California Nonprofit Law FAQ

Nonprofit organizations in California are an asset to society but must still comply with strict laws and regulations. At Polek Law, our nonprofit lawyer in San Diego is committed to providing you with valuable information to help your organization thrive within the legal landscape.

Here, we address some of the most frequently asked questions related to nonprofit law. For specific legal guidance tailored to your nonprofit's unique needs, contact us at 619-550-2455 to schedule a consultation with our nonprofit attorney.

1. What is a nonprofit organization?

A nonprofit organization is an entity established to pursue a specific mission or purpose that benefits the public or a specific group of individuals. Unlike for-profit businesses, nonprofits do not distribute profits to owners or shareholders but instead, reinvest surplus funds into furthering their mission.

Nonprofits are typically tax-exempt under Section 501(c)(3) of the Internal Revenue Code (IRC) if they meet the requirements set by the IRS, but other sections of the IRC may apply depending on the nature of the nonprofit.

2. How do I start a nonprofit organization in California?

Starting a nonprofit organization involves several steps, including:

Defining a mission, which involves clearly defining the purpose and mission of your organization.
Incorporating, which involves choosing a legal structure, such as a corporation or an unincorporated association, and filing the necessary paperwork with the appropriate state authorities.
Forming a board, which involves recruiting a board of directors responsible for overseeing the organization's activities and governance.
Applying for the proper tax status, which involves filing for tax-exempt status with the IRS under Section 501(c)(3) if eligible.
Drafting bylaws and policies, which involves developing bylaws and policies that govern the organization's operations.
Fundraising, which also includes complying with state fundraising registration requirements.

3. What are the benefits of obtaining tax-exempt status in California?

Obtaining tax-exempt status under Section 501(c)(3) of the IRC offers several benefits, including:

Tax Deductibility. Donors can deduct their contributions from their taxable income, encouraging philanthropic giving.
Grant Eligibility. Tax-exempt status enhances eligibility for government and private grants.
Credibility. Tax-exempt status provides credibility and fosters trust among donors and stakeholders.
Exemption from Federal Income Tax. Nonprofits are generally exempt from federal income tax on their earnings.

4. What are the ongoing compliance requirements for nonprofit organizations?

Nonprofit organizations must maintain compliance with various state and federal regulations. Some common ongoing compliance requirements include:

Annual Reporting. Nonprofits must file annual reports with the IRS using Form 990, providing information on financial and operational activities.
Fundraising Registration. Nonprofits conducting fundraising activities in multiple states must comply with each state's registration requirements.
Maintaining Tax-Exempt Status. Nonprofits must adhere to IRS rules to maintain their tax-exempt status, such as engaging in activities that align with their exempt purpose.

5. What are the different types of nonprofit organizations?

Nonprofit organizations can be classified into several categories based on their mission and activities. Some common types of nonprofits include:

Charitable organizations, which are organizations that focus on charitable, educational, religious, scientific, literary, or other public purposes.
Social welfare organizations, which are organizations that work to improve the social welfare of communities and address specific societal issues.
Trade associations, which are associations that serve specific industries or professions, providing services, resources, and advocacy for members.
Foundations, which are typically grant-making organizations that provide funds to support charitable causes.

6. Can a nonprofit organization engage in fundraising activities?

Nonprofit organizations can engage in fundraising activities to support their mission and operations. Fundraising activities may include events, direct mail campaigns, online fundraising, and grant applications. However, it's essential to comply with state fundraising registration requirements and adhere to ethical fundraising practices.

7. Can nonprofit organizations in California pay their staff and employees?

Nonprofit organizations can compensate their staff and employees for their work. However, the compensation must be reasonable and aligned with industry standards for similar positions. Nonprofits must avoid excessive compensation to ensure that resources are directed toward fulfilling their charitable mission.

8. What is the role of the board of directors in a nonprofit organization?

The board of directors plays a crucial role in overseeing the operations and governance of a nonprofit organization. Their responsibilities include:

Setting the organization's mission and strategy. The board defines the nonprofit's mission and sets strategic goals to achieve its objectives.
Overseeing the organization's finances. Board members monitor the organization's financial health and approve budgets and major financial decisions.
Hiring and evaluating the CEO/Executive Director. The board selects, evaluates, and, if necessary, replaces the CEO or executive director.
Overseeing legal and ethical matters. The board ensures the organization complies with all legal and ethical requirements.

9. Can nonprofit organizations engage in political activities and lobbying?

Nonprofit organizations can engage in some political activities and lobbying, but there are limitations. 501(c)(3) organizations are subject to restrictions on the extent of their involvement in political campaigns. However, they can engage in nonpartisan voter education and advocacy on issues related to their mission. 501(c)(4) organizations and some other tax-exempt categories have more latitude in engaging in political activities and lobbying.

