California

Multi-State Compliance Matrix

Updates

What You’ll Learn

If you’re a nonprofit in California, or you’re a nonprofit considering fundraising or other activities in California, you must understand the requirements that California has established for nonprofits operating in the state.  

How can you become familiar with these laws? Where should you start?  

Start here. This state profile includes the basic requirements nonprofits must consider. Reading the profile and implementing appropriate compliance measures will help you prepare your organization for success in California.

Getting to Know the State Nonprofit Corporation Law

Background

*Important primarily for nonprofits incorporated in California

“[Miss Bates] was a happy woman, a woman whom no one named without goodwill.  It was her own universal goodwill and contented temper which worked such wonders.  She loved everybody, was interested in everybody’s happiness, quick-sighted to everybody’s merits; thought herself a most fortunate creature, and surrounded with blessings in such an excellent mother and so many good neighbors and friends and a home that wanted for nothing.  The simplicity and cheerfulness of her nature, her contented and grateful spirit, were a recommendation to everybody and a mine of felicity to herself.”

- Emma, Jane Austen

When reading a novel, we get to know a fictional character by the author’s description of him or her. The author tells us what the character will look like, what his or her purpose will be, how he or she will act, and how he or she will make decisions.

Nonprofit corporations are something like fictional characters. We learn how a nonprofit will look and act and make decisions not by reading a novel, but by reading the state law (called the nonprofit corporation act) and the rules the nonprofit makes for itself (called the bylaws and articles of incorporation). The law and the organization’s own rules tell us what the organization will be called, what its purpose will be, how the nonprofit will act, and how it will make decisions.  

To get to know your own nonprofit, you must be familiar with the sections below.  

State Nonprofit Corporation Law

Corporate Governance

Conflict Transactions: Cal. Corp. Code § 9243; Need to review the basic best practices for conflicted transactions? See Bylaws Module 14: Conflicts of Interest.  

Director Standards of Conduct: Cal. Corp. Code § 9241; Need a refresher on the role of directors? See Bylaws Module 6: Directors.

Members: Eligibility and Statutory Powers: Cal. Corp. Code § 9310; Cal. Corp. Code § 9512; Not sure what a “member” is? Need to review the basics? See Bylaws Module 5: Members.

Indemnification: Cal. Corp. Code § 5238; Cal. Corp Code § 9246; Not sure what “indemnification” is? Need to review the basics? See Bylaws Module 8: Indemnification.

For Religious Nonprofits

Nonprofit Religious Corporation Act: California’s nonprofit corporation law includes a designated law governing the formation and operations of nonprofit religious corporations and specific provisions to protect their right to self-government in internal affairs. Cal. Corp. Code § 9110–9690; Confused about what it means to be a religious nonprofit corporation? See our whitepaper “Why a Religious Corporation?

Reliance on Religious Guidance in Governance: California law permits a director to rely on guidance from religious figures within his or her faith tradition in the fulfillment of the director’s fiduciary duties. Cal. Corp. Code § 9241(b)(4)

Understanding Religious Liberty in this State

Case Study

*Important for all nonprofits doing business in California, whether incorporated in California or elsewhere

The religious education and formation of students is the very reason for the existence of most private religious schools, and therefore the selection and supervision of the teachers upon whom the schools rely to do this work lie at the core of their mission. Judicial review of the way in which religious schools discharge those responsibilities would undermine the independence of religious institutions in a way that the First Amendment does not tolerate.

- Our Lady of Guadalupe School v. Morrisey-Berru, 140 S. Ct. 2049 (2020).  

Sometimes, the state or local government (like the city or county) makes laws that could conflict with your organization’s free exercise of religion or its sincerely-held religious beliefs.  

For example, a law might require employers not to make faith-based distinctions between job candidates. If your organization’s mission is to pass on the teachings of your faith, you will need to make faith-based distinctions in evaluating candidates because their faith commitments will impact their abilities to partner in your mission and witness the faith to your program participants.

So what do you need to do? Be aware of the laws listed below. If any of the laws impact your organization—for example, if you are an employer or a facility open to the public—learn more about how you can protect yourself by reviewing Napa Legal’s religious liberty resources. Talk to an attorney if you have specific concerns.

Religious Liberty Protections

State Religious Freedom Restoration Act: California has not enacted a RFRA and has enacted nondiscrimination laws that conflict with the beliefs of many religious organizations. Not sure what a “religious freedom restoration act” is? Click here to learn the fundamentals.

Constitutional Protections for Free Exercise: The California Constitution follows in lockstep with the federal constitution’s protections, meeting but not exceeding the required minimum protections of the First Amendment. Cal. State Const., art. I,§ 4

State Blaine Amendment: The California Constitution contains a Blaine Amendment that broadly restricts faith-based organizations’ freedom to participate in public benefit programs on the same terms as similarly situated secular institutions. Current U.S. Supreme Court precedent has rendered this language ineffective, but it could become effective in the future if Court precedent changes. Cal. State Const. art IX, § 8; art. IX, § 9(f), art. XVI, § 5; Not sure what a Blaine Amendment is? Review the basics here.

