Attorney General Bill Lockyer
California Department of Justice

California Registrar of Charitable Trusts
P O Box 903447, Sacramento, CA 94203-4470, (916) 445-2021

April 2004

Charitable corporations and trustees doing business or holding assets in California must follow the requirements of the state law known as Supervision of Trustees and Fundraisers for Charitable Purposes Act (Gov. Code 12580-12599.5) and the Nonprofit Corporation Law (Corp. Code 5110 et seq. For public benefit corporations, 7110 et seq. For mutual benefit corporations, 9110 et seq. for religious corporations).

The attorney General has broad legal powers to supervise charities, sue to correct misuse of charitable funds and recover damages on behalf of charities. Violations of the Supervision of Trustees and Fundraisers for Charitable Purposes Act may result in the assessment of civil penalties. The attorney General is also entitled to recover the costs and attorney’s fees incurred in an enforcement case.

Board members have a duty to carry out the corporation’s mission and ensure that the corporation complies with all appropriate laws, including:

Ensuring that restricted gifts are used only for the purposes for which they were donated;

Ensuring that charity resources are used only to carry out its mission;

Filing required financial reports with the Attorney General, the Franchise Tax board and the Internal Revenue Service;

Maintaining complete and accurate books and records, including minutes of board and committee meetings and books of account;

Having knowledge of the charity’s general operations;

Registering with the Attorney General’s Registry of Charitable Trusts;

Making the organization’s articles of incorporation, bylaws, accounting records and minutes available to members and directors who wish to inspect them for a proper purpose.

In order to insure that assets are properly managed, the board should, with professional guidance, do at least the following:

Have an annual Budget;

Secure directors’ and officers’ liability insurance and a policy of fidelity insurance that covers embezzlement.

Review internal financial controls and annual financial statement with independent auditors;

Take a board-training course;

Require and review monthly financial reports from the employees charged with day-to-day operations of the organization;

Seek legal and financial advice as needed;

Charitable funds belong to the public, so officers, directors, trustees and high-level managers of nonprofit corporations must manage the funds responsibly and in the public interest.

The duty of care (Corp. Code 5231) is the duty to use "such care, including reasonable inquiry, as and ordinary prudent person in a like position would use under similar circumstances." This duty requires familiarity with the organization’s finances and activities and regular participation in its government.

The duty of loyalty (Corp. Code 5231) is the duty of the director to act in the best interests of the corporation and to put the interests of the corporation before all other interests. A director must generally avoid acting on issues in which his or her personal financial interests conflict with the interests of the corporation.

A transaction in which a corporation is a party and in which one or more of its directors has a material financial interest is called a "self-dealing transaction." Such transactions are invalid unless approved by the Attorney General or by the charity’s board after establishing specific facts outlined in Corporations Code 5233(d)(2) and (3).

Loans to directors or corporate officers are prohibited except for those outlined in Corporations Code 5236.

Voluntary dissolution (Corp. Code 6611, 6612, 6613, 6615);

Disposition of assets or dissolution (Corp. code 6716, 8716, 9680);

Merge (Corp. Code 6010, 8010, 9840).

Sale of all or substantially all of a corporation’s assets (Corp. Code 5913, 7913, 9633)

Changes in corporate form (Corp. Code 5813.5)

Transfer of assets owned by a public benefit corporation that operates a health facility (Corp. Code 5914, 5920)

Loans, guarantees, advancements (Corp. Code 5236)

 

Who must register? Charitable corporations and trustees holding charitable assets or doing business in California must register with the Attorney General’s Office (with certain exceptions).

Who is exempt from registrations? Government entities, religious organizations, educational institution, hospitals, licensed health care service plans, regulated cemetery

Corporations and political action committees (Gov. Code 12583).

When is registration required? Within six months after receipt of assets (cash or other forms of property) for the charitable purposes for which organized. (Gov. Code, 12585).

What must be filed? Registry of Charitable Trusts Form CT-1, a copy of the articles of incorporation and financial statements for the most recently completed accounting periods.

Who must report? Every charitable corporation and trustee holding assets that is required to register with the Attorney General’s Office, which the exception of certain financial institutions.

What reports must be filed? Registry of Charitable Trusts Form RRF-1 and, for entities which have gross revenues over $25,000 during any fiscal year or which have gross assets over $25,000 at all times during any such year, a copy of IRS From 990.

When must reports be filed? Within four months and 15 days after the end of an organization’s accounting period.

All Forms & Filing Instructions are available on the Attorney General’s Web Site at: http://ag/ca/gov/charities/forms.htm

California Secretary of State, File Articles of Incorporation, Statement by Domestic Nonprofit Corporation. www.ss.ca.gov

Internal Revenue Service, Apply for federal tax exemption. Wwwirs.gov

California Franchise Tax Board, Apply for California tax exemption, www.ftb.ca.gov

States other than California, for listing of states, see www.nasconet.org Register as charity in any state where soliciting contributions.

Resources for Non-profit Boards: www.compasspoint.org , www.canonprofits.org

www.boardsource.org

For more information, visit the Attorney General’s web site http://ag.ca.gov

Or Direct inquiries to: California Registrar of Charitable Trusts, P O Box 903447

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