In this series, the Acorn team shares tips and lessons learned along the journey to becoming a nonprofit. This post was written by Michelle Nie on behalf of Acorn Labs.
So, you’re on the way to becoming a nonprofit! Now, read on to find out what your organization can expect for the next few months. At the end of the article we’ll also post our own public documents that you can use as a guide for creating your own documents.
California-Specific Nonprofit Incorporation Checklist
Step 0: As referenced in my previous Medium post, I highly recommend seeking legal representation. I cannot stress enough the importance of having a trained lawyer look over any forms and documents, especially those submitted to the state or federal government. Many local law schools and law firms will provide pro bono legal assistance. If you’re located in the Bay Area, I personally suggest contacting the New Business Practicum at Berkeley Law, which is where we met our lawyer.
Step 1: Decide on a name and submit a Name Reservation Request with the California Secretary of State.
- It’s also a good idea to check the California Business Search and the US Patent and Trademark Office to make sure the name you decide on isn’t already in use or trademarked.
Step 2: File Articles of Incorporation. This is a relatively straightforward form, although it’s important to discuss certain items amongst your team.
- The Purpose Statement is possibly the most important part of this form. If a purpose statement is too specific, it could potentially limit the activities that your nonprofit performs in the future and what it is allowed to spend funds on. However, if it is too broad, your organization risks facing mission creep — expanding the purpose of mission of the nonprofit beyond its original goals. Make sure your purpose statement strikes the right balance between specific and broad.
- Forms can be found on the California Secretary of State website. The form Acorn filed, and what most nonprofits would likely need to file, is ARTS-PB501(c)(3).
Step 3: File the Statement of Information to the IRS within 90 days of filing the Articles of Incorporation. The form is available to file online.
Step 4: Obtain your Employer Identification Number (EIN) by filing Form SS-4 with the IRS. This form can also be filed online.
Step 5: Draft the Bylaws. The bylaws are essentially a guide to how the organization will be managed by the board. They list in detail how and when your board members are elected, how they will take action, the responsibilities of all the officers, and so on.
- Ensure that the board and your team are fully aligned on the stipulations of the bylaws to limit the amount of amendments you will have to file in the future.
- A secondary purpose of the bylaws is to reassure authorities and stakeholders that your organization is employing sound governance practices.
Step 6: Draft the Conflict of Interest Policy. Having such a policy is essential so board members can disclose potential conflicts of interest and to prevent interested board members from voting on matters where there is a conflict of interest.
- This will be required for when you file Form 990, the annual tax filing to the IRS that all nonprofits are required to file.
Step 7: File IRS Form 1023 — quite possibly the longest step in the process, as dealing with the IRS is no joke. If you estimate to have less than $50,000 in receipts in a fiscal year, I would highly suggest filing Form 1023-EZ as Acorn did. This can be done online and is overall a much simpler process to incorporate.
- If your nonprofit is currently below the $50,000 threshold but is estimated to grow above the threshold in the future, you can always file Form 1023 later on.
- Don’t be concerned about foundations looking down upon a nonprofit that files Form 1023-EZ instead of Form 1023. According to our legal representation, foundations generally only want to ensure they will not be taxed for their donation.
Step 8: File Form 990, Form 990-EZ, or Form 990-N. Nonprofit Expert has a great guide on the type of form your organization should file depending on its annual receipts.
- These are tax forms due to the IRS by the 15th day of the fifth month after the beginning of your fiscal year. If your fiscal year aligns with the calendar year (i.e. ends in December), your filing is due before May 15th.
Congratulations — you have completed all the steps to become a nonprofit! However, remember that from a legal and tax perspective, maintaining a nonprofit organization is an ongoing journey. To learn about how to maintain your nonprofit’s compliance, read CalNonprofits’ excellent Nonprofit Compliance Checklist.
To read Acorn’s public nonprofit documents, click here.
Questions about nonprofit incorporation, or want to share your story? Email firstname.lastname@example.org!