1. According to GuideStar, there are
164,315 nonprofit organizations in Cal-
ifornia. 1,839 nonprofits are registered
in Long Beach and 999 of those have an
income under $100K. Every week,
someone is thinking about starting a
nonprofit organization. There is a lot to
consider before making the decision to
start your own nonprofit: from assess-
ing community need to having the abil-
ity to invest the time and resources
necessary to be successful.
To this end, our partners at The Legal
Aid Foundation of Los Angeles have pro-
vided the following information from
their publication, “Forming a Tax Ex-
empt California Nonprofit Organization”.
There are two decisions your organi-
zation must initially make. First, do you
want to become a nonprofit corporation?
The incorporation process is governed
by the California Corporations Code.
Therefore, all the forms and processes
will be governed by California law.
Next, does your organization wish to
seek tax exempt status? Tax exempt
status provides many advantages for an
organization. Some of these advantages
include no state or federal income tax li-
abilities, assisting your organization
with qualifying for certain grants and/or
funding and, in some instances, provid-
ing your donors with a charitable contri-
bution tax deduction. Tax-exempt status
is governed by both state and federal
regulations. Under state law, the Fran-
chise Tax Board establishes filing and
reporting requirements; under federal
law, the Internal Revenue Service es-
tablishes such requirements.
Consider the following before begin-
ning:
Nonprofit versus For-Profit
A nonprofit organization is defined by
the American Bar Association as a cor-
poration “no part of the income or profit
of which is distributed to its members,
directors or officers”. All nonprofit organ-
izations have three basic characteristics:
1. They are designed from the outset
to be nonprofit.
2. None of the income or assets may
be divided among members, officers, or
directors.
3. They may only pursue legally de-
fined purposes.
A for-profit corporation, on the other
hand, would allow for income and asset
distribution and serve very different
purposes.
Types of Nonprofits
Under California Corporations Code,
there are four basic types of legal or-
ganizations that can be used for non-
profit purposes, outlined below.
An unincorporated association is
formed for some purpose other than for
profit and is generally the organizational
structure selected by small local clubs,
labor unions and fraternal organizations.
Often the association structure is se-
lected if the organization will only oper-
ate for a short time period. Advantages
include: easy to organize; informal; no
incorporation costs; may enter into con-
tracts; may sue or be sued; limited
record keeping. Disadvantages include:
Somewhat vague state regulations; po-
tential individual director and member
liability for acts and omissions within the
scope of their authority; difficulty in
doing business in association’s name;
difficulty in raising funds; net income
potentially taxable.
The corporation is the most common
and probably the best form of organiza-
tional structure for most nonprofit or-
ganizations. It is a legal entity, organized
according to prescribed legal require-
ments and having a specific name and
specific powers granted by law. Advan-
tages include: recognized legal entity;
clear statutory requirements; no individ-
ual director or officer liability for good
faith acts and omissions that are within
the scope of their duties and in the best
interest of the corporation and within the
exercise of their policy making judg-
ment; prerequisite from some funding
sources to receiving monies. Disadvan-
tages include: costs of formation; need
to fulfill corporate formalities; formal-
ized structure, reporting and record
keeping requirements.
Charitable trusts are generally devel-
oped by one person, the trustee, for the
purpose of holding legal title to certain
property, the trust, for the benefit of an-
other, the beneficiary. This organizational
structure is used for very specific and very
limited purposes, for example, a Family
Foundation. Advantages include: can be
established and operated relatively
quickly and inexpensively; does not have
to comply with any statutorily required
formalities; founder has the authority to
name the trustee. Disadvantages include:
must register with the Attorney General
and is subject to the Attorney General’s
continuing supervision.
Limited Liability Companies…are a hy-
brid between corporations and partner-
ships. Although they offer the limited
liability of corporations, they have
greater flexibility of structure and can
be structured so that the entity is not
subject to corporate income tax. Advan-
tages include: members, managers and
officers are not personally liable for ob-
ligations or liabilities of the LLC, with the
same narrow exceptions as corporate
shareholders; flexible structure allowing
members to actively participate in man-
agement and control of company; can
be structured so that the entity is not
subject to corporate income tax but has
pass-through tax status similar to a
partnership. Disadvantages include:
costs of formation and annual tax; law
is unclear as to whether LLCs can be
formed for charitable purposes; very
limited circumstances under which LLCs
can obtain 501(c)(3) tax exemption.
An alternative to independent
501(c)(3) status may be operating as
an informal organization under the legal
umbrella of an existing charity.
