Forming a california nonprofit 2013


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Learn the essentials to start a nonprofit in California.

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Forming a california nonprofit 2013

  1. 1. Legal Aid Foundation of Los Angeles 2013 Forming a California Nonprofit
  2. 2. Introductions  Please share:  Your name  Your role/position in organization  Organization’s purpose  Current formal structure of organization, if any  What you hope to learn today
  3. 3. Workshop Goals
  4. 4. OVERVIEW 1. Forming an Organization • Community Needs Assessment • Mission Statement • Organizational Structure • Legal Structure 2. Non-profit Incorporation 3. Tax Exemption – Getting Started 4. Tax Exemption – Maintaining Exemption
  5. 5. What are the needs and how does your organization’s mission address them?
  6. 6. A brief study of your community Community Needs Assessment
  7. 7. Avoid duplication Community Needs Assessment: Why? Demonstrate needsNetworking opportunities
  8. 8. Gather & Organize Existing Information Map out the community Get community input Community Needs Assessment: How?
  9. 9.  Who is the “target”?  Who should do it? Community Needs Assessment: Who?
  10. 10. Community Needs Assessment: All the time! When?
  11. 11. Mission Statement Reflects vision: Provides focus & attracts funders Specifies long term goals Who,What,Why, Where, How. All in 2-3 Sentences
  12. 12. Audience Mission Statement
  13. 13. What: Who: Where: Why: How: Mission Statement Specifics Services provided to meet goal Persons served Community served Goal or community need Means of providing services
  14. 14. Sample Mission Statement Legal Aid Foundation of Los Angeles (LAFLA) is the frontline for LAFLA is committed to law firm low-income people in Los Angeles. promoting access to justice, strengthening communities, combating discrimination and effecting systemic changethrough representation, advocacy, and community education. What?Who?Where?Why?How?
  15. 15. What will your organizational structure be?
  16. 16. Structure
  17. 17. Anatomy of an Organization Governing Body or Board Advisory Council Members Staff Volunteers
  18. 18. Some Important Questions to Ask: Members 1. Do you want to be a membership organization? 2. What are the qualifications to become a member? 3. What are the membership requirements?
  19. 19. Some Important Questions to Ask: Leadership Structure 1. Do you want to have leaders? 2. How will you select/elect leaders? 3. What powers will leaders have? 4. What powers will the members have?
  20. 20. Some Important Questions to Ask: Decision Making Structure 1. Who has the power to make decisions? 2. What decisions? 3. When? 4. How will the decisions be made?
  21. 21. Decision Making Structure 1. Avoids conflict 2. Members feel involved 3. Furthers the mission Goals
  22. 22. The Board of Directors Who should be on it?
  23. 23. Important Skills for your Governing Body: dreamers and visionaries experience in accounting or financial management ability to follow legal formalities organization and recordkeeping skills connections or access to funding political, media, or other connections ability to facilitate a meeting or group discussion ability to keep a group focused and moving communication skills ability to inspire, motivate, and mobilize a group ability to keep others informed
  24. 24. ROLES AND RESPONSIBILITIES OF BOARD OF DIRECTORS Legal Oversight of the Nonprofit Organization
  25. 25. Duty of Care  Make informed decisions  Act in good faith Duty of Inquiry  Make reasonable inquiries when necessary Duty of Loyalty  Act in the best interest of the corporation  Avoid self-dealing transactions  Avoid conflicts of interest Standard of Conduct for Board of Directors
  26. 26. Directors Personally Liable When: Not performing their duties in good faith Not acting in corporation’s best interest Not exercising reasonable care under the circumstances
  27. 27. General Board Responsibilities •Finance & accounting •Planning •Policy •Personnel •Resource Development •Board Governance Can be delegated to Staff
  28. 28. What legal structure is best for your organization?
