry.
Step 1: Research and plan
Before jumping into filing any paperwork, you’ll need to understand your overall goals and needs in your community.
This might include:
- Defining your mission and objectives: Your mission statement should reflect the needs of your community and outline the specific outcomes you hope to achieve. Plus, it should establish clear, measurable objectives.
- Conducting a needs assessment: This could involve gathering data, conducting surveys, or holding focus groups. Look for gaps in existing services or areas where there is a lack of resources and support.
- Identifying similar organizations: Start by identifying nonprofit organizations that operate in your field of interest or address similar issues or populations. Use online databases, directories, and search engines to find organizations that have missions or programs comparable to yours.
Step 2: Choose the type of organization
Then, decide what kind of organization you’d like to classify as. Each has different requirements and tax benefits, so it’s important to consider this closely.
Some options include:
- Public benefit: These organizations can receive tax-deductible donations and exempting them from federal income tax. Choosing this type of nonprofit can provide access to a wide range of funding sources and grant opportunities, but it also involves stringent compliance requirements and restrictions on political and lobbying activities.
- Mutual benefits: These nonprofits are not eligible for federal tax-exempt status under section 501(c)(3), but they may still qualify for other tax benefits and exemptions.
- Religious: Religious nonprofits are eligible for federal tax-exempt status under section 501(c)(3) of the Internal Revenue Code, but they may also operate under other tax exemptions and regulations specific to religious organizations.
Step 3: Select a name
Once you’ve determined the type of nonprofit you’d like to classify as, it’s time to choose a name.
In doing so, be sure to consider:
- Mission alignment: Selecting the right name for your nonprofit is crucial as it will represent your organization to the public and stakeholders. When choosing a name, consider something that reflects your mission and resonates with your target audience.
- Uniqueness: Conduct a thorough search to ensure that the name you've chosen is unique and not already in use by another organization in California. You can check the availability of your chosen name through the California Secretary of State's website.
Step 4: Form a Board of Directors
While you can start a nonprofit by yourself in California, it's common for nonprofit organizations to have a board of directors and multiple founders.
However, it's important to note that the IRS typically grants recognition to nonprofits that have more than one director. And, bringing in trustworthy stakeholders can have other huge benefits, The right candidates will bring diverse skills, expertise, and perspectives to the table. They’ll help you navigate issues or challenges.
Step 5: Incorporate your nonprofit
To legally establish your nonprofit as a separate entity, you'll need to incorporate it with the California Secretary of State. This involves filing Articles of Incorporation, which is a formal document that outlines basic information about your organization, including its name, purpose, initial street address, and the names of its initial directors.
You can download the required forms from the Secretary of State's website and submit them along with the applicable filing fee. Once approved, your nonprofit will be officially recognized as a legal entity in the state of California.
Step 6: Develop bylaws
Bylaws are the internal rules and procedures that govern how your nonprofit will operate. They establish the structure of your organization, define the roles and responsibilities of board members and officers, and outline processes for decision-making, meetings, and conflicts of interest.
When drafting your bylaws, consider consulting with legal experts or nonprofit consultants to ensure they comply with California laws and best practices. Bylaws should be flexible enough to accommodate future growth and changes in your organization while providing clear guidance for day-to-day operations.
Step 7: Obtain an Employer Identification Number (EIN)
An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is a unique nine-digit identifier assigned by the Internal Revenue Service (IRS) to businesses and organizations for tax purposes.
You'll need an EIN for your nonprofit to open a nonprofit bank account, hire employees, apply for tax-exempt status, and fulfill other legal requirements. Applying for an EIN is free and can be done online through the IRS website by completing Form SS-4. Once processed, the IRS will issue your nonprofit's EIN immediately.
Step 8: File the Statement of Information
In California, a Statement of Information is a document that nonprofits are required to file with the California Secretary of State's office. This document provides essential information about the nonprofit organization, including its name, address, officers, directors, and agent for service of process.
The Statement of Information must be filed within 90 days of the nonprofit's initial registration with the Secretary of State. And, it must be updated annually or biennially, depending on the organization's filing schedule. Failure to file the Statement of Information on time may result in penalties or the loss of the nonprofit's good standing status.
Step 9: Apply for tax-exempt status
Next, you’ll need to apply for tax-exempt status both in your state and with the IRS.
Federal: To apply for tax-exempt status, you'll need to submit either Form 1023 (long form) or Form 1023-EZ (short form) to the IRS, along with supporting documentation such as your Articles of Incorporation, bylaws, and financial projections. The application process can be complex and may require careful preparation, including detailed descriptions of your organization's activities, purposes, and finances.