10. What is the process for dissolving a nonprofit organization in California?

The process for dissolving a nonprofit organization varies by state, but typically involves the following steps:

Board resolution. The board of directors passes a resolution to dissolve the organization.
State notification. The organization must inform the state authorities of its intent to dissolve and comply with state requirements.
Settlement of debts and obligations. The nonprofit must settle any outstanding debts and obligations.
Distribution of Assets. Any remaining assets must be distributed to other tax-exempt organizations or used for charitable purposes.

11. Can nonprofits make a profit?

Nonprofits may generate revenue through activities that result in annual surpluses or profits. There is, however, a distinction between nonprofits and for-profit companies: What can be done with the surplus. For-profit businesses can distribute gains to the owners, employees, or shareholders, but nonprofits must put any gains back into the organization and its tax-exempt mission. Nonprofits cannot distribute excess revenues to the owners, employees, or anyone affiliated with the organization.

12. What are the benefits of a California nonprofit attorney?

Hiring a nonprofit lawyer can offer many benefits to your organization, ensuring that you (1) navigate the complex legal landscape effectively; and (2) make informed decisions that support your mission and objectives.

Key advantages of hiring a nonprofit lawyer include:

Legal Expertise: Nonprofit lawyers specialize in nonprofit law and have a deep understanding of the legal regulations and requirements that pertain to nonprofit organizations. Their expertise can guide you through compliance issues, regulatory challenges, and legal complexities.
Compliance Assurance: Nonprofit lawyers can ensure that your organization remains in compliance with federal, state, and local laws, as well as nonprofit-specific regulations. This includes adhering to reporting obligations, maintaining tax-exempt status, and following fundraising guidelines.
Risk Mitigation: By identifying potential legal risks and developing strategies to mitigate them, nonprofit lawyers help protect your organization from costly disputes, penalties, and legal liabilities that could hinder your mission.
Effective Governance: Nonprofit lawyers can assist in establishing and maintaining good governance practices, including drafting and reviewing bylaws, policies, and procedures. Proper governance enhances transparency, accountability, and the overall reputation of your organization.
Board Education: Nonprofit lawyers can educate your board of directors on their roles, responsibilities, and legal duties. This empowers the board to make informed decisions that align with the best interests of the organization.
Conflict Resolution: In cases of internal conflicts or disputes, nonprofit lawyers can provide mediation and legal advice to facilitate resolutions that protect the organization's interests and maintain harmony among stakeholders.
Contract Negotiation and Review: Nonprofit lawyers can assist in negotiating and reviewing contracts, agreements, and partnerships to ensure that your organization's rights and interests are safeguarded.
Fundraising Compliance: Nonprofit lawyers can guide you through the legal intricacies of fundraising, helping you navigate state registration requirements, donor restrictions, and compliance with charitable solicitation laws.
Employment and Human Resources: Nonprofit lawyers can provide guidance on employment matters, including drafting employment contracts, addressing workplace issues, and ensuring compliance with labor laws.
Intellectual Property Protection: Nonprofit lawyers can help protect your organization's intellectual property, including trademarks, copyrights, and branding, which are vital for establishing a recognizable identity and protecting your mission.
Government Relations and Advocacy: Nonprofit lawyers can provide guidance on engaging with government entities, lobbying efforts, and advocating for policy changes that align with your organization's mission.
Strategic Planning: Nonprofit lawyers can collaborate with your leadership team to develop strategic plans that consider legal implications and ensure your organization's long-term success.
Nonprofit Tax Expertise: Nonprofit lawyers are well-versed in the intricacies of nonprofit taxation, helping you navigate tax-exempt status, charitable deductions, and compliance with IRS regulations.
Stakeholder Confidence: By demonstrating your commitment to legal compliance and ethical practices through the presence of a nonprofit lawyer, you enhance stakeholder trust, including donors, board members, and beneficiaries.
Tailored Guidance: Nonprofit lawyers provide personalized solutions based on your organization's unique needs and circumstances, ensuring that you receive legal advice that is relevant and effective.

13. How much does a nonprofit lawyer cost in California?

The cost of a nonprofit lawyer in California depends on several factors, including but not limited to:

How the attorney charges fees – whether it is a fixed rate, subscription, contingency basis, or other method
The type of legal services needed – the more complex the matter, the more costly
The extent of legal services needed – ongoing versus a one-time event
The location or jurisdiction – big city versus small town attorney fees vary significantly
Experience and expertise – a new attorney versus a seasoned one

Other factors may apply, too. Knowing your budget and your goals can help you understand what you need in an attorney.

Contact a Nonprofit Attorney in San Diego Today

Navigating nonprofit law in California can be complex, but understanding the legal requirements and compliance obligations is essential for the success and sustainability of your organization. At Polek Law, our dedicated nonprofit attorney is here to provide smart legal guidance tailored to your organization's unique needs. By staying informed and ensuring compliance, your nonprofit can focus on its mission and make a positive impact in the community it serves.

Contact us by filling out the online form or calling us directly at 619-550-2455. We will schedule a consultation and review your legal needs to ensure you get the most out of our legal representation.