Advantages of fiscal sponsorship:
• Can raise grants, contributions, and
other funds based on the sponsor’s
track record and experience
• The sponsor has fiscal, accounting,
personnel, management and other sys-
tems in place
• Can operate informally, no incorpo-
ration costs
• The sponsor assumes the risk of li-
ability
Disadvantages of fiscal sponsorship:
• Loss of control over activities, since
ultimate authority lies with the board of
directors of the sponsor
• Community perception that its ac-
tivities are those of the sponsor. The
sponsor may receive credit for a suc-
cessful project. A sponsor with a bad
reputation may tarnish the project
• As a small part of a larger organiza-
tion, the project may not receive timely
and adequate support. Also, the sponsor
might retain a significant portion of the
funds for its administrative expenses.
• May be difficult to disengage from
the sponsor and continue the project as
a separate corporation.
The Legal Aid Foundation of Los An-
geles is the front line law firm for poor
and low-income people in greater Los
Angeles.
THE NONPROFIT PAGE
Curated By The Long Beach Nonprofit Partnership
The area’s regional capacity builder, serving local organizations to strengthen
and grow through leadership, education and collaboration. Offering:
Professional Development & Training
Networking & Collaboration
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Information Resources
To learn more, visit us at www.lbnp.org.
4900 East Conant St., Building O-2, Suite 225, Long Beach, CA 90808
562.888-6530
To Start or Not to Start a Nonprofit – That is the Question
Long Beach Business Journal 31
June 23-July 6, 2015
Capacity Corner:
Upcoming Calendar of Events
From the Nonprofit Partnership
Giving USA 2015 – The Annual Report on Philanthropy
Tuesday, June 30, 2015, 10:00am-Noon
Join us for a special presentation on the findings of the Giving USA 2015. You won't
want to miss out on the most comprehensive report on charitable giving in our
country, now in its 59th year. This presentation will examine giving by the source,
recipient and sector. A nonprofit leadership panel, moderated by Marc Kellen-
berger, Founding Principal of The Phoenix Philanthropy Group, will discuss and
compare the national numbers to what they are seeing in our region.
Essentials of Human Resources Certificate
Thursdays, July 16 to August 20, 2015, 2:00-5:00pm
Rapidly changing workplace initiatives, legal landscapes and workplace culture
are an integral part of the human resources function. The program provides the
knowledge and practical skills for human resources administration and manage-
ment. This 6-session certificate program will focus on real-life situations that are
found in organization’s today.
From our Partners
Ask the Expert: Finding Funding for Technology Projects
July 23, 2015, 11:00am WEBINAR
In this interactive webinar, they will examine how to make a data-informed case for
technology investment and explore funding sources, cost estimates, and needed re-
sources. For more info, visit: nten.org.
Save the Date: Stronger Together Nonprofit Conference
August 24, 2015 — Los Angeles, CA
Join three strong partners working together on the second annual nonprofit confer-
ence for California with leading edge content and exceptional presenters in leader-
ship, strategy, advocacy, and risk management. For more info, visit: calnonprofits.org.
Steps to Forming
a Nonprofit
Organization
in California
Pre-Incorporation
Identify Board Members
• Conduct Community
Needs Assessment
• Identify Goals & Objectives
• Develop a Mission Statement
• Decide on Structure
• Train Board on Responsibilities
• Decide on a Name
• Reserve a Name ($10 fee good for
only 60 days)
• Develop Articles of Incorporation
• Develop Bylaws
• Develop an Organizational Workplan
• File Articles of Incorporation ($30 fee
+ $5 certification fee)
• File Form SI-100—Statement of Infor-
mation (domestic nonprofit corpora-
tion—$20 fee due within 90 days after
filing for incorporation)
• Complete Initial Registration with CA
Attorney General’s Office—Use form CT-
1 or URS v.4.02 and complete within 30
days of receiving assets/funding)
• File CA Form DE-1NP—Request for
Employer Tax ID Number ( if pay
$100+ in wages per quarter)
• File Form SS-4—Employer Identifica-
tion Number (due even if organization
has no employees)
Tax Exemption
• File IRS Form SS-4—Employer Iden-
tification Number
• *File IRS Form 1023/1024—Federal
Tax Exemption ($400 or $850 in fees
based on average annual gross receipts
over 4-year period. 1023 due within 27
months of Incorporation)
• *If appropriate—File IRS Form
5768—Election / Revocation of Election
by and Eligible Section 501 (c)(3) Or-
ganization to Make Expenditures to In-
fluence Legislation
• File CA Form FTB 3500/3500A—
State Tax Exemption ($25 or $0 fee)
*File these forms together and attach
Articles of Incorporation and Bylaws.