Technology and Business Law Blog

Steps to Set Up a Nonprofit Corporation in California

Here are the basic steps that need to be followed in the case of a nonprofit, assuming that the organization does not have any assets, is not leasing any property and that you don’t receive more than $25,000 in gross receipts in a year.

1. Reserve name for the nonprofit corporation with the Secretary of State and after receiving the reserved name need to file the articles within 60 days, otherwise need to send in another application to reserve the name.

2. File the articles (4 copies) for the nonprofit corporation along with a cover letter and check of $30.00 (filing fee) to the Secretary of State in Sacramento. Need to make four copies of the typed articles (3 for filing and 1 for the records of the organization). The person who reserved the name for the corporation must sign the cover letter.

3. Even before actually filing the articles with the Secretary of State it is a good idea to have the State and Federal tax exemption forms ready to see if the organization will qualify for nonprofit status. Have an accountant do this, the tax aspects for nonprofits are pretty challenging and very important. Also, before filing these forms with the State and Federal tax authorities the nonprofit corporation has to be formed (which means that the articles has to be filed, certified and sent back by the Secretary of State).

4. After the certified articles are received, one of the certified copies must be sent by the nonprofit organization to the Franchise Tax board along with the state tax exemption form (form 3500), the second to the IRS with the federal tax exemption form (form 1023)*** and the third certified copy will be forwarded by the California Secretary of state to the Attorney General, Registry of Charitable Trusts, who will get back to the nonprofit organization with additional forms to be filled. See # 9 below.

Also make additional copies of these certified articles to be used for filing with the post office to get a nonprofit mailing permit and for other later needs.

5. Prepare the Bylaws. Non-membership corporations are simpler to operate and establish. Opt for a non-membership corporation run by a board of directors and the number of directors has be more than two but less than five people.

6. Set up a corporate records book, a corporate kit might not be needed if membership certificates are not being issued.

7. Prepare the Minutes of the First Board of Directors Meeting. The purpose of the meeting is to transact the initial business of electing officers, fixing the legal address of the corporation etc. It could be a paper meeting.

8. File the Domestic Corporation Statement (form SI-200). The form will request basic organizational information. The initial agent designated in the articles of incorporation is the agent for the service of process. This form must be filled out and sent back to the Secretary of State within 90 days of the date the articles are filed.

9. After the Secretary of State forwards a copy of the articles to the attorney general, the attorney general will send a initial report form (Form CT-1) to complete and file, and an annual reporting form (RRF-1) to complete and file for the second and subsequent years of the corporation.

*** The tricky part of forming a nonprofit corporation is the tax aspects of it, and one of the main reasons to form such an organization is to avail of the tax benefits. It is very important to consult with an accountant who is well versed in the taxation aspects of nonprofit corporations to check as to the various forms that need to be filled, the requirements in the forms, the deadlines, if and how the organization can qualify. There are also tax forms that need to be filled after the corporation is formed like IRS Form 990-EZ or Form 990-T.

It is important that the tax authorities do not classify the organization as a nonprofit private foundation, in which case the corporation might need to be dissolved immediate

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October 14, 2008 Posted by | Uncategorized | , | 19 Comments