Legal Aid Foundation of Los Angeles

2013

Forming a California Nonprofit

www.lafla.org

Introductions Please share:

Your name

Your role/position in organization

Organization’s purpose

Current formal structure of organization, if any

What you hope to learn today

Workshop Goals

OVERVIEW

1. Forming an Organization• Community Needs Assessment• Mission Statement• Organizational Structure• Legal Structure

2. Non-profit Incorporation

3. Tax Exemption – Getting Started

4. Tax Exemption – Maintaining Exemption

What are the needs and how does your

organization’s mission address them?

A brief study of your community

Community Needs Assessment

Avoid duplication

Community Needs Assessment:Why?

Demonstrate needsNetworking opportunities

Gather & Organize Existing Information

Map out the community

Get community input

Community Needs Assessment: How?

Who is the “target”?

Who should do it?

Community Needs Assessment:Who

?

Community Needs Assessment:

All the time!

When?

Mission Statement

Reflects vision: Provides focus & attracts funders

Specifies

long term goals

Who,

What,

Why,

Where, How.

All in 2-3 Sentences

Audience

Mission Statement

Internal External&

What: Who: Where: Why: How:

Mission Statement Specifics

Services provided to meet goalPersons servedCommunity servedGoal or community needMeans of providing services

Sample Mission Statement

Legal Aid Foundation of Los Angeles (LAFLA) is the frontline for LAFLA is committed to

law firm

low-income people

in Los Angeles. promoting access

to justice, strengthening communities, combating discrimination and effecting systemic change through representation, advocacy, and community education.

What?Who?Where?Why?How?

What will your organizational structure

be?

Structure

Anatomy of an Organization

Governing Body or Board

Advisory Council

Members

Staff Volunteers

Some Important Questions to Ask:Membe

rs

1. Do you want to be a membership organization?

2. What are the qualifications to become a member?

3. What are the membership requirements?

Some Important Questions to Ask:

Leadership Structure

1. Do you want to have leaders?

2. How will you select/elect leaders?

3. What powers will leaders have?

4. What powers will the members have?

Some Important Questions to Ask:Decision Making

Structure

1. Who has the power to make decisions?

2. What decisions?3. When?4. How will the decisions be

made?

Decision Making Structure

1. Avoids conflict

2. Members feel involved

3. Furthers the mission

Goals

The Board of Directors

Who should be on it?

Important Skills for your Governing Body:

dreamers and visionariesexperience in accounting or financial

managementability to follow legal formalitiesorganization and recordkeeping skillsconnections or access to fundingpolitical, media, or other connectionsability to facilitate a meeting or group discussionability to keep a group focused and movingcommunication skillsability to inspire, motivate, and mobilize a groupability to keep others informed

ROLES AND RESPONSIBILITIES

OF BOARD OF DIRECTORS

Legal Oversight of the Nonprofit Organization

Duty of Care Make informed decisions Act in good faith

Duty of Inquiry Make reasonable inquiries when necessary

Duty of Loyalty Act in the best interest of the corporation Avoid self-dealing transactions Avoid conflicts of interest

Standard of Conduct for Board of Directors

Directors Personally Liable When:

Not performing their duties in good faith

Not acting in corporation’s best interest

Not exercising reasonable care under the circumstances

General Board Responsibilities

• Finance & accounting• Planning• Policy• Personnel• Resource Development

• Board Governance

Can be delegated to Staff

What legal structure is best for your organization?

Legal Structure Determines:

Which laws apply to your organization

How government agencies will treat your organization

Legal Structure Considerations

Your organization’s mission and goals

How many persons you want to control your organization

How an organization will raise money

Personal liability or risks involved

Tax advantages and disadvantages

For-Profit

vs. Non-Profit

One or more owners

Profits distributed to owners

Formed for any lawful purpose

No owners

Profits reinvested

Formed for charitable, mutual, public or religious benefit

purpose

For-Profit

Unincorporated Association

Charitable Trust

Non-profit Corporation

vs. Non-Profit

Sole Proprietorship

Partnership (general, limited, or limited liability)

Corporation ( C, close, or S, Cooperative)

Limited Liability Company

Incorporation

Separate legal entity

Unlimited existence

Limited liability

Cost Structural

formality Reporting

requirements

Advantages vs.

