The California Nonprofit Corporation Kit: Binder w/CD-ROM

By Attorney Anthony Mancuso, Nolo Press

Venue:

Description:

This easy-to-use binder helps you form a nonprofit and keep organized!

• Most organizations trying to gain legal nonprofit status don't have the money to pay a lawyer thousands of dollars for help. Fortunately, they don't have to.

This is easy-to-use kit helps anyone who wants to start a nonprofit organization in California. Obtain a federal 501(c)(3) tax-exemption and to qualify for public charity status with the IRS.

The kit provides:

• line-by-line instructions for completing your application
• instructions and completed sample clauses for preparing Articles of Incorporation
• ready-to-use bylaws for membership and non-membership nonprofits
• ready-to-use minutes for the organizational meeting
• California's specific nonprofit legal and tax requirements
• updated tax and legal information
• all the forms you need as tear-outs and on a CD-ROM

The included corporate binder helps you keep all the necessary corporate documents and records together in one place to be filled in and referred to over during the life of your corporation.

The kit also includes:

• a corporate binder with index dividers to organize your documents and records
• 10 membership certificates

Table of Contents

Introduction

1. Is Nonprofit Incorporation Right for You?

A. Is Your Group a Nonprofit That Can Use This Book?

• 1. Public Benefit Corporations
• 2. Religious Corporations
• 3. Mutual Benefit Corporations

B. Benefits of the Nonprofit Corporation

• 1. Tax Exemptions
• 2. Receiving Public and Private Donations
• 3. Protection From Personal Liability
• 4. Separate and Perpetual Legal Existence
• 5. Employee Benefits
• 6. Formality and Structure
• 7. Miscellaneous Benefits

C. The Disadvantages of Going Nonprofit

• 1. Official Paperwork
• 2. Incorporation Costs and Fees
• 3. Time and Energy Needed to Run the Nonprofit
• 4. Restrictions on Paying Directors and Officers
• 5. Restrictions Upon Dissolution
• 6. Restrictions on Your Political Activities
• 7. Oversight by the Attorney General

D. How Nonprofits Raise, Spend, and Make Money

• 1. Initial Fundraising
• 2. Making Money From Related Activities
• 3. Making Money From Unrelated Activities (Unrelated Income)
• 4. Making Money from "Passive" Sources

E. Your Path to Nonprofit Status

• 1. State Law Requirements for Nonprofits
• 2. Tax Exempt Status Under Federal and State Tax Law

F. Incorporating in Another State—Don't Fall for It

• 1. Qualifying as a Foreign Corporation in California Will Cost You More
• 2. Two Sets of Tax Exemptions
• 3. Two Sets of State Laws
• 4. Out-of-State Activities Below the Radar
• 5. When Out-of-State Incorporation Makes Sense

2. Legal Rights and Duties of Incorporators, Directors, Officers, Employees, and Members

A. Incorporators and Their Role as Promoters

• 1. A Promoter Must Act With the Corporation's Best Interests in Mind
• 2. Directors Must Ratify a Promoter's Actions
• 3. Promoters Can Avoid Personal Liability
• 4. Convincing Third Parties to Do Business With a Promoter

B. Directors

• 1. Selecting Directors
• 2. Paying Your Directors
• 3. Public Benefit Corporations and the "51% Rule"
• 4. Term of Office
• 5. Quorum Rules
• 6. Voting Rules
• 7. Executive Committees
• 8. Directors Must Act Carefully
• 9. Directors Must Be Loyal
• 10. How to Avoid Self-Dealing
• 11. Loans and Guarantees
• 12. Special Protections for Volunteer Directors and Officers

C. Officers

• 1. Duties and Responsibilities
• 2. Officers May Bind the Corporation
• 3. Compensation of Officers
• 4. Loans, Guarantees, and Immunity Laws

D. Employees

• 1. Employee Immunity
• 2. Employee Compensation
• 3. Employee Benefits

E. Membership Nonprofits

• 1. Nonmembership Corporations
• 2. Who Is a Member Under Law?
• 3. Classes of Membership
• 4. Membership Quorum and Voting Rules
• 5. Membership Action to Dissolve the Nonprofit
• 6. Expelling Members
• 7. Complying With Securities Laws

3. Requirements for Section 501(c)(3) Tax Exemption

A. Section 501(c)(3) Organizational Test

B. Valid Purposes Under Section 501(c)(3)

• 1. Charitable Purposes
• 2. Religious Purposes
• 3. Scientific Purposes
• 4. Literary Purposes
• 5. Educational Purposes

