A Complete Guide on How to Start a Nonprofit in California

You’ve decided it’s time to make a difference in the world and you’re ready to start a nonprofit in California. Thats great! The world needs more leaders like yourself. Nonprofits are the heartbeat of every Californian community and the primary driver of social change.

Founding an inspiring movement to make the world a better place by starting a nonprofit organization in California is a commendable action, but how do you get things off the ground? As the biggest economy in the United States, this sanctuary state values regulation and compliance when forming the organizational structure and registering as a tax-exempt organization. California has some of the most stringent and complex processes and rules for starting a nonprofit, the semantics you need to deal with along the way to launching your organization can make your head spin with confusion and frustration.

That’s why we put together this guide to take you by the hand and walk you through every step in the process, from filing your paperwork with the California Secretary of State to securing your 501(c)(3) designation. 

At first, you might find the mountain of regulations stacked up against you impossible to navigate and implement during the founding process. But when you have the right approach and strategy, you’ll find it’s a breeze to get things done and get your nonprofit ready to do good in the world. 

Building a charitable organization is just as challenging, if not more so, than founding and growing a conventional profit-driven company. Qualifying for tax-exempt status from the IRS isn’t easy, and you can expect a mile of red tape standing between you and the successful launch of your organization. 

But when you finally receive your 501(c)(3) status, it makes all the frustration and hassle you endured during the registration process worth your while. A qualifying California nonprofit startup can accept tax-deductible donations, catapulting you toward fulfilling your fundraising goals.

Are you ready to dive deep into the extensive details of starting a nonprofit in California? In this comprehensive guide, we’ll unpack everything for you, giving you a one-stop resource for success. 

Step 1: Understand the Legal Structure of a Nonprofit

You might think the word “nonprofit” is synonymous with all charitable and philanthropic organizations, but that’s not the case at all. There are three different types of nonprofit structures, and the one you choose affects everything from your fundraising to tax benefits. 

Public Charity: The Most Frequently Used Nonprofit Structure

Homeless shelters, food banks, and after-school programs are great examples of public charities, with the primary function of these organizations providing some form of direct support to the communities they serve, like aid, education, or social services. 

Funding for public charities usually comes from public donations or government grants, and these org’s have tax-exempt status due to meeting the 501(c)(3) qualifications requirements set by IRS regulations.

One of the standout differences between this structure and the others we’ll discuss in a minute is that public charities have strict reporting and operational requirements due to the public-facing nature of the organization's operations.

Private Foundation: Go Private with Your Fundraising 

Like a public charity, this structure serves the public interest, but they obtain all their funding from a single donor, like a family office, corporation, or private individual. Private foundations receive funds to support specific causes through grants, with a great example of this structure being The Bill and Melinda Gates Foundation.

There’s one key factoid to note with private foundations, and that's that while they qualify for 501(c)(3) status, they don’t have the same reliance on public donations to carry out their mission in the same way that public charities do. 

The downside to receiving funding from a single source is tighter IRS regulations for these structures. According to the rules for private foundation funding parameters, these org’s must distribute a defined percentage of the grant revenue they receive to maintain tax-exempt status, with the IRS carefully monitoring how the management spends the money they receive.

Mutual Benefit Corporation: A Member-Based Structure

This nonprofit structure has the goal of assisting a specific group, prompting the well-being of its members. That’s a stark difference from the other two structures we went through because they don't serve the general public like public charities or private foundations do. Think of trade associations, business leagues, or social clubs; they all meet the criteria for a mutual benefit corporation. 

Since this type of nonprofit serves a defined membership instead of the public, it doesn't meet 501(c)(3) qualifications parameters, so it doesn't receive the same tax-exempt status as the other two.

How to Structure Your Nonprofit to Qualify for 501(c)(3) Status

For a nonprofit to qualify for 501(c)(3) status, the organization must serve charitable, religious, scientific, or educational programs. So, the governing documents around the nonprofit legal structure must specifically state if your organization serves public interests.

Regardless of the difference between nonprofit entity types, the nonprofit must abide by strict regulatory guidelines on how to distribute funds, with no distribution of profits to directors or members.