Disadvantages

Alternative to Incorporation:

Operate as a "project" of existing non-profit

Tax and financing done by sponsorLess control over own organization

Fiscal Sponsorship

Nonprofit Corporations

Public Benefit

Mutual Benefit

Religious Benefit

Charitable or Public Purpose

Any Lawful Purpose Religious Purpose

No Assets to Members

Assets to Members on Dissolution

No Assets to Members

Most Government Regulation

Moderate Amount of Gov’t

Regulation

Least Gov’t Regulation

What is the nonprofit incorporation

process?

What is Incorporation?

Process of forming a corporation

Separate from 501(c)(3) tax exemption

We are focusing on California nonprofit corporations only; (governed by CA law)

File CA Form DE-1NPRequest for Employer Tax ID Number(if pay $100+ in wages per calendar

quarter)

Complete Initial Registration with CA Attorney General’s Office

Form CT-1 or URS v4.01Must be completed within 30 days of receiving

assets/funding

File Form SI-100 - Statement of Information(Domestic Nonprofit Corporation)

Due within 90 days of filing for Incorporation; FEE: $20.00

Incorporation Process Overview:

1. Choose & Reserve a name (optional) for the corporation2. Prepare/File Articles of Incorporation & Bylaws3. File a Statement of Information

SimpleDetailedFile Articles of IncorporationFEE: $30.00 + $5.00 Certification Fee

File IRS Form SS-4: Employer Identification Number

(Required even if organization has no employees)

Related Requirements

Get an Employer Identification Number (EIN)

Register with Registry of Charitable Trusts

Articles of Incorporation:

Creation document for your organization

What are they?

Articles of Incorporation:What needs to be in them?

Name of corporation

Statement about forming (CA law - see workbook)

Name & address of Agent for Service of Process

Articles of Incorporation:What needs to be in them?

Statement describing purpose

can be taken from mission statement neither overly broad nor narrow may think about particular funding

sources

Articles of Incorporation:What needs to be in them?

If applying for tax exemption:

Dedication of assets upon dissolution Restriction on political activity &

lobbying

Articles of Incorporation:Filing & Fees

$30 filing fee – check payable to Secretary of State

$5 certification fee

For additional certified copies, include $5 certification fee + $1.00 for the first page + $0.50 per additional page for each certified copy

Separate $15 handling fee check, payable to Secretary of State (optional, only if filing in person)

Filing Statement of Information (Form SI-100)

Must file within 90 days of filing Articles of Incorporation

$20 filing fee – check made payable to Secretary of State

Can e-file online at https://businessfilings.sos.ca.gov/

Must re-file biennially (every 2-years)

What is tax exemption and is it best for your

organization?

What is Tax Exemption?

Separate process from incorporation

Must obtain both Federal and State income tax exemptions

501(c)(3) = federal corporate income tax exemption

Property tax exemption

Is tax exemption best for your organization?

501(c)(3) Charitable,

educational, literary, religious, scientific or cruelty prevention purpose

Donations tax-deductible

Related business income not taxed

Lobbying limited & campaigning prohibited

501(c)(4) Social welfare purpose Donations not

deductible Related business

income not taxed Lobbying unlimited &

limited campaigning permitted, but taxed

vs.

Two types of Federal Tax Exemption:

Two types of Federal Tax Exemption:

Articles of Incorporation Must State:

501(c)(3) 501(c)(4)vs.

assets for exempt, not private gain, purpose, & on dissolution go to a 501 (c)(3)

no political campaigning & no substantial lobbying

assets for exempt, not private gain, purpose, & on dissolution go to a 501 (c)(4)

limited political campaigning

If your organization does not fall into one of the categories (question 9) IRS will consider you a private foundation

Most groups we work with are public charities Difference is based on breadth of financial

support Private foundations have extra reporting, taxes,

and restrictions

501 (c)(3)

Private Foundation v. Public Charity

Net income from any regularly carried on business activity that is not substantially related to the exempt purpose of the organization

Taxed

Devoting substantial resources and money of the organization to carrying on the unrelated business activity is prohibited.