C. Other Requirements for 501(c)(3) Groups

• 1. Unrelated Business Activities
• 2. Limitation on Profits and Benefits
• 3. Limitation on Political Activities

D. Information for Specific Questions About Your Group's Activities

4. Public Charities and Private Foundations

A. The Importance of Public Charity Status

B. How to Qualify for Public Charity Status

• 1. Automatic Public Charity Status
• 2. Public Support Test
• 3. Attraction of Public Support Test
• 4. Exempt Activities Support Test

C. Private Foundations

• 1. Background
• 2. Operating Restrictions
• 3. Limitation on Deductibility of Contributions
• 4. Special Types of Private Foundations

5. Other Benefits and Requirements

A. Federal and State Tax Deductions for Contributions

• 1. What Can Be Deducted
• 2. What Cannot Be Deducted
• 3. Donations That Can Be Partially Deducted
• 4. Reporting Requirements

B. Federal Estate and Gift Tax Exemptions

C. Federal Unrelated Business Income Tax

• 1. Activities That Are Taxed
• 2. Activities That Are Not Taxed

D. California Unrelated Business Income Tax

E. California Nonprofit Tax Exemption

F. California Attorney General Reporting Requirements

G. California Welfare Exemption

• 1. Section 214 Exemption Requirements
• 2. Special Statutory Categories
• 3. Educational Purposes That Entitle Nonprofits to Use the Welfare Exemption
• 4. Scientific Purposes That Entitle Nonprofits to Use the Welfare Exemption
• 5. Religious Purposes That Entitle Nonprofits to Use the Welfare Exemption
• 6. Leasing and the Welfare Exemption

H. Other California Tax Exemptions

• I. State Solicitation Laws and Requirements

6. Choose a Name and File Your Articles of Incorporation

A. Choose a Corporate Name

• 1. Your Name Must Be Unique
• 2. You Can't Use Certain Terms
• 3. No Need to Use "Inc."
• 4. Using Two Names and Changing Your Name

B. Practical Suggestions for Selecting a Name

• 1. Use Common Nonprofit Terms in Your Name
• 2. Names to Avoid
• 3. Pick a Descriptive Name
• 4. Limit Your Name Geographically or Regionally
• 5. Choose a New Name Instead of Trying to Distinguish Yourself
• 6. Use a Corporate Designator in Your Name
• 7. Take Your Time

C. Check Name Availability

• 1. Check Your Proposed Name by Mail
• 2. Check Existing Corporate Names Online
• 3. What to Do When There's a Name Conflict

D. Reserve Your Corporate Name

E. Perform Your Own Name Search

• 1. Who Should Perform This Search?
• 2. Who Gets to Use a Name?
• 3. Finding Users of Your Name
• 4. Further Searching
• 5. The Consequences of Using Another's Name
• 6. Protect Your Name

F. Prepare Articles of Incorporation

• 1. Preparing Articles for a Public Benefit Corporation
• 2. Special Instructions for Public Benefit Corporations
• 3. Preparing Articles for a Religious Corporation
• 4. Special Instructions for Religious Corporations
• 5. Preparing Articles for an Unincorporated Association

G. File Your Articles

• 1. Don't Rush to File
• 2. Make Copies
• 3. Prepare Your Cover Letter
• 4. File Your Documents With the Secretary of State

7. Bylaws

A. Choose a Membership or Nonmembership Structure

B. Bylaws for a Public Benefit Nonprofit Corporation

• 1. General Instructions
• 2. Sample Bylaws
• 3. Instructions for Completing Your Bylaws
• 4. Bylaw Provisions for Schools and Federally Funded Groups

C. Membership Bylaw Provisions for a Public Benefit Corporation

• 1. General Instructions
• 2. Sample Membership Provisions
• 3. Special Instructions

D. Bylaws for a Religious Corporation

• 1. Special Rules for Religious Corporations
• 2. General Instructions
• 3. Sample Bylaws
• 4. Special Instructions

E. Membership Bylaw Provisions for a Religious Corporation

• 1. General Instructions
• 2. Sample Membership Provisions
• 3. Special Instructions

8. Prepare Your State Tax Exemption

A. The State Tax Exemption Application: Form FTB 3500

• 1. Ways to Complete the Exemption Application
• 2. Attachments and Exhibits

B. Instructions for Completing Form 3500

• 1. Background and Organizational Information (Blanks 1(a)-6(h))
• 2. Supporting Legal and Financial Documents (Item 7)
• 3. Purpose, Activities, Funding, and Other Information (Items 7(d)-7(i))
• 4. Specific Questions for 23701(d) Nonprofits (Item 11)