Other Relevant State Laws and Regulations

Religious Freedom and Public Accommodation Laws: California’s nondiscrimination laws generally restrict religious freedom for religious organizations that offer public programming and facilities and provide no meaningful religious accommodations or exemptions. Cal. Gov. Code § 12921; Unruh Civil Rights Act, Cal. Civ. Code, section 51, et seq. Not sure what a public accommodation law is or what it means for your organization’s religious liberty? Learn the basics in this article which discusses the issue in the context of the case Fulton v. City of Philadelphia.

Protections for Religious Exercise in State of Emergency: California law has no explicit constitutional or statutory protections for religious exercise during a time of emergency.

Key Employment Laws and Regulations

Employment Discrimination Laws and Regulations: Cal. Gov. Code § 12921(a)

Religious Freedom for Faith-Based Employers: Cal. Gov. Code § 12940; Need to review the basics on religious freedom and employment matters? Walk through a self-audit of best practices here.

Religious Freedom for Employees: Cal. Gov. Code § 12940

Conducting Activities or Programs in this State

Understanding the Business Registration Requirement

*Important primarily for nonprofits doing business in California but incorporated elsewhere

If your organization will be conducting activities (such as fundraising, hiring remote employees, or hosting programming) in California, you must determine whether you are required to register as an out-of-state business (sometimes called a “foreign business”) with the secretary of state or another state agency.  

To transact business in California and receive a certificate of qualification, a foreign nonprofit corporation must file a Statement and Designation by Foreign Corporation (Form S&DCS/N) and show proof that the organization is a nonprofit in good standing by obtaining certification of such from a public official in the corporation’s home jurisdiction. Like California nonprofit organizations, foreign nonprofit corporations must also file a Statement of Information (Form SI-550) within 90 days of qualification. However, unlike California nonprofit organizations, foreign nonprofit corporations must re-file a Statement of Information annually.

These foreign business registration requirements are separate from the charitable registration. Not every out-of-state organization will some connection to California needs to register—instead, the registration requirement is more like a spectrum. The more connections your organization has in California, the more likely you will be required to register to receive permission to conduct these activities.  

An attorney can assist the organization in determining whether its connections with this state are significant enough to trigger the foreign business registration requirement. Examples of activities which might trigger this requirement include having employees physically located in the state, conducting programs in the state, and having an office in the state. On the other hand, activities that, without more, don’t trigger the registration requirement include holding a board meeting or conducting a single transaction once or twice every year.  

Business Registration Statute

Fundraising and Charitable Registration in This State

How to Know (And What to D0) If You're Fundraising In This State

*Important for both California and Foreign Nonprofits

Not sure what “charitable registration” is? Need to review the basics? Read this article for a refresher.

If your organization is a California nonprofit organization, you must first determine whether you are required to register with the Attorney General’s Registry of Charitable Trusts (“Registry”), using forms CT-TR-1 and CT-1, and file an Annual Registration Renewal Fee Report (Form RRF-1).  

Your organization might not have to register if you affirmatively determine that you’re eligible for an exemption to the registration requirements. For example, you may not have to register if you receive an exemption because of your status as a religious corporation or as an organization that holds property for religious purposes. If you’re registered with the CASOS as a “religious corporation,” your organization will automatically be exempted from registration and reporting requirements with the California Attorney General.

To promote transparency, you can opt to register and report with the California Attorney General, notwithstanding qualifying for an exemption.

If your organization is an out-of-state nonprofit fundraising in California, registration and reporting requirements will apply. If you are an out-of-state religious corporation, you may apply for an exemption from the registration requirements. To apply for an exemption, you must submit documentation demonstrating your organization’s religious identity, including, but not limited to, copies of its founding documents, federal tax exemption application (IRS Form 1023 or Form 1023-EZ), and IRS determination letter.

If your organization does not receive a religious or other exemption, you must file the Registry’s Initial Registration Form (Form CT-1) with the California Attorney General within 30 days of conducting business in California. What is “conducting business in California”? The term includes activities such as solicitation of donations by phone, email or email, or holding charitable assets in or from California.  

For both California charities and out-of-state charities soliciting in California, you will also be subject to periodic reporting requirements after you are registered.

Registration with the Secretary of State:

All California nonprofit organizations, including nonprofit religious corporations, must register with the California Secretary of State (CASOS) by filing articles of incorporation. Additionally, California nonprofit organizations must file a Statement of Information (Form SI-100) with the CASOS within 90 days of filing articles of incorporation. Thereafter, a Statement of Information must be re-filed every two years.

Other Fundraising Requirements:

In California, many local cities and counties also require a license or permit prior to soliciting donations from residents and public places. Entities should contact the particular city or county for further information.

Further information regarding these items as well as the requirements for professional fundraisers should be sought through an attorney and/or the California Attorney General’s website.

If You're Fundraising In Multiple States, Make Sure You Understand the URS

Your organization can complete the California charitable registration requirement, if necessary, using the Unified Registration Statement (“URS”). The URS is a standardized charitable registration accepted across multiple states.  