State income tax exemption: Upon receiving federal tax-exempt status, apply for state tax-exempt status with the California Franchise Tax Board (FTB) using Form FTB 3500.
Step 10: Register with the California Attorney General's Office
Charitable nonprofits must register with the Registry of Charitable Trusts within the California Attorney General's Office annually. To complete this step, you’ll need to fill out a CT-1 Form
Step 11: Get fundraising and stay compliant
Once you’ve completed all the necessary paperwork and legal requirements, it's time to get started!
Once your nonprofit organization is established, focus on building capacity and sustainability. Develop programs and services that align with your mission, cultivate relationships with donors and supporters, and implement sound financial management practices to ensure the long-term success of your organization.
This might involve meeting with your board of directors to determine exactly how you’ll meet your goals.
This might include:
- Determining fundraising activities (auctions, crowdfunding, etc.)
- Mapping out donor engagement
- Identifying our target audience
- Developing a brand voice
- Necessary staff or volunteer involvement
- Budget constraints
- Resources needed
Plus, be sure to adhere to ongoing requirements for nonprofits in CAlifornia, like filing an annual report and Form 990.
How long does it take to start a nonprofit in California?
While most filing processes only take a matter of business DAYS, the Federal Tax Exemption Application processing TItimeME is anywhere from 1-6 months, depending on the complexity of the application and IRS backlog.
Best practices for starting a nonprofit in California
Establish financial policies
It's important to have clear rules for managing money in your nonprofit. This includes making plans for budgeting, keeping track of finances, and reporting them accurately. These policies should show that your organization is honest, responsible, and careful with its funds.
For example, you might set rules for spending money, handling donations, and checking financial records regularly. It's a good idea to review and update these policies often to keep up with changes and make sure you're following the law.
Develop a strategic plan
A strategic plan is like a map that guides your nonprofit's decisions and goals. When you make this plan, you need to look at your organization's strengths, weaknesses, opportunities, and threats. Then, you can figure out what's most important to focus on and come up with ways to reach your goals.
Your plan should be realistic, easy to measure, and able to change if needed. It's also a good idea to involve everyone who's involved with your nonprofit, like board members, staff, and volunteers, so everyone is on the same page.
Build a strong network
Having good relationships with people who support your nonprofit is really important. These could be donors, volunteers, or other groups that share your goals.
By connecting with them and showing them how much you appreciate their help, you can get even more support. You can do this by going to events, talking to possible partners, and using social media to reach out to people who might be interested in what you're doing.
Seek professional guidance
Running a nonprofit can be complicated, so it's a good idea to ask for help from experts. You might want to talk to lawyers who know about nonprofit laws to make sure you're following the rules. Financial advisors can help you figure out how to raise money and manage your finances. And there are also people who can give you advice based on their own experiences running nonprofits.
Use nonprofit-friendly technology
When creating your nonprofit, and assembling all of your fundraising activities and programs, it's essential to choose technology that is built for nonprofit use. Though lots of fundraising and donor management websites have nonprofit tools, they’re not specifically designed for charitable use.
A nonprofit-specific platform can offer nonprofits tons of crucial features, like:
- Custom donation forms
- Event management tools
- Online donation acceptance and management
- Raffle and lottery management
- Donor management
- Marketing and communication tools
Learn how Urban Paws brought in $147k — for free
As an official 501(c)(3) nonprofit organization (EIN 88-4162805) founded by David & Genny Uziel along with Dana Froomin, Urban Paws goal is to breed, train and pair service dogs with first responders, military members, and other public servants experiencing PTSD.
In order to make the most impact possible, Urban Paws needed a fundraising solution that was cost-effective but powerful. They wanted to cut down on costs without sacrificing tools. However, most traditional fundraising methods often come with high fees and administrative overhead, making it challenging to allocate funds directly toward programs and services.
They found Zeffy, the only fee-free fundraising platform for nonprofits. This meant all the money they raised could go straight to their programs. With Zeffy, they could start collecting donations without paying any hidden costs or fees.
Because of this, Urban Paws was able to raise $147,000 in their first year using Zeffy, and save over $7,000 in fees alone.
Starting a nonprofit in California with Zeffy
Starting a California nonprofit corporation requires time, money, and strategy. From filing for federal tax exemption to remaining compliant, running your own charity is a lot of work — but well worth it in the end.
Once your nonprofit is up and running, Zeffy can help you fundraise for free. From managing donors to creating text-to-donate campaigns, nonprofits can organize all of their charitable activities in one central place — without ever having to pay a cent in fees.