C. Sign and Mail Your Exemption Application

9. Apply for Your Federal 501(c)(3) Tax Exemption

A. Getting Started

• 1. Forms and Publications
• 2. Ways to Complete the Exemption Application
• 3. Preliminary Reading
• 4. Form 1023 Schedules, Attachments, and Exhibits
• 5. Public Inspection Rights
• 6. The Consequences of Filing Late

B. Do You Need to File Form 1023?

C. Prepare Your Tax Exemption Application

• 1. Part I: Identification of Applicant
• 2. Part II: Organizational Structure
• 3. Part III: Required Provisions in Your Organizing Document
• 4. Part IV: Narrative Description of Your Activities
• 5. Part V: Compensation and Financial Arrangements With Your Officers, Directors, Trustees, Employees, and Independent Contractors
• 6. Part VI: Your Members and Other Individuals and Organizations That Receive Benefits From You
• 7. Part VII: Your History
• 8. Part VIII: Your Specific Activities
• 9. Part IX: Financial Data
• 10. Part X: Public Charity Status
• 11. Part XI: User Fee Information

D. Filing Out the Schedules

• 1. Schedule A - Churches
• 2. Schedule B - Schools, Colleges, and Universities
• 3. Schedule C - Hospitals and Medical Research Organizations
• 4. Schedule D - Section 509(a)(3) Supporting Organizations
• 5. Schedule E - Organizations Not Filing Form 1023 Within 27 Months of Formation
• 6. Schedule F - Homes for the Elderly or Handicapped and Low-Income Housing
• 7. Schedule G - Successors to Other Organizations
• 8. Schedule H - Organizations Providing Scholarships, Educational Loans, or Other Educational Grants

E. Assemble and Mail Your Application to the IRS

F. What to Expect From the IRS

G. The Federal Determination Letter

10. Final Steps in Organizing Your Nonprofit

A. Mail IRS Letter to Franchise Tax Board

B. Set Up a Corporate Records Book

• 1. Corporate Records Book
• 2. Corporate Kits
• 3. Corporate Seals
• 4. Corporate Membership Certificates

C. Prepare Offer to Transfer Assets From an Existing Business or Organization to Your Nonprofit

• 1. Transfers From a For-Profit Business
• 2. Transfers From an Informal Nonprofit Group
• 3. Prepare Your Offer to Transfer Form

D. Prepare Minutes of Your First Board of Directors' Meeting

• 1. Instructions for Preparing Minutes
• 2. Place Your Minutes and Attachments in a Corporate Records Book

E. Complying With the Bulk Sales Law

F. Prepare a Bill of Sale for Assets

G. Prepare Assignments of Leases and Deeds

H. File Final Papers for the Prior Organization

I. Notify Others of Your Incorporation

J. Apply for a Federal Nonprofit Mailing Permit

K. Apply for Your Property Tax Exemption

• 1. Timing Your Application
• 2. Applying for an Exemption

L. File a Domestic Corporation Statement

M. File an Initial Report With the Attorney General

N. Issue Membership Certificates

O. File Your Articles With the Country Recorder

P. Register With the Fair Political Practices Commission

11. After Your Corporation Is Organized

A. Piercing the Corporate Veil—If You Want to be Treated Like a Corporation, It's Best to Act Like One

B. Federal Corporate Tax Returns

• 1. Public Charities: Annual Exempt Organization Return
• 2. Groups Exempt From Filing Form 990
• 3. Private Foundations: Annual Exempt Organization Return
• 4. Unrelated Business Income: Annual Exempt Organization Tax Return

C. California Corporate Tax Returns and Reports

• 1. Public Charities: Annual Exempt Organization Return
• 2. Private Foundations: Annual Exempt Organization Return
• 3. Unrelated Business Income Tax Return and Quarterly Estimated Tax Payments
• 4. Attorney General Annual Periodic Report
• 5. Public Benefit Corporations' Annual Corporate Report

D. Federal and State Corporate Employment Taxes

• 1. Federal Employment Taxes and Forms
• 2. State Employment Taxes and Forms

E. Sales Tax Forms and Exemption From Sales Tax

• 1. Sales Tax
• 2. Groups Exempt From Collecting and Submitting Sales Tax

F. Licenses and Permits

G. Workers' Compensation

H. Private Insurance Coverage

I. Dissolving a Nonprofit Corporation

• 1. Voluntary Dissolution
• 2. Involuntary Dissolution
• 3. Religious Corporations
• 4. Winding Up Corporate Business and Distribution of Assets

