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What is a “501(c)(3) Corporation?”
Being a “501(c)3 corporation” means your corporation/organization has been designated as a tax exempt charitable organization by the federal Internal Revenue Service (“IRS”). In general, saying that a corporation is a “501(c)(3)” is equivalent to calling the organization a “non-profit” organization (“Non-Profit”) with the extra bit of information that the organization has satisfied the IRS rules with respect to tax exempt status. If you want to incorporate a charitable, educational, or religious organization, you should seek the guidance of a skilled and experienced corporate lawyer. Even an Non-Profit needs a good corporate lawyer. Here is a quick primer on obtaining 501(c)(3) status.
California 501(c)(3) Corporations: Start as a California NON-PROFIT
California not-for-profit and charitable organizations are governed by statute. See Cal. Corp. Code, § 5000 et seq. In California, charitable and not-for-profits are called “public benefit corporations.” In general, a California public benefit corporation must be formed for public or charitable purposes and may not be organized for the private gain of any person. To start your Non-Profit, you must file corporate papers with the California Secretary of State.
The filing with the California Secretary of State requires the incorporators of the new NON-PROFIT to designate what type of Non-Profit is being created and then, in general, provides a space for stating the public benefit purpose of the new Non-Profit. Common examples of public benefit corporations include hospitals, schools, scientific organizations, literary institutions, foundations, museums, etc.
With certain exceptions, if your Non-Profit — your public benefit corporation — has assets or money that is being or will be used for charitable and non-profit purposes, your Non-Profit must register with the California Attorney General’s office. Likewise, your Non-Profit must file a Statement by Domestic Nonprofit Corporation with the California Secretary of State.
California 501(c)(3) Corporations: Apply for Tax Exempt Status
After filing and setting up your Non-Profit, the next step is applying for tax exempt status. No corporation or organization is automatically given tax exempt status; one must apply. California Non-Profits must apply for tax exempt status with the IRS and with the California Franchise Tax Board. The name “501(c)(3) corporation” comes from the fact that federal tax exempt status is governed by IRS code section 501(c)(3). See here. Tax exempt status under state law is governed by Cal. Rev. & Tax Code, § 23701d. See here.
In general, these are the requirements for being declared tax exempt by the IRS:
- Organization must be organized as a not-for-profit
- Must operate exclusively for exempt purposes
- None of its earnings may inure to any private shareholder or individual
- May not be an “action organization” — that is, it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates
Contact San Diego Corporate Law Today
If you would like more information about tax exempt corporations and/or about California corporations generally, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. As noted above, not-for-profit corporations need skilled and dedicated business lawyers, too. There are many filings that are necessary to maintain an Non-Profit’s corporate and tax-exempt status. Likewise, like every corporate entity, a Non-Profit needs a good business attorney to review, draft, and assist in executing business contracts and with other business-related matters. Mr. Leonard has been named a “Rising Star” three years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal. Mr. Leonard can be reached at (858) 483-9200 or via email.
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