The legal structure of a nonprofit determines how the organization goes about planning and executing its fundraising strategy, qualifying and maintaining its tax benefits, and how it serves its overarching mission. 

Step 2: Choose a Nonprofit Name and Register with the State 

Do you have a name for your nonprofit in mind? It’s an exciting piece of the puzzle in officially forming your nonprofit. But there’s more to a name than something that sounds catchy; it should reflect your mission and goals, be unique from other organizations in the state, and, above all, follow California nonprofit name rules.

Is Your Nonprofit Name Available? Use the California Secretary of State’s Tool to Look it Up

There’s nothing more frustrating and challenging to walk back than a name change to your nonprofit. Taking a few minutes to scan the California Secretary of State's online business search tool is the easiest and fastest way to see if the name is free or if it’s already been snagged by another organization. If it’s open, you’re golden and can proceed to the next step. If not, then it’s back to the brainstorming board.

You need a name that pops and draws attention to your cause and mission, but it must comply with state rules. You can’t choose a name that makes the organization appear like it's a for-profit company, and there are certain words state law forbids nonprofits to use when naming the organization. Taking the time to research the naming criteria for nonprofits will save you from headaches later when you’re further down the road when it's operating.

The Name Is Available? Reserve It to Avoid Disappointment

The last thing you need is to find a name, only to have someone swoop in and take it from you before you register it. Fortunately, you can reserve it online. Just visit the official site of the California Secretary of State, download the name reservation form, complete it, and send it back.

Your business name reservation lets you claim it while you handle the other red tape surrounding forming your nonprofit registry. Reserving the name might seem like a minor task, but it's a critical step, and the good news is, that it’s affordable and fast, requiring a small fee to book the name and safeguard it while you finalize the other paperwork in the registration process.

Meeting State Nonprofit Name Compliance Requirements

Choosing a nonprofit name in California is trickier than in other states because Californian state compliance standards say you’ll need to choose a nonprofit business name like “Association,’ ‘Foundation,’ or ‘Corporation,” signaling to the public that you’re running a not-for-profit organization.

Step 3: File the Articles of Incorporation with the California Secretary of State

You’re on your way to forming your nonprofit structure, and the next phase of the project is filing the organization's Articles of Incorporation with the California Secretary of State. This is possibly the most important step in the nonprofit formation process because it forms the groundwork to make your nonprofit a bona fide legal entity, qualifying the organization for that all-important 501(c)(3) exemption. Let’s break down the filing process in a simple step-by-step format so you can handle its registration like a pro.

Download the Right Form

As with all company registrations, you need the right paperwork to satisfy the government. Log onto the California Secretary of State’s website and you’ll find Form SI-100 for nonprofit incorporation in California available for immediate download.

Fill in the Basic Organization Details

The information required on this form is fairly vanilla and includes basic information about the nonprofit, including its name, and a brief description of its mission and purpose to meet 501(c)(3) incorporation process requirements.

Include Essential 501(c)(3) Clauses

Here’s where things can get a bit sticky because the articles of incorporation must include specific legal clauses to qualify for 501(c)(3) exemption. The two key clauses you’ll need to add are the following.

Purpose Clause: This explains the purpose of your organization, and you’ll need to make it align with the “exempt purposes” definition outlined by the IRS. To bring more clarity to the purpose clause, you’ll need to explain the nature of your nonprofit and the charitable, educational, religious, scientific, or literary activities it undertakes. If you mess this part up with a vague description or one that falls outside the aforementioned categories, you run the risk of losing your shot at qualifying for a 501(c)(3) exemption.

Dissolution Clause: This outlines what happens to the nonprofit’s assets, and how they’re distributed, in the event that your nonprofit has to close its doors. According to IRS requirements, the articles of incorporation must state another 501(c)(3) organization or the government as the beneficiary of the asset holdings to ensure the nonprofit’s resources continue to serve the public, even if the organization isn't around anymore.

Designate a Qualified Agent for the Service of Process

Next up, it’s time to nominate an agent for service of process. You’ll authorize this entity or person to receive legal documents and communications from official sources or the courts on your behalf. The agent needs a Californian physical address, and you can’t use a postbox number to compensate for the lack of a physical address. Most nonprofits choose a trusted board member for this position, but there are professional services available for this step of the process.

