Learn the essentials to start a nonprofit in California.

1. Legal Aid Foundation of Los Angeles
2013
Forming a California Nonprofit
www.lafla.org

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. Workshop Goals

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. What are the needs and how does
your organization’s mission
address them?

6. A brief study of your community
Community Needs Assessment

7. Avoid duplication
Community Needs Assessment:
Why?
Demonstrate needsNetworking opportunities

8. Gather & Organize Existing Information
Map out the community
Get community input
Community Needs Assessment:
How?

9.  Who is the “target”?
 Who should do it?
Community Needs Assessment:
Who?

10. Community Needs Assessment:
All the time!
When?

11. Mission Statement
Reflects vision:
Provides focus & attracts funders
Specifies
long term goals
Who,What,Why, Where, How.
All in 2-3 Sentences

12. Audience
Mission Statement

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. 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. What will your organizational
structure be?

16. Structure

17. Anatomy of an Organization
Governing Body or Board
Advisory Council Members
Staff Volunteers

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. 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. 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. Decision Making Structure
1. Avoids conflict
2. Members feel involved
3. Furthers the mission
Goals

22. The Board of Directors
Who should be on it?

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. ROLES AND
RESPONSIBILITIES
OF BOARD OF DIRECTORS
Legal Oversight of the Nonprofit Organization

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. 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. General Board Responsibilities
•Finance & accounting
•Planning
•Policy
•Personnel
•Resource Development
•Board Governance
Can be delegated to Staff

28. What legal structure is best for
your organization?

29. Legal Structure Determines:
 Which laws apply to
your organization
 How government
agencies will treat your
organization

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. 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. 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. Incorporation
 Separate legal entity
 Unlimited existence
 Limited liability
 Cost
 Structural formality
 Reporting requirements
Advantages vs. Disadvantages

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. 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. What is the nonprofit
incorporation process?

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. 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. Related Requirements
 Get an Employer Identification Number
(EIN)
 Register with Registry of Charitable Trusts

40. Articles of Incorporation:
Creation document for your organization
What are they?

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. 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. 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. 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. 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
https://businessfilings.sos.ca.gov/
 Must re-file biennially (every 2-years)

46. What is tax exemption and is
it best for your organization?

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. Is tax exemption best for your
organization?

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. 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.  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.  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. 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. 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. 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. 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.  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. 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. 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. 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. What are the continuing reporting
responsibilities of tax-exempt nonprofit
corporations?

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. 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 www.ftb.ca.gov
IRS Forms 990/990 N/990 EZ/990 PF at www.irs.gov
Due 4 months and 15 days after end of fiscal year

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. 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. 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;
www.lacountyassessor.com
File annually with county assessor
Due Feb 15 for coming year

67. Legal Aid Foundation of Los Angeles
www.lafla.org
To request assistance for your nonprofit
or to get more information
call us at (800) 399-4529
or e-mail us at cedinfo@lafla.org
Thank you for coming!