  29. 29. Legal Structure Determines:  Which laws apply to your organization  How government agencies will treat your organization
  30. 30. Legal Structure Considerations  Your organization’s mission and goals  How many persons you want to control your organization  How an organization will raise money  Personal liability or risks involved  Tax advantages and disadvantages
  31. 31. For-Profit vs. Non-Profit One or more owners Profits distributed to owners Formed for any lawful purpose No owners Profits reinvested Formed for charitable, mutual, public or religious benefit purpose
  32. 32. For-Profit Unincorporated Association Charitable Trust Non-profit Corporation vs. Non-Profit Sole Proprietorship Partnership (general, limited, or limited liability) Corporation ( C, close, or S, Cooperative) Limited Liability Company
  33. 33. Incorporation  Separate legal entity  Unlimited existence  Limited liability  Cost  Structural formality  Reporting requirements Advantages vs. Disadvantages
  34. 34. Alternative to Incorporation:  Operate as a "project" of existing non-profit  Tax and financing done by sponsor  Less control over own organization Fiscal Sponsorship
  35. 35. Nonprofit Corporations Public Benefit Mutual Benefit Religious Benefit Charitable or Public Purpose Any Lawful Purpose Religious Purpose No Assets to Members Assets to Members on Dissolution No Assets to Members Most Government Regulation Moderate Amount of Gov’t Regulation Least Gov’t Regulation
  36. 36. What is the nonprofit incorporation process?
  37. 37. What is Incorporation?  Process of forming a corporation  Separate from 501(c)(3) tax exemption  We are focusing on California nonprofit corporations only; (governed by CA law)
  38. 38. File CA Form DE-1NP Request for Employer Tax ID Number (if pay $100+ in wages per calendar quarter) Complete Initial Registration with CA Attorney General’s Office Form CT-1 or URS v4.01 Must be completed within 30 days of receiving assets/funding File Form SI-100 - Statement of Information (Domestic Nonprofit Corporation) Due within 90 days of filing for Incorporation; FEE: $20.00 Incorporation Process Overview: 1. Choose & Reserve a name (optional) for the corporation 2. Prepare/File Articles of Incorporation & Bylaws 3. File a Statement of Information SimpleDetailedFile Articles of Incorporation FEE: $30.00 + $5.00 Certification Fee File IRS Form SS-4: Employer Identification Number (Required even if organization has no employees)
  39. 39. Related Requirements  Get an Employer Identification Number (EIN)  Register with Registry of Charitable Trusts
  40. 40. Articles of Incorporation: Creation document for your organization What are they?
  41. 41. Articles of Incorporation: What needs to be in them? Name of corporation Statement about forming (CA law - see workbook) Name & address of Agent for Service of Process
  42. 42. Articles of Incorporation: What needs to be in them?  Statement describing purpose  can be taken from mission statement  neither overly broad nor narrow  may think about particular funding sources
  43. 43. Articles of Incorporation: What needs to be in them?  If applying for tax exemption:  Dedication of assets upon dissolution  Restriction on political activity & lobbying
  44. 44. Articles of Incorporation: Filing & Fees $30 filing fee – check payable to Secretary of State $5 certification fee For additional certified copies, include $5 certification fee + $1.00 for the first page + $0.50 per additional page for each certified copy Separate $15 handling fee check, payable to Secretary of State (optional, only if filing in person)
  45. 45. Filing Statement of Information (Form SI-100)  Must file within 90 days of filing Articles of Incorporation  $20 filing fee – check made payable to Secretary of State  Can e-file online at  Must re-file biennially (every 2-years)
  46. 46. What is tax exemption and is it best for your organization?
  47. 47. What is Tax Exemption?  Separate process from incorporation  Must obtain both Federal and State income tax exemptions  501(c)(3) = federal corporate income tax exemption  Property tax exemption
  48. 48. Is tax exemption best for your organization?