Submit Your Documents and Pay the Filing Fee

You’ll need to pay a $30 filing fee for lodging your articles of Incorporation in California. Fortunately, it’s easy to make this happen and you can submit online, by mail, or in person at the California Secretary of State’s office. Before you march into the building or hit the send button on the site, double-check everything, especially those all-important 501(c)(3) incorporation process clauses.

Get Your Filed Articles Back

The California Secretary of State processes your articles of incorporation and returns a stamped copy to the nominated agent of service process. File these docs away somewhere safe where you’ll have immediate access to them, they’re the only thing showing that your nonprofit exists. 

Don’t Forget Bylaws and Initial Directors

But wait! There’s more paperwork ahead! It’s time to draft the organization’s bylaws and appoint the initial board of directors for your nonprofit. Bylaws govern how the nonprofit operates and include items like how often you intend to hold board meetings and the officer's roles in the organization’s operations.

Step 4: Apply for Federal Tax-Exempt Status

Now it’s time to handle the biggie; applying for that sweet nonprofit tax-exempt status under 501(c)(3). This step in the process is huge because it qualifies the organization for exemption from paying federal income taxes and lets the organization’s donors claim tax deductions on their contributions. But before you can revel in the glory of receiving your tax exemption, you’ll need to go through the IRS nonprofit tax exemption process. Here’s a brief breakdown of the forms you’ll need to complete.

Form 1023 vs. Form 1023-EZ: Which One is Right for You?

There’s two routes to take when applying for 501(c)(3) status with the IRS. You have the option of using the extended version of Form 1023, or the streamlined version called Form 1023-EZ. Both achieve the same end goal of bringing your nonprofit tax-exempt status, but each form comes with different requirements and processes to fulfill before sending it off. Here’s how to figure out which form is the best choice for your new nonprofit.

Form 1023

This version is the full-length, traditional tax-exempt status application for nonprofits collecting donation receipts exceeding an annual value of $50,000 within the next three years, or those that have over $250,000 in assets. Form 1023 is detailed and time-consuming to fill out, but there’s no getting around it for larger nonprofits.

Form 1023-EZ

This condensed version of Form 1023 is for smaller nonprofits that don’t expect to bring in more than $50,000 annually for the first three years of operations, or those with less than $250,000 in assets.

Documentation Requirements for Form 1023

You’d better buckle up for the long haul if you’re planning on using the full-length version of Form 1023. The 501(c)(3) application process with this document takes a deep dive into the specifics of your nonprofit’s finances, operations, and governance. Let’s look at some of the information you’ll have to complete.

Organizing Your Documents: You'll need to submit a copy of your Articles of Incorporation, complete with any amendments to the document, and the 501(c)(3) purpose and dissolution clauses.

Bylaws: These rules unpack how you’ll run the nonprofit's operations and the board of directors.

Detailed Narrative: Give a detailed explanation of your nonprofit activities and how you intend to serve the public with your mission. You’ll need to provide motivation for why you think the organization deserves nonprofit status.

Financial Information: Leave it to the IRS to make the money section of the form the most important segment of the document. You’ll need to provide accurate information on the org’s finances, current and projected. You’ll need financial statements for the past three years (where applicable), two years of projected budgets covering fundraising activity details and expected revenue and operational expenses, and your sources of income.

Conflict of Interest Policy: This section states that no one within the nonprofit stands to gain financially from its activities. The IRS takes this point seriously, to prevent people from taking advantage of the nonprofit tax exemption.

Documentation Required for Form 1023-EZ

Eligibility Worksheet: This checklist confirms you’re eligible to apply with Form 1023-EZ.

Online Filing: You’ll need to file Form 1023-EZ online directly through the official IRS website. It’s three pages and pretty straightforward, requiring basic info like the nonprofit's name, EIN (Employer Identification Number), and primary fundraising and mission activities.

Minimal Financial Information: Form 1023-EZ doesn't require you to include your financial statements or a conflict of interest policy, isn't that a godsend? Instead, you’ll confirm that your organization meets the financial criteria of receiving less than $50,000 in gross receipts annually and that it holds less than $250,000 in assets.

