nonprofit

Association
Non-Profit
Information

A **Non-Profit organization**
is organized and operated for non profit purposes
that are recognized by both the state and federal government
501(c)(6) Mutual Benefit Corporation contributions are not tax deductible for the contributor normally not eligible for other benefits available, such as nonprofit mailing rates, some tax exemptions, etc. may not distribute profits or dividends to members, but may give other benefits, such as services and facilities. members can own it and if it dissolves, the remaining gains and profits can be distributed among the members
501(c)(3) Religious Corporation Just as name implies, set up for religious purposes.
501(c)(3) Public Benefit Corporation Formed for a public or charitable purpose. Most are formed for educational, scientific, or literary purposes. Exempt from corporation taxes under Section 501(c)(3) of Internal Revenue Code and also under Section 23701(d) of California code. No money or assets may go to the members. If dissolved, proceeds go to another Public Benefit Corporation The California Attorney General has power to oversee and ensure that it complies with law. A majority of the Board of Directors cannot be paid, or be related to other persons who are paid. Board of Directors cannot have a financial benefit from any transactions the association has.
Click here for Non-Profit Chart

Advantages & Disadvantages

Advantages
1. Tax exemptions -- State & Federal tax exemptions. The association must meet certain requirements in order to qualify.

2. Contributions made to the Association are tax deductible for the contributor.

3. Association is eligible to apply for various grants - some foundations require 501(c)(3) status and will ask for a copy of your Letter of Determination.

4. Limited liability -- Board of Directors, Officers, and members are not personally liable for association’s debts. Exemptions to this are:

Taxes that are not paid - i.e.>income taxes and employee withholding taxes
Violation of Statutory duties -- Board of Directors and Officers have a duty to act in the association's best interest (called duty of care). If not, and it causes financial harm to association, then they can be held liable.
Cannot mix personal funds with association funds.
Fail to follow legal formalities (operate by bylaws, hold Board meetings, take minutes & keep records, etc.)

Risk funds without enough backup funds

5. Perpetual legal existence -- An association is a legal entity and continues to exist even with changes of those in charge (the Board). The Association may, of course, be dissolved.

6. Formality -- an association has structure, rules & procedures to follow when there is any sort of dispute. It shows the delegation of authority and has guidelines that all must follow.

Disadvantages
1. Paperwork -- There is the initial red tape (Articles of Incorporation, Bylaws, Minutes, all forms to be filed, etc.) and the ongoing process of record keeping of association activities including:

Minutes of meetings - Board, General, and Annual meetings
Financial Records -- Accounting records are important. Some associations have an accountant set up initial books and then follow this procedure. The Treasurer should have some knowledge of accounting and non profit tax requirements.
Statement of Domestic Nonprofit - $20 every other year
Filing income tax returns each year – no cost
Filing Charitable Trust Form RRF-1
Filing registrtion for conducting raffles

2. Incorporation's costs & fees - Hiring an attorney for intital fees can run $1,000 or more, in addition to the regular filing fees. There are books available for consultation and you can file the applications yourself, so the only cost would be the filing fees.

3. Time & Energy

Keeping a record of all meetings and activities;
Board meetings need to be held;
An Annual meeting of all members is required;
Accounting Records and tax filing copies and information need to be kept; and
A Corporate Record book needs to be kept up to date.

You must file for the nonprofit status with the California Secretary of State first. While you are waiting for the approval, you can begin filling out the application for the federal Internal Revenue Service (IRS), but do not mail that application in yet. A copy of the approved and certified paperwork from the Secretary of State must be included with your federal application. There are 3 steps to follow:

Steps to Take for a California Nonprofit Corporation
Step 1

Choose a name. You may file a request to hold your name for a fee, but it is not mandatory. If the name you have chosen is already being used, you would be notified and then would need to choose another name. There are also guidelines as to what words you may or may not usein your name.

Prepare Articles of Incorporation
Click here for detailed information and sample Articles

They can be formed by 1 or more people who are called Incorporators.
The incorporators must sign and acknowledge the Articles of Incorporation.
The Articles must state the name of the corporation.
They must include a standard legal statement showing the type of nonprofit (public benefit), it's general purposes, and a description of these purposes.
They must state the association is not formed to benefit any person's private gain (cannot receive profits, gains, etc. Person can be paid for work performed, however).

They must designate the person to whom legal papers should be sent in case of a lawsuit against the corporation (agent for service of process).

Prepare Bylaws

Bylaws contain specific information regarding the association and the operation of the association, such as meetings, quorum, elections, etc.
they must restate the most significant legal and tax provisions. This is useful for your own reference and necessary to assure IRS and State that you are eligible.
they provide a practical set of rules for orderly operation -- this helps to resolve disputes, provides certainty regarding procedures, etc.
They cannot contradict any codes from California Corporation Codes for Corporations and Public Benefit Corporation. (Scroll down until you get to Part 2. Nonprofit Public Benefit Corporations.)
They can contradict Robert's Rules of Order, Newly Revised. It is a good idea to insert a section on Parliamentary Rules (using Robert's Rules of Order, Newly Revised) into your bylaws. Robert's Rules of Order, Newly Revised is a book with guidelines on procedures to follow when conducting Board and General meetings.
If the association has members, it would include membership structure since members are allowed under law to participate in certain major association decisions -- Bylaw changes, voting for officers, any money spent, etc.

include termination of membership -- spell out policy and procedures

spell out dues structure, benefits, and consequences of not paying

Step 2

Prepare Your State Tax Exemption Application
Call the California Franchise Tax Board and ask for the application Form FTB 3500 and the instructions. After filling out the form, you will need to include the following attachments when the application is mailed:

proposed budget for the next year
Articles of Incorporation
Proposed Bylaws

A detailed statement regarding specific purpose of corporation This is not a duplicate of the purpose in the Articles, but an extensive summary of specific purposes - major goals and primary activities.

