NON-PROFIT LEGAL COMPLIANCE
CORPORATE HEALTH CHECK-UP
By Alena Herranen, October 07, 2014
When you volunteered to become an officer of your California nonprofit corporation, you may have thought you would be spending your volunteer hours bringing musical education to public schools, raising money for scholarships, or working toward some other laudable charitable goal. This is true. However, what you may not have realized is that you have also accepted a small host of legal responsibilities. As an officer or director of a California nonprofit corporation, you have a duty to act on behalf of the corporation to ensure that the corporation complies with state and federal laws.
HERRANENLAW understands that you want to focus on charitable work rather than legal compliance. Our goal is to efficiently guide you through the process so you can do exactly that. As the attorneys for your nonprofit corporation, we would conduct a corporate health check-up to identify tasks that need to be completed, and we would help you complete these tasks efficiently to minimize any distraction from your core goals.
A corporate health check-up will generally involve a three stage process.
- I. Gather Information from officers and directors The first step in your corporation’s health check-up is to determine its current condition by gathering corporate information from the officers and directors. We would want to know what documents have been filed in the past, what documents should have been filed, and whether any government agencies are claiming that the corporation is delinquent. We would want to talk to the officers and directors and review the corporate records.
- II. Review third party records Should we find that your corporate documents are unavailable for any reason, we may seek to obtain them from the Secretary of State, Attorney General, Recorder/County Clerk, Franchise Tax Board, IRS or other third parties. Each one of these agencies has filing requirements, and it is important to know what information or documents your corporation has filed in the past.
- II.a. Secretary of State The California Secretary of State processes many corporate filings including the articles of incorporation, statements of information, mergers and dissolutions.
- II.b. Attorney General The California Attorney General regulates charities and administers a statutory registration program. All charities are required to register and file annual financial disclosure reports with the Registry. In addition, nonprofit organizations that conduct raffles for charitable purposes are required to register and file a financial report for each raffle held.
- II.c. Recorder/County Clerk. The Recorder/County Clerk registers fictitious business names.
- II.d. Franchise Tax Board. The Franchise Tax Board requires nonprofit corporations to file Form 199N or Form 199 annually. Organizations with gross receipts that are normally equal to or less than $50,000 are required to electronically file FTB 199N, California e-Postcard. Organizations with normal gross receipts in excess of $50,000, must file Form 199. If the organization has been in existence for three or more years, then “normally less than $50,000” means the organization has earned an average of $50,000 or less per year over the last three years.
- II.e. Internal Revenue Service The Internal Revenue Service requires that nonprofit corporations file a tax e-Postcard or a tax return annually regardless of gross receipts. If the organization has less than $50,000 in gross receipts, then it can file the Form 990-N. Organizations with gross receipts in excess of $50,000 but less than $200,000 may file the Form 990-EZ. Organizations with gross receipts in excess of $200,000 or with assets in excess of $500,000 must file the Form 990.
- II.f. California Board of Equalization. The Board of Equalization issues seller’s permits and handles property tax exemptions.
- II.g. EDD. The Employment Development Department (EDD) requires registration by employers. If the corporation has employees, then it has probably filed Form DE1 NP “Registration Form for Nonprofit Employer” with the EDD.
- III. Create and carry out an action plan After searching the official records and reviewing records provided by the officers and directors, we will create an action plan outlining tasks that need to be done. If the organization is not in compliance, we would work with you to bring your organization into compliance as soon as possible. We would also create a list of annual tasks to help the officers of the corporation maintain the organization’s good standing.
In short, HERRANENLAW strives to minimize the burden of legal compliance so that your nonprofit corporations’s officers and directors will be free to pursue the corporation’s charitable purpose.
THE INFORMATION PROVIDED IN THIS ARTICLE IS NOT A SUBSTITUTE FOR LEGAL ADVICE. READERS SHOULD BE ADVISED THAT IF THEY HAVE QUESTIONS ABOUT THIS OR ANY OTHER AREA OF LAW, THEY SHOULD SEEK THE ADVICE OF COMPETENT COUNSEL SPECIALIZING IN THIS AREA.