Start a California nonprofit for FREE^*

A nonprofit is an entity or association created to promote and maintain the well-being and greater good of a community, in which profits (or surplus) are directed towards the business and mission rather than divided among the owners and shareholders. Nonprofits are often tax exempt. There are several different types of nonprofits, each with its own purpose, structure, regulations and limitations, and tax implications.

Advantages:

• A nonprofit protects your personal assets from lawsuits and creditor claims. It also protects your trustees, officers, and volunteers.
• California nonprofits are usually exempt from federal tax on any income that's related to your organization's exempt purposes.
• Your California nonprofit may also receive California's state tax exemption.
• Certain nonprofit organizations can exempt their real and personal property from local property taxation.
• Some sales and purchases are exempt from sales and use taxes.
• Your nonprofit may qualify to receive public and private grant money.

Disadvantages:

• Because you and your shareholders don't own your nonprofit, you won't have individual control and autonomy over your organization.
• More paperwork is involved, such as creating bylaws, and recording and maintaining corporate minutes.
• You'll need time and money to apply for the federal tax exemption, and you'll need an accountant or legal professional to help you operate your nonprofit.
• Your nonprofit's finances are subject to public inspection.

Starting your nonprofit in California doesn’t have to be a complicated process. Here are a few simple steps:

1. Doing research. Is your nonprofit serving a mission in the community? And do you have the means to maintain it?
2. Making your case. Write your mission statement, think about a name, select your directors carefully.
3. Filing. Rocket Lawyer can help you with this step!

Although they’re used interchangeably, a 501(c)(3) and a nonprofit are not the same thing. 

A nonprofit is an organization that meets the requirements of its state law. While most people think of nonprofits as charitable organizations, states recognize many types of nonprofits, including many that do not perform charitable activities. Insurance companies, industry-specific professional societies, homeowners' associations, and social clubs are just a few examples of nonprofits that are not necessarily 501(c)(3) organizations. 

A 501(c)(3) organization, on the other hand, is an additional application on a federal level. It’s a nonprofit organization that is exempt from most state and federal income tax because it applied for recognition as exempt from tax under section 501(c)(3) of the Internal Revenue Code. A 501(c)(3) organization must operate for exempt purposes. The exempt purpose must be charitable, scientific, educational, religious, literary, public safety, amateur sports competition, or the prevention of cruelty to children or animals.

In addition to 501(c)(3), the IRS recognizes 26 other types of nonprofit organizations. The most familiar type is charitable organizations. Others include:

• 501(c)(4) Civic League, Social Welfare Organization, or Local Employee Association.
• 501(c)(5) Labor, Agricultural and Horticultural.
• 501(c)(6) Trade or Professional Association.
• 501(c)(7) Social or Recreational Club.
• 501(c)(8) Fraternal Societies.
• 501(c)(9) Employee Beneficiary Association.
• 501(c)(12) Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations.
• 501(c)(14) State Chartered Credit Union and Mutual Reserve Fund.
• 501(c)(19) Veterans Organizations.
• 501(c)(29) CO-OP Health Insurance Issuers.

• Name reservation request form.
• Articles for a Public Benefit Corporation, or for a Religious Corporation.
• Incorporator's statement.
• Form SI-100: Statement of Information.
• Bylaws.
• IRS Form 1023: Application for Recognition of Exemption.
• Form SS-4: Application for employer identification number.
• IRS determination letter.
• Form FTB 3500A to obtain California income tax exemption.
• Form 990.
• Form CT-1: Registration form to be filed with the California Attorney General within 30 days after you receive donations.

Fees for registering a nonprofit can differ from county to county and even specific times of the year. Some fees may also be dependent on how much the nonprofit is expected to earn or has earned in previous years. 

There are a few fees that you may be charged when you register a California nonprofit. They include the following:

California state filing fees and processing times: 

• State fee: $30, though it might depend on the type of 501(c).
  • Fee to expedite your filing: $350.
• State processing time: 2-3 weeks.
  • Expedited state processing time: 5-7 business days.
• Rocket Lawyer state filing fee: $0 $99.99.
  • First filing FREE* for Rocket Legal+ members.
  • Get additional filings HALF OFF with Rocket Legal+.

501C IRS filing fees and processing times

• IRS exemption-status fee: $275 for shorter applications or $600 for applications requiring more detailed information (including LLCs, organizations with higher income or value, foreign organizations, churches, schools, some healthcare organizations, and some research organizations).
• IRS processing time: typically 6-12 months.
  • Simple applications may be processed more quickly.
• Rocket Lawyer IRS filing fee: $599 $1,199.
  • Rocket Legal+ members get HALF OFF.

The Business Services team at Rocket Lawyer are pros when it comes to the requirements for registering a nonprofit and the steps and processes required to file in California. They can help you gather and file the necessary information quickly and at an affordable price. Rocket Legal+ members get their first business registration filing for free, paying only the state filing fees, and also get access to professional services for up to half off, including registered agent services, tax prep and filing, trademark registration, and more.

If your nonprofit does not have a physical address in California (P.O. boxes are not acceptable substitutions), you may be required to have a registered agent. Registered agents accept official and legal correspondence on behalf of your organization. While you are setting up your nonprofit, why not set up Rocket Lawyer as your registered agent at the same time? Better yet, if you have a Rocket Legal+ membership, you can save on your business registration and your registered agent services with the membership that pays for itself.

Businesses can save up to $2,500 per year with a Rocket Legal+™ membership. This calculation is based on total savings on an initial business registration and registered agent, trademark, and business tax filing services for Rocket Legal+ members (a total cost of $924.97) compared to Rocket Legal members (a total cost of $1,949.96). This is in addition to savings on the average cost of 5 hours for document preparation by a non-Rocket Lawyer network attorney at the average attorney hourly rate in the U.S. of $300 (an estimated cost of $1,500 when purchased without any form of Rocket Lawyer membership) compared to unlimited use of customizable business documents for both Rocket Legal+ and Rocket Legal members at no extra cost.

Yes. Grants and loans from federal, state, and private sources are a major source of funding for California nonprofits. A not-for-profit corporation is responsible for complying with grant requirements and keeping appropriate records. It's important for nonprofits to keep money received from grants separate and apart from the nonprofit's general fund. A good reputation in administering grant monies helps nonprofits obtain more funding from these sources. 

 The State of California has more information about applying for grants on behalf of your nonprofit.

A mission statement clarifies your goals and explains how you plan to meet them. As a guideline, describe what, where, when, and how your nonprofit's purpose will be met, as well as who is going to help your nonprofit meet it. It may take a few tries to narrow your ambitions down into a workable plan.

Although you're creating a nonprofit because you want to give back to your community, you still have to meet certain requirements to protect yourself and to ensure that you achieve your organization's goals. When you create a mission statement, you can explain your organization's purpose. Consider what problem or issue your organization wants to address, then focus your statement on including the efforts and values that will guide your nonprofit to these goals.

After forming your California not-for-profit organization, you must follow specific guidelines to retain your status.

• Keep detailed records of all sources of income.
• File annual reports.
• Keep unrelated activities separate from your nonprofit and pay separate taxes on them.
• Ensure that the time and resources spent on your nonprofit are related to your organization's exempt status.
• Maintain detailed records of corporate meetings.
• Ensure that your organization does not generate substantial income from unrelated activities.
• No more than 49 percent of your board of directors may be interested persons, or directors who provide non-director services and receive payment for them. This includes close relatives of the director.
• Make sure that when your nonprofit dissolves, its assets are distributed to another tax-exempt group.

• California Environmental Protection Agency: This site offers funding opportunities for nonprofits that are engaged in activities designed to protect the environment.
• California Attorney General's Guide for Charities: (PDF) The Attorney General's Guide for Charities has information regarding your duties as a director or officer of your nonprofit, as well as a directory for legal representation, government agencies, and fundraising information.
• Center for Nonprofit Management: This resource center provides comprehensive services and support to California nonprofits, including how to write grant proposals and links to other resources for grants. It also tells you how to successfully manage your organization so it complies with all state requirements and meets its goals.

If you are planning to operate in another state, you may need to register a nonprofit in that state. Rocket Lawyer can help you determine which states you should register in.

Other states may have their own rules for foreign nonprofits that originate in California or domestic nonprofits that also operate in California. Talk to an attorney to understand the legal and tax requirements for the state(s) in which you plan to operate.