A California nonprofit public benefit corporation must state in its articles of incorporation that it is organized for one of the following purposes, as defined by state law:
- charitable purposes
- public purposes
- charitable and public purposes
Unfortunately, the California Nonprofit Public Benefit Corporation Law (NPBC Law) doesn’t spell out the differences between a charitable purpose and a public purpose. Some nonprofits have opted to list both purposes to ensure maximum flexibility, but that may be a mistake.
Internal Revenue Code
From an NPBC Law context, a nonprofit public benefit corporation exempt under 501(c)(3) of the Internal Revenue Code must have either (or both) a charitable purpose and/or a public purpose that is explicitly limited to one or more of the 501(c)(3) purposes:
religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals
The NPBC Law