Mail State Exemption Application
A. Make 4 copies of the Articles of Incorporation and 2 copies of your bylaws.

B. Staple together and place in envelope:

original application form - FTB 3500
original attachment pages
original copy of Articles of Incorporation
original copy of Bylaws
check for $25 made out to Franchise Tax Board (staple to front page of aplication)

C. Enclose 4 copies of your Articles of Incorporation in the envelope with the application. The Secretary of State will certify and mail the original to the Franchise Tax Board, keep one copy for their records, mail one copy to the Registry of Charitable Trust, and mail the other 2 certified copies to you.

D. Enclose one copy of your bylaws in the envelope. The Secretary of State will keep the original and mail one copy to the Registry of Charitable Trust

E. Enclose your cover letter, which asks to forward the application and attachments to Franchise Tax Board; to file a copy of the Articles of Incorporation; and to certify the 2 copies of the Articles after your application has been approved.

F. Before mailing this envelope, make a copy of your cover letter and all the forms (application, attachments, Articles of Incorporation and Bylaws) in Section B. Keep in your Corporate Record Book.

G. DO NOT MAIL YOUR FORMS OR APPLICATION TO THE IRS YET. You must wait until the Secretary of State has mailed back the certified copies of your Articles of Incorporation and then include one certified copy with your application to the IRS (see step 3).

H. After being certified, the Secretary will mail back 2 copies of your Articles of Incorporation with a cover letter showing that you have been certified. The cover letter has their certification, date of certification, and state seal on the letter. File one in your Corporate Record Book and mail the second copy with your application and other attachments to the IRS (see step 3).

Step 3

Call the Internal Revenue Service and ask for the following forms (you can do this as soon as you mail the Secretary of State the application and attachments. While you are waiting for the certified Articles to be mailed back, you can be completing the federal application):

Package 1023 Application for Recognition of Exemption with official instructions
Form 8718 User Fee for Exempt Organization Determination Letter Request
Form SS-4 Application for Employer Identification Number
Pub. 557 Tax Exempt Status for Your Organization

A. Fill out Form 1023. The application package must be postmarked within 15 months after the end of the month in which your Articles were certified. If necessary you can request an extension.

If filed on time, your tax exemption is retroactive to the original filing month (the date your articles were certified). If it is filed late, your tax exemption is effective only from the postmarked date of the application to the IRS, and back taxes must be paid.

B. Form 8718 - fill out form

line 2 Check box a if you qualify
complete certification section in middle
make check for $150 out to IRS and staple to front of 8718
attach Form 8718 with check to the front of Form 1023

C. Fill out Form SS-4

Mail Federal Exemption Application
A. Original Form 1023 application

Form 8718 & check stapled on front page of Form 1023
Include the Certified copy of Articles of Incorporation from the Secretary of State
Include a copy of your Bylaws
Include any schedules you may have had to fill out. If no schedules are necessary, do not include them.
Include your Form SS-4

B. Make a copy of the complete application and all attachments for your records and file in your Corporate Record Book.

C. IRS will

grant federal tax exemption with a letter of Advance Ruling, or
ask for more information, or

issue proposed adverse determination. They will deny your association as a tax exempt nonprofit organization to be effective in 30 days.

Letter of Determination.

The letter of Advance Ruling is normally effective for 7 years; the body of the letter will show the expiration date. If, at the end of that time, you still qualify as a 501(c)(3), you will receive a Letter of Determination. This letter

states your exact status - 501(c)(3) or 501(c)(6), etc.
will inform you if you are required to file IRS Form 990
will inform you whether or not charitable donations are tax deductible

These are the most important documents your association can have. When you are applying for donations or grants, or you are asked to show your nonprofit status - this is the document that you submit. During the first 7 years, the Advance Ruling letter is used; after that, the Letter of Determination.

The original Advance Ruling Letter and the Letter of Determination should be kept in your Corporate Record Book.

If you already have your nonprofit status and do not have a Letter of Determination, you can call the IRS at 877-829-5500 and they can verify your exact status. Then you can fax them a request on your letterhead stationery asking them to mail a duplicate copy of your Letter of Determination.

Internal Revenue Service
       Non-Profit Office
       Phone 877-829-5500
       Fax      513-263-3756
       www.irs.ustreas.gov

Annual forms that must and/or should be filed each year

When forming a new corporation you may need to contact one or more of the
following agencies for additional information.

The state Franchise Tax Board- for information regarding Exemption and/or franchise tax requirements.

The Board of Equalization - for information regarding sales tax for items your association sells for fund raisers

The Department of Justice - for information regarding charitable trust requirements and conducting raffles.

The Employment Development Department - for information regarding disability unemployment insurance tax

The Director of Industrial Relations, Division of Worker's Compenstion - for information regarding workman's compensation requirements.

The city and/or county clerk and/or recorder where the principal place of business is located - for information regarding business licenses, fictitious business names (if doing business under a name other than the coprorate name), and for specific requirements regarding zoning, building permits, etc. based on the activities of the corporation.

The Internal Revenue Service (IRS) - for information regarding federal employee identification numbers.