  49. 49. 501(c)(3)  Charitable, educational, literar y, religious, scientific or cruelty prevention purpose  Donations tax-deductible  Related business income not taxed  Lobbying limited & campaigning prohibited 501(c)(4)  Social welfare purpose  Donations not deductible  Related business income not taxed  Lobbying unlimited & limited campaigning permitted, but taxed vs. Two types of Federal Tax Exemption:
  50. 50. Two types of Federal Tax Exemption:Articles of Incorporation Must State: 501(c)(3) 501(c)(4)vs.  assets for exempt, not private gain, purpose, & on dissolution go to a 501 (c)(3)  no political campaigning & no substantial lobbying  assets for exempt, not private gain, purpose, & on dissolution go to a 501 (c)(4)  limited political campaigning
  51. 51.  If your organization does not fall into one of the categories (question 9) IRS will consider you a private foundation  Most groups we work with are public charities  Difference is based on breadth of financial support  Private foundations have extra reporting, taxes, and restrictions 501 (c)(3) Private Foundation v. Public Charity
  52. 52.  Net income from any regularly carried on business activity that is not substantially related to the exempt purpose of the organization  Taxed  Devoting substantial resources and money of the organization to carrying on the unrelated business activity is prohibited. 501 (c)(3) Unrelated Business Income
  53. 53. 501 (c)(3) Direct Lobbying vs. Grass roots Lobbying An attempt to influence specific legislation…  By communicating with a member or employee of a legislative body An attempt to influence specific legislation…  By expressing opinions to the public
  54. 54. 501 (c)(3) IRS Form 5764 – Election to Make Expenditures to Influence Legislation Best way to protect 501(c)(3) tax- exempt status Sets specific dollar limit on amount of lobbying in which a 501(c)(3) can engage  Up to $1,000,000  Up to 25% of total expenditure for Grass roots lobbying
  55. 55. Alternative to Tax-Exemption:  Enter into fiscal sponsor agreement with an existing 501 (c) (3)  Donors give to fiscal sponsor as 501 (c) (3)  Gives your organization benefits of exemption without independently filing for tax-exemption or in the period before your tax-exemption is granted  Often requires a percentage fee to sponsor Fiscal Sponsorship
  56. 56. Federal Tax-Exemption:  SS-4 for Employer Identification Number (EIN)  1023 or 1024 for Recognition of Exemption  2848 or 8821 for Power of Attorney or Tax Info Authorization if attorney or CPA will represent corporation before the IRS Application Forms
  57. 57.  File SS-4 before applying for tax exemption  Complete form 1023 or 1024:  Attach detailed financial statements:  If organization is less than 5 but more than 1 years old  Budget for 4 years, including current year.  If organization is less than 1 years old  Budget for 3 years (current year + proposed budget for 2 years) Federal Tax-Exemption: Procedure  Attach copy of Articles & board-approved Bylaws  Attach $400 or $850 fee  Send all to IRS
  58. 58. California Tax Exemption  501(c)(3) orgs can expedite CA tax exemption process using Form 3500A  Only orgs with special circumstances should file Form 3500  California tax exemption required to be exempt from state corporate income tax
  59. 59. California Tax Exemption  Complete and sign Form 3500A  Include copy of IRS Determination Letter  Send it all to CA Franchise Tax Board (FTB) Form 3500A
  60. 60. County Property Tax Exemption For 501(c)(3) corporations To exempt real or personal property used for charitable purpose Must be filed before 2/15 for coming year Obtain a clearance certificate from State Board of Equalization, then file with the county assessor
  61. 61. What are the continuing reporting responsibilities of tax-exempt nonprofit corporations?
  62. 62. Registration/Renewal Fee Report (RRF-1) File annually with Attorney General’s Registry of Charitable Trusts Must send copy of the appropriate 990 Due 4 months + 15 days after end of fiscal year Registration fee may apply based on gross annual revenue
  63. 63. Tax-Exempt Tax Returns Gross Annual Revenue Federal Forms (IRS) CA Forms (FTB) Receipt <$50,000 990 N (e-file) 199 N (e-file) Receipt $50,000 ~ $200,000 & Total Assets <$500,000 990 EZ or 990 199 Receipts >$200,000 or Total Assets >$500,000 990 199 FTB Forms 199/199 N at IRS Forms 990/990 N/990 EZ/990 PF at Due 4 months and 15 days after end of fiscal year
  64. 64. Statement of Information (SI-100) File every 2 years with Secretary of State Due on last day of anniversary month of incorporation Must send $20 filing fee
  65. 65. Other Reporting Responsibilities Notify appropriate agencies of changes in:  articles of incorporation  bylaws  principal place of address  annual report to directors and members w/in 120 days of end fiscal year
  66. 66. County Property Tax Exemption-Welfare Exemption (BOE-267) Obtain organizational clearance certificate from State Board of Equalization (BOE-277) Then file BOE-267 with the County Assessor; File annually with county assessor Due Feb 15 for coming year
  67. 67. Legal Aid Foundation of Los Angeles To request assistance for your nonprofit or to get more information call us at (800) 399-4529 or e-mail us at Thank you for coming!