501 (c)(3)

Unrelated Business Income

501 (c)(3)

Direct Lobbying vs. Grass roots LobbyingAn attempt to

influence specific legislation…

By communicating with a member or employee of a legislative body

An attempt to influence specific legislation…

By expressing opinions to the public

501 (c)(3) IRS Form 5764 – Election to Make

Expenditures to Influence Legislation

Best way to protect 501(c)(3) tax- exempt status

Sets specific dollar limit on amount of lobbying in which a 501(c)(3) can engage

Up to $1,000,000 Up to 25% of total expenditure for

Grass roots lobbying

Alternative to Tax-Exemption:

Enter into fiscal sponsor agreement with an existing 501 (c) (3)

Donors give to fiscal sponsor as 501 (c) (3)

Gives your organization benefits of exemption without independently filing for tax-exemption or in the period before your tax-exemption is granted

Often requires a percentage fee to sponsor

Fiscal Sponsorship

Federal Tax-Exemption:

SS-4 for Employer Identification Number (EIN)

1023 or 1024 for Recognition of Exemption

2848 or 8821 for Power of Attorney or Tax Info Authorization if attorney or CPA will represent corporation before the IRS

Application Forms

File SS-4 before applying for tax exemption

Complete form 1023 or 1024:

Attach detailed financial statements: If organization is less than 5 but more

than 1 years old Budget for 4 years, including current year.

If organization is less than 1 years old Budget for 3 years (current year + proposed budget for 2 years)

Federal Tax-Exemption:Procedure

Attach copy of Articles & board-approved Bylaws

Attach $400 or $850 fee

Send all to IRS

California Tax Exemption

501(c)(3) orgs can expedite CA tax exemption process using Form 3500A

Only orgs with special circumstances should file Form 3500

California tax exemption required to be exempt from state corporate income tax

California Tax Exemption

Complete and sign Form 3500A Include copy of IRS Determination

Letter Send it all to CA Franchise Tax Board

(FTB)

Form 3500A

County Property Tax Exemption

For 501(c)(3) corporations

To exempt real or personal property used for charitable purpose

Must be filed before 2/15 for coming year

Obtain a clearance certificate from State Board of Equalization, then file with the county assessor

What are the continuing reporting responsibilities of tax-exempt nonprofit corporations?

Registration/Renewal Fee Report (RRF-1)

File annually with Attorney General’s Registry of Charitable Trusts

Must send copy of the appropriate 990 Due 4 months + 15 days after end of fiscal yearRegistration fee may apply based on gross annual

revenue

Tax-Exempt Tax Returns

Gross Annual Revenue

Federal Forms (IRS)

CA Forms (FTB)

Receipt <$50,000 990 N (e-file) 199 N (e-file)

Receipt $50,000 ~ $200,000 &Total Assets <$500,000

990 EZ or 990 199

Receipts >$200,000or

Total Assets >$500,000

990 199

FTB Forms 199/199 N at www.ftb.ca.gov IRS Forms 990/990 N/990 EZ/990 PF at

www.irs.gov Due 4 months and 15 days after end of fiscal year

Statement of Information (SI-100)

File every 2 years with Secretary of State

Due on last day of anniversary month of incorporation

Must send $20 filing fee

Other Reporting Responsibilities

Notify appropriate agencies of changes in:

articles of incorporation bylaws principal place of address annual report to directors and members w/in 120

days of end fiscal year

County Property Tax Exemption-Welfare Exemption (BOE-267)

Obtain organizational clearance certificate from State Board of Equalization (BOE-277)

Then file BOE-267 with the County Assessor; www.lacountyassessor.com

File annually with county assessor

Due Feb 15 for coming year

Legal Aid Foundation of Los Angeles

www.lafla.org

To request assistance for your nonprofit

or to get more informationcall us at (800) 399-4529

or e-mail us at cedinfo@lafla.org

Thank you for coming!