Regardless of the form it will take or the purpose it will serve, organizing a California nonprofit organization takes careful planning. Early mistakes can lead to expensive and potentially catastrophic problems later on. In this piece we explore a few of the serious problems a new nonprofit should avoid. This list is by no means exhaustive, but it gives a flavor of the kinds of issues we help new nonprofits navigate.
Using boilerplate formation documents.
Templates for nonprofit organizational documents can be found online or in books. For a budget-conscious nonprofit the temptation can be to simply use these forms, perhaps with a few changes to the default description of the organization’s purpose. The thinking may be that the documents can be revised and updated later on.
There are a number of problems with relying too much on boilerplate forms:
- They may not be updated reflect current legal requirements and standards, or worse, they may be drafted according to the laws of a different jurisdiction from where the nonprofit will be organized.
- They may leave out essential terms necessary to allow the organization to serve its intended purpose, qualify for its intended tax treatment, or meet governance expectations. Missing language can be especially difficult for non-lawyers to catch.
- It’s easy to forget to update governance documents until it’s too late.
Rather than relying on preprinted forms, give serious thought to working with a nonprofit attorney to tailor documents that will best serve the organization’s mission and protect its nonprofit status as it grows.
Failing to register for tax treatment as a nonprofit.
California nonprofits must apply for tax-exempt status through both the California Franchise Tax Board and the Internal Revenue Service. The registration procedures required by each agency involve complex paperwork and strict deadlines. Failing to register on time can have disastrous consequences, from unplanned tax liability to the potential for criminal penalties when donors discover they have been giving to an organization that is not what it claims to be.
Failing to make a plan.
Rushing into nonprofit work is never a good idea. The organization needs to have a cohesive business plan that charts its anticipated expenses and plots its fundraising strategy. The initial plan can change as the business grows, but without a plan the organization’s leadership will be left to improvise critical decisions that could have been made in a more deliberate fashion at the beginning.
Talk to an experienced nonprofit attorney about your plans
Myron Steeves and the Church Law Center of California have a long track record of helping religious and secular nonprofits get organized in California. If you are planning to form a nonprofit, reach out to us today to learn how we can be of service. Call us at (949) 689-0437 or reach out to us through our contact page.