Filing Fees: Be Ready to Pay Up

Unfortunately, applying for 501(c)(3) status isn’t free, so let’s talk about the filing fees you’ll need to pay to secure your registration.

Form 1023: The filing fee for the full version of Form 1023 is $600. It’s a steep price tag, but think of it as an investment that you’ll recover with tax-exempt status.

Form 1023-EZ: The shorter version of Form 1023 requires a filing fee of $275, which is less than half of what you’ll need to pay for the longer version.

IRS Review Process: What Happens Next?

From this point on, it’s all hands-off on your part, and the rest is up to the IRS review process. Depending on whether you use Form 1023 or Form 1023-EZ, you could be looking at an extensive review period. Typically, as we can expect, Form 1023-EZ receives faster review and registration by the tax authorities.

Form 1023: You can expect to wait a few months before receiving word from the IRS about your Form 1023 application. They carefully assess the details provided regarding the 501(c)(3) requirements. If everything checks out with your application, you’ll receive a “determination letter” granting your nonprofit official 501(c)(3) tax-exempt status.

Form 1023-EZ: 

This process is much faster, taking between two and four weeks on average.

Maintain Your Compliance After Receiving Approval

If you receive your determination letter, congratulations! Your nonprofit is officially recognized as a 501(c)(3) status organization by the IRS, and you’re officially a tax-exempt nonprofit. Isn't that great? All the waiting was worth it, but we’re not done with the process just yet, there’s more work to do. 

You’ll need to file Form 990 annually to maintain tax-exempt status for your nonprofit with the IRS. You’ll either file Form 990, 990-EZ, or 990-N, depending on how much revenue the nonprofit brought in that year. Maintaining your compliance with the IRS avoids financial penalties or the worst-case scenario of losing your IRS nonprofit tax exemption.

Step 5: Register for State Taxes and Compliance

Right now, you probably feel on top of the world after receiving your 501(c)(3) status. It’s months of hard work brought to fruition, and you should be proud of yourself. But this isn't a time to shift into cruise control, we’re not done yet. You see, you’ve only completed the federal requirements, and you’ll still need to register at the state level to finish the exercise.

To fully operate as a nonprofit in the state of California, you’ll need to prove compliance with state tax regulations. The first mission on the list is applying to the  California Franchise Tax Board (FTB) for tax-exempt status. 

Start by filing Form 3500A with the FTB. The good news is there’s no filing fee, so it won't cost you a penny. After the state authorities greenlight your nonprofit, it’s exempt from paying California state income taxes. All you have to do is renew it each year to maintain compliance.

Sales Tax Exemption: Do You Need It?

This part of the process is a bit tricky to navigate because not all nonprofit entities qualify for sales tax-exempt status in California. The rules for sales tax exemption depend on what your organization sells. If you’re selling products like merch or books, you’ll need the California Department of Tax and Fee Administration (CDTFA) to grant you a seller’s permit. Purely service-based nonprofits who engage in limited fundraising activities won't qualify for this exemption.

Nonprofits that require this permit can apply through the CDTFA’s online portal on the official site. After registering your organization you’ll charge sales tax on taxable items, file regular sales tax returns, and pay taxes to the state of California.

Keeping Up with Nonprofit Compliance

It’s thrilling to receive tax-exempt status from the IRS and state authorities, but it’s not a one-off deal. You’ll need to maintain stringent compliance requirements to keep your tax-exempt status. The California Franchise Tax Board requires you to file Form 199 annually if your nonprofit pulls in more than $50,000 in receipts. If you're under the threshold, you can use Form 199N, also known as the “e-Postcard.”

Nonprofits must maintain good standing with California state agencies like the Attorney General’s Registry of Charitable Trusts to avoid losing their tax-exempt status. Annual compliance duties include filing Form RRF-1 for annual reporting on your commitment to adhering to California’s charitable solicitation laws.

Step 6: Create Bylaws and Appoint a Board of Directors

With all your tax exemptions in place, you’re almost ready to launch your nonprofit and start collecting tax-free donations from your fundraising activities. But before you rush ahead, you’ll need to tackle the tasks of defining your nonprofit bylaws and appointing a Board of Directors. These structural elements of your organization give your nonprofit direction and guidance while moving forward to achieving your mission and goals.