12. Lawyers, Legal Research, and Accountants

A. Lawyers

B. Legal Research

• 1. Finding the Law You Need
• 2. Annotated Codes
• C. Accountants and Tax Advice

13. Corporate Formalities

A. Minutes of Meetings

• 1. General Instructions
• 2. Sample Minutes
• 3. Instructions For Completing the Minutes

B. Waiver of Notice of Directors' and Members' Meetings

C. Action Without Meeting by Directors

D. Certification of Resolution or Action by Written Consent of Board of Directors

E. Amending Bylaws

Appendix 1: How to Use the CD-ROM

Appendix 2: Forms and Publications on CD-ROM

• Corporate Forms
• Incorporation Checklist
• Articles for a Public Benefit Corporation
• Articles for a Religious Corporation
• Special Article Provisions for an Unincorporated Association
• Cover Letter for Filing Articles
• Bylaws for Public Benefit Corporation
• Membership Bylaw Provisions for Public Benefit Corporation
• Bylaw Provisions for Religious Corporation
• Membership Bylaw Provisions for Religious Corporation
• Offer to Transfer Assets
• Bill of Sale for Assets
• Minutes of First Meeting of Board of Directors
• Membership Certificate
• Certification of Board Action
• Action by Directors by Written Consent
• Minutes of Ongoing Corporate Meetings
• Waiver of Notice and Consent to Hold Meeting
• IRS, FTB, and AG Forms and Publications
• (* Asterisks indicate forms in portable document format (PDF) with fill-in text fields)
• Name Availability Inquiry Letter
• Name Reservation Request Form
• California FTB 3500 Exemption Application (2004)
• *IRS Form 1023: Application for Recognition of Exemption (10/2004))
• Instructions for IRS Form 1023 (10/2004)
• *Form SS-4: Application for Employer Identification Number (12/2001)
• Instructions for Form SS-4 (9/2003)
• *Form 5768: Election/Revocation of Election by an Eligible Section 501(c)(3) Organization to Make Expenditures to Influence Legislation (12/2004)
• Publication 557: Tax Exempt Status for Your Organization (3/2005)
• Publication 578: Tax Information for Private Foundations and Foundation Managers (1/1989)
• Publication 4220, Applying for 501(c)(3) Tax-Exempt Status (9/2003)
• Publication 4221, Compliance Guide 501(c)(3) Tax-Exempt Organizations (9/2003)
• Publication 1828, Tax Guide for Churches and Religious Organizations
• IRS Revenue Procedure 75-50
• IRC Section 4958, Taxes on Excess Benefit Transactions
• IRS Regulations Section 53.4958-0, Table of Contents
• *Registration/Renewal Fee Report to Attorney General of California (Form RRF-1) (5/2004)
• Instructions for Filing Form RRF-1 ((2/2005)
• Attorney General's Guide for Charities (1988)
• 2001 Supplement to the Attorney General's Guide for Charities
• Guide to Charitable Solicitation 1999
• Assessors' Handbook Section 267, "Welfare, Church, and Religious Exemptions" (10/2004)

IRS and Tax Articles

• Public Charity or Private Foundation Status Issues under IRC §§ 509(a)(1)-(4), 4942(j)(3), and 507
• Disclosure, FOIA and the Privacy Act
• Update: The Final Regulations on the Disclosure Requirements for Annual Information Returns and Applications for Exemption
• Education, Propaganda, and the Methodology Test
• Election Year Issues
• Lobbying Issues
• Private School Update
• UBIT: Current Developments
• Intermediate Sanctions (IRC 4958) Update

Appendix 3: Information and Tear-Out Forms

• (*Asterisks indicate forms are also included on the CD-ROM-see Appendix 2.)
• Secretary of State Contact Information
• Incorporation Checklist
• Special Nonprofit Tax-Exempt Organizations
• *Name Availability Inquiry Letter
• *Name Reservation Request Form
• *California FTB 3500 Exemption Application (2004)
• *IRS Package 1023: Application for Recognition of Exemption (10/2004))
• IRS Form SS-4: Application for Employer Identification Number (12/2001)
• IRS Form 5768: Election/Revocation of Election by an Eligible Section 501(c)(3) Organization To Make Expenditures To Influence Legislation (12/2004)
• Member Register
• Ten Membership Certificates

Index