You should consider the following pros and cons when deciding whether to use the URS. If you use the URS, you must complete the form and attachments manually and mail the completed form and related checks to California. If you make any mistakes in the form or in the payment, you may end up delaying the process and having to engage in additional communication with the California Attorney General to complete the registration.  

California also allows charities to file online, both for the initial registration and subsequent renewals. You face a lower risk of omitting information or making mistakes in the payment if you use the online method because the system will not allow submission if all information and payment are not complete. Additionally, if you use the online option for the initial registration, the system will save the submission and that can streamline the renewal process in the future.

Evaluate Whether You'll Need a Registered Agent

Most nonprofits fundraising in California must also register to conduct business in California because California law views fundraising as a manner of “conducting business.” In order to complete the business registration, you will need to designate an individual or corporation residing in California to serve as your organization’s “agent for service of process.” This person will receive important mail on behalf of the organization—specifically, if a lawsuit takes place, notice of the law suit will be delivered to this person, the “registered agent.” See Cal. Corp. Code § 2117(b).

Follow the Rules About Communicating with the Public

Religious corporations are generally not required to register and report with the California Attorney General. However, when engaging in fundraising activities, religious corporations must make required disclosures under California law. While California does not require specific language when conducting charitable solicitations (unless the organization is working with a professional fundraiser), organizations should disclose all material information regarding the solicitation, including, but not limited to:

(1) disclosure of non-tax exempt status if not exempt from federal and state tax laws, (2) name and address of the organization, or if none exists, the manner in which the donation will be used for a charitable purpose, and (3) the percentage of the gift that can be deducted as a charitable contribution under federal and state law(donors must be informed if no tax-deduction is available).  

There are additional requirements if the solicitation involves law enforcement, veterans, safety personnel as well as for online and telephone requests.

Charitable Registration Exemption Statute

Annual Report Requirement

Get Acquainted with State and Local Taxes and Exemptions

State and Local Taxes

*Important for all nonprofits doing business in California, whether incorporated in California or elsewhere

Nonprofit organizations operating in California must file a Form 3500 or Form 3500A (if the organization has already received recognition of its tax-exempt status from the IRS) with the California Franchise Tax Board (“FTB”) in order to be exempt from California state income tax.

Provided tax-exempt recognition is received from both the IRS and FTB, churches and certain religious corporations are not required to file any annual/information returns with either the IRS or FTB. However, even if your organization is exempt from federal and state income tax, you will still be subject to tax on any unrelated business taxable income (“UBTI”). If you do not know what UBTI is (or if you know your organization has UBTI, but you don’t know what to do next), talk to an attorney or a certified public accountant.  

Employment Taxes: Even though certain California nonprofit organizations, including religious corporations, may be exempt from federal and state income taxes, compliance with wage reporting, withholding requirements, and payment of employment taxes is still required at both the federal and California levels.  

Property Taxes: Real property and certain tangible personal property are taxed in California. However, religious organizations can qualify for a property tax exemption under one of three exemptions—a church exemption, religious exemption, or welfare exemption—depending on the nature of the property use. Please see California State Board of Equalization Publication 48 for more information and links to application materials.

Corporate Income Tax Statute

California imposes a corporate income tax but offers an exemption to organizations with federal 501(c)(3) exempt status upon application. Cal. Rev. & Tax. Code § 23501

Corporate Franchise Tax Statute

What You Need to Know About Sales Tax

Sales and Use Tax: California imposes a sales and use tax on religious organizations’ sales and only provides limited exemptions for certain items. California imposes a sales and use tax on religious organizations’ purchases and provides no meaningful exemptions. Cal. Rev. & Tax Code § 6001

Exemptions: Cal. Rev. & Tax Code § 6351 '

State Tax Treatment of Unrelated Business Income: Cal. Rev. & Tax Code § 23732

State Sales and Use Tax and Exemptions: Cal. Rev. & Tax Code § 23703

Property Tax: California imposes property tax but, upon application, generally provides an exemption to religious organizations for property used for religious and/or charitable purposes. See Cal. State Const, art. XIII § 3,4; Cal. Rev. & Tax Code § 207

State-Specific Special Requirements

Miscellaneous

California Law On Charitable Solicitations: Business and Professions Code Sections 17510 - 17510.95

California Regulations on Nonprofit Corporations Relating to Transactions Requiring Notice to or Approval by Attorney General: Title 11, Chapter 15, sections 999.1-999.5, pdf  

Legal Disclaimer

This resource contains general educational information related to legal concepts, but this information does not constitute legal advice. Anyone seeking legal advice is strongly encouraged to consult with a licensed attorney regarding any of the matters discussed herein. Although licensed attorneys work with Napa Legal, Napa Legal is not a law firm and does not undertake legal representation on behalf of any clients. Further, no licensed attorney working with or on behalf of Napa Legal agrees to undertake legal representation on behalf of any client unless the terms of such representation are set forth in a separate, written representation agreement.

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**Please note that the following state profiles are forthcoming and will be published soon:Hawaii and Washington