What Are Bylaws and Why Do You Need Them?

Think of bylaws as internal compliance rules your organization follows in its operations and fundraising activities. They’re a playbook describing how you hold meetings and make decisions to move your nonprofit forward. Well-crafted bylaws clearly outline the nonprofit governance structure and save you from huge headaches down the line. Not to mention, your partners and donors will usually want to review your bylaws before committing to your cause.  

Key Components of Nonprofit Bylaws

Name and Purpose: State your organization's name and your mission to set the tone for the rest of the details that follow.

Membership: Define the characteristics of your membership, how members can join, and the voting and governance rights they have.

Board of Directors: Outline the number of directors on the board, how you’ll appoint them, their duties, and how often you intend to meet. Specify the notice given for meetings and what elements constitute a quorum for decision-making.

Committees: If you have a committee for fundraising of finance, outline how you’ll form them and the authority they have within the organization.

Amendments: Include processes for future amendments to the bylaws as your nonprofit grows towards achieving its mission.

Dissolution Clause: We already covered this earlier, but you’ll need to mention what happens to the nonprofit's assets if it has to close its doors.

Selecting Your Board of Directors

After putting your framework in place it’s time to appoint the Board of Directors. This team plays a pivotal role in providing strategic direction and oversight for the organization, keeping it on track to fulfilling its mission. Here’s what you need to know to organize and appoint a strong board.

Diverse Skill Sets: The best move is to appoint a board with a good mix of experience and skillsets in finance, legal matters, fundraising, and marketing.

Passion for the Mission: It goes without saying that the board should have a vested interest in seeing the nonprofit succeed. 

Clear Responsibilities: Define the roles and responsibilities of each board member and communicate the expectations for each director so everyone is on the same page with their role and duties in the organization.

Regular Evaluation: You’ll need to regularly evaluate nonprofit performance to keep the board accountable and focused on the mission.

The Board Appointment Process

Appointing a nonprofit board of directors in California typically involves existing board members or founding members casting a vote to decide on the matter. Draft a formal letter of appointment outlining the terms and expectations of the new member.

If the organization has a solid Board of Directors in place, it bolsters corporate governance and boosts credibility in the eyes of your donors and stakeholders. 

Step 7: Register for Charitable Solicitation

You’re almost ready to hit the ground running with your newly formed nonprofit organization. But before you start planning your first fundraiser, it’s time to register for charitable solicitation in California. 

Charitable Registration Process California

California charity registration starts with filing the CT-1 form with the California Attorney General before you can start soliciting for donations. Visit the official Attorney General's website to download Form CT-1 and fill it out with the following information.

Name and Address: The legal name and registered address for your nonprofit.

Contact Information: The details of the contact person who will answer questions from the Attorney General’s office regarding your application.

EIN (Employer Identification Number): The IRS gives you this during the federal registration process.

Mission Statement: Include a lightweight description of your organization's mission and the goals you want to achieve with your fundraising efforts. 

Nonprofit Fundraising Compliance

After submitting Form CT-1 you’ll need to comply with other fundraising regulations and file annual reports with the Attorney General’s office. This form ensures complete transparency on how the nonprofit uses the funds it raises, building confidence with your donors, supporters, and stakeholders. 

Registering for nonprofit charitable solicitation registration in California via CT-1 form registration isn’t just a bureaucratic process, it’s your nonprofit's ticket to growing your mission and engaging with your donor base.

Step 8: Obtain Necessary Permits and Licenses

As you get ready to dive into your first fundraising campaign and nonprofit work in California, don’t overlook specific permits and licenses for your organization.

Common Nonprofit Permits and Licenses

Business License: You’ll need a general business license to operate in most Californian cities. 

Fundraising Event Permit: If you’re planning a gala, auction, or public fundraising event you’ll need a fundraising event permit to legally solicit donations.

Nonprofit Raffle License: Secure a state-specific nonprofit raffle license in California. The state has specific rules governing how you can host and execute raffles, and you’ll submit your application to the California Attorney General’s office.

Special Event Permits: You may need additional permits or licenses for public assembly, food handling, or alcohol sales if you’re planning on hosting outdoor festivals or larger public gatherings. Always check local regulations!

Checklist for Nonprofit-Related Permits

Let’s wrap up this section by giving you a quick checklist to stay on top of your nonprofit permits in California:

• Business License
• Fundraising Event Permit
• Nonprofit Raffle License
• Special Event Permits (if applicable)
• Any other local permits (check city regulations)

By procuring the necessary nonprofit permits and licenses, you’re adhering to legal requirements and building a solid foundation around the organization’s reputation with the local donor and regulator markets. 

Wrapping Up: Launching and Sustaining Your Nonprofit

That’s it! You’ve made it through the process of registering your nonprofit in California and your organization is all set up to start accepting tax-free donations. You’ve finished the journey, but your mission isn’t over. The next goal is to make a lasting community impact by focusing on nonprofit sustainability and strategic organizational growth. Here are a few final tips to keep your nonprofit on the path to fulfilling your mission. 

Embrace Strategic Planning

Every nonprofit needs a roadmap to success, clearly outlining its goals. You’ll need to continually assess your progress toward achieving these goals and pivot to adapt to changes in the ever-evolving nonprofit landscape in California. 

Sit down with your team and plan what you want to achieve in the long-term and short-term by outlining goals for one, three, five, and ten years of operations. Create actionable steps to achieving those milestones and you’ll have a framework you can leverage for success.

Engage Your Donors

Without donors, you don’t have any funds to carry out your mission. But even when you acquire a donor, you’ll need to build that relationship to maximize their lifetime donation value to the organization. An engagement strategy keeps you in the minds of your target donor market, and they’ll continually support your organization if they feel valued and that their donations are making a difference to your mission. Keep them updated on how you’re using the funds to maintain transparency and trust and send out personalized thank you notes showing you appreciate their support.

Focus on Maintaining Compliance and Refining Best Practices

It’s easy to drop the compliance ball when you get busy planning and executing your fundraising strategy. Don't forget to file your annual reports and stay up to date with legal requirements surrounding your licenses and permits to operate fundraising activities in the state of California. If you don’t have the time or resources to maintain compliance, hire a consultant or attend a workshop on best practices surrounding compliance and governance for nonprofits operating in the state.

Keep the Momentum Going

Growth is the key to long-term nonprofit success and you’ll need to continually update your strategies to stay on top of the donor market and grow your organization to its full potential.  Whether you take the initiative to explore new partnerships, host community events, or utilize social media for outreach, keeping operations fresh and engaging reaches more prospective donors and creates a more profound impact on your mission and goals.

As you embark on the incredible journey of launching a nonprofit in California, it’s important to keep in mind your organization's commitment to compliance, sustainability, and donor and community engagement. Now it’s time to get out there and make a difference! Good luck!

How to Start a Nonprofit in California: FAQs 

How long does it take to start a nonprofit in California?

It depends on the type of entity you form, your preparation, and your organizational skills. Typically, you can expect a time frame of two to six months to get set up, depending on the size of the organization and your path to registration. 

Can I start a nonprofit in California without a board of directors?

No. Californian law states every nonprofit entity requires the appointment of a board of directors, with at least three members on the board. The directors can't be related, as it may interfere with voting decisions made by the board, influencing an unfair outcome in the decision-making process.

Do I need to file for both state and federal tax-exempt status for my nonprofit?

Yes. You’ll need state and federal tax-exempt status. You’ll apply for federal tax-exempt status and then at the state level after receiving your section 501(c)(3) approval from the IRS.

Are there any ongoing compliance requirements for California nonprofits?

Yes. All California-based nonprofits must maintain several ongoing compliance requirements, including filing annual reports with the California Secretary of State. The organization must have accurate financial record keeping and hold regular board meetings to remain in compliance. 

Do California nonprofits need a business license or special permits?

Yes. Most Californian cities require nonprofits to apply for a business license before they can set up shop in the state and start soliciting donations. Requirements vary by city or county, so check with local government authorities to ensure you’re on the right track to acquiring permits for fundraising events, sales tax exemptions, or any activities tied to your mission. how