Jerry J. Goldstein

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Experienced Nonprofit Formation And Development Guidance

If you are looking to start a nonprofit organization in California and seeking to enjoy tax-exempt status, there are several considerations to observe and several steps that need to be followed. While it is possible to form a nonprofit as something other than a corporation, the Internal Revenue Service (IRS) might not grant it tax exemption, or alternately, the founders may be subjected to personal liability. A nonprofit corporation may be your preferred route. Though filing for a nonprofit corporation in California is similar to forming a for-profit corporation, there are additional actions to take to enjoy tax-exempt status, along with significant governing regulations to consider as you pursue the goals of your organization.

What Legal Considerations Are Essential When Forming A Nonprofit Organization?

It is vital to determine the purpose you are attempting to serve or fulfill when forming your nonprofit organization. Generally, California recognizes the formation of four different types of nonprofit corporations:

  • Public Benefit Corporation – This is a nonprofit organized for charitable, civic league or social welfare purposes
  • Religious Corporation – This is a nonprofit organized to run a church or other religious organization

  • Common Interest Development Associations – This is a nonprofit organized to develop community housing projects or a stock cooperative.
  • Mutual Benefit Corporation – This is a grab-bag category for nonprofits that are organized for other than charitable, religious, civic league or social welfare purposes.

The California Secretary of State (SOS) provides different articles of incorporation forms for each type of nonprofit.

What Legal Documents And Filings Are Required To Legally Establish A Nonprofit Entity?

Creating a legal nonprofit corporation in California follows many of the same steps as in organizing a for-profit corporation, but its purpose must be different, as described in the above categories.

The major steps include:

  • Choosing A Name: You need to pick a name for your nonprofit before you begin the filing process.
  • Draft And File The Articles Of Incorporation: You must file articles of incorporation with the California Secretary of State according to the nature of your nonprofit.
  • Appoint A Board Of Directors: Under California law, a corporation may have as few as one person on the board of directors, but the IRS may take issue with this for a nonprofit. It may be better to have at least three board members.
  • Create The Bylaws And Conflict Of Interest Policy: Bylaws govern how the board of directors operates and also stipulate the responsibilities of corporate officers. Though not legally mandated, the corporation should also adopt a conflict-of-interest policy to avoid self-dealing by directors.
  • Obtain An Employer Identification Number (EIN): An EIN is required by the IRS for tax statement purposes.
  • File The Registration Form With the California Attorney General: This is required of most nonprofit public benefit corporations in California and must be renewed annually.
  • File The Statement Of Information: The Corporation must file a Statement of Information with the California Secretary of State within 90 days from the date of incorporation and every two years thereafter,  listing the organization’s address, officers, and agent for service of process.
  • Apply For Federal Tax Exemption: IRS Form 1023 must be filed online. The form is a complicated one that should be prepared with the assistance of a business attorney, as it is the basis for proving your activities are truly nonprofit-oriented.
  • Apply For California Tax Exemption: Once you receive a favorable IRS determination letter from your 1023 filing, you need to file with the Franchise Tax Board for state exemption.

How Can A Business Lawyer Assist In Navigating The Complexities Of Nonprofit Formation And Compliance?

There are many restrictions on nonprofit organizations in California. As an experienced business lawyer with more than 45 years of experience, I can help you understand and resolve difficulties as they arise in the process of establishing a nonprofit business.

A charitable or religious nonprofit corporation recognized under section 503(c)(3) of the Internal Revenue Code faces several restrictions. It must not:

  • Financially support or endorse – or oppose – any political candidate at any level (local, state or national)
  • Engage in any political lobbying activities to a “substantial degree” – the IRS sets limits financially and otherwise
  • Distribute profits to members, officers or directors
  • Engage in unrelated activities that result in “substantial profits”

A violation of any of these restrictions can result in the loss of tax-exempt status.

How Can Legal Counsel Ensure Compliance With Tax And Regulatory Requirements For Nonprofits?

If you are looking to form a legal nonprofit corporation and make sure it stays in tax-exempt status, contact the Law Offices of Jerry J. Goldstein. I will travel to you to meet and consult on your enterprise at no additional charge. I will help you ensure compliance with tax and regulatory requirements by reviewing your documents prior to your filing them. I can assist you at every step of the organizing process.

What Legal Challenges Can Arise During The Development And Governance Of A Nonprofit, And How Can A Lawyer Help Address Them?

The IRS might not grant tax-exempt status to your entity or you may not be able to keep up with filing current 990 forms. A member of your board of directors may have a public crisis and refuse to resign. Another member may be misusing their status on the board improperly. Your staff or volunteers may become disgruntled. It is important to keep in mind that anytime humans are involved, there will be difficult challenges to resolve from time to time.

For help in starting and maintaining your nonprofit in California, contact me, Jerry Goldstein by calling 760-359-2233. With more than four decades of experience in helping businesses of all types, I can advise and guide you in creating a nonprofit corporation that will meet all legal requirements and allow you to pursue the goals you embraced when you first envisioned your enterprise.

I serve clients throughout the Coachella Valley, including Palm Desert, as well as communities in and around Imperial, Los Angeles, Orange, Riverside, San Bernardino, and San Diego counties, among others.