What Is a Mutual Benefit Corporation California?

A mutual benefit corporation is an organization created for the benefit of a group whose tax-exempt status under IRS rules differs from that of 501(c)(3).3 min read

What is a mutual benefit corporation California? A mutual benefit corporation is an organization created for the benefit of a group whose tax-exempt status under IRS rules differs from that of 501(c)(3). A variety of entities fall under the mutual corporation category in California.

California Nonprofit Organizations

A nonprofit organization is generally exempt from paying federal or state taxes but must fulfill certain conditions. A charitable organization is a nonprofit whose earnings from donations are considered charitable donations for tax purposes. To create a California nonprofit tax-exempt corporation, you must apply for and register nonprofit articles of incorporation with the California Secretary of State. The following types of California organizations qualify for nonprofit status:

  • Nonprofit corporations.
  • Unincorporated associations.
  • Charitable trusts.

One of the benefits of an unincorporated association is that it does not require creating an entity. However, each member of the association has personal liability for the organization's misdeeds and obligations. Additionally, laws regarding unincorporated associations aren't clear. The only benefits of charitable trusts are to hold, manage, or distribute property.

Types of Nonprofit Corporations

There are three primary types of nonprofit corporations in California based on their activities:

  1. California nonprofit public benefit corporation.
  2. California nonprofit religious corporation.
  3. California nonprofit mutual benefit corporation.

California Nonprofit Mutual Benefit Corporation

Examples of California nonprofit mutual benefit corporations include community associations registered under 501(c)(4) and business chambers of commerce registered under 501(c)(6). As long as a mutual benefit corporation is operational and not dissolved, its members cannot withdraw the organization's assets. The requirements of common mutual benefit corporations are different. Common mutual benefit corporations must:

  • State the exact name of the corporation.
  • Provide a general purpose statement according to the guidelines in California Corporations Code Section 7130.
  • Include the name and physical address of a California resident who will serve as the corporation's resident agent.

Mutual benefit corporations do not qualify for charitable status.

How to File Articles of Incorporation With the California Secretary of State

There are several methods of filing your articles of incorporation with the California Secretary of State, including:

  • Via mail, which takes the longest time to process.
  • Filing in person at the window of the Los Angeles or San Francisco offices of the California Secretary of State. This method is faster than mail.
  • Filing at the Sacramento window of the secretary of state is the fastest option, especially if you pay an expedited fee.

California Nonprofit Public Benefit Corporation

A public benefit corporation is created for the benefit of the public under 501(c)(3). California nonprofit corporations in this category include private foundations and charitable organizations. These types of nonprofits can only engage in activities that serve public or charitable causes. To qualify for tax-exempt status, public benefit corporations must:

  • State the exact name of the corporation.
  • Prohibit the corporation managers or directors from any form of benefits. They can receive payment for services rendered to the organization.
  • Restrict the corporation's purpose to charitable, educational, literary, scientific, amateur sports competition, public safety testing, or prevention of cruelty to animals or children.
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  • Upon dissolution, donate its assets to another tax-exempt organization.
  • Not try to influence elections or legislation.
  • Provide the name and physical address in California of a resident agent who is a California resident.

The major difference between a public benefits corporation and the other two nonprofit corporations is that it faces a higher level of government regulation and supervision.

California Nonprofit Religious Corporation

To qualify as a California nonprofit religious corporation, an organization must:

  • Have a purely religious purpose.
  • Not distribute its assets to members.
  • Perform charitable activities.

California nonprofit religious corporations are also qualified for tax-exempt status under IRS 501(c)(3). The filing requirements for IRS tax-exempt status for this organization are similar to those for California nonprofit public benefit corporations, but this organization will only engage in religious activities. See the California Corporations Code Section 9130 for required general purpose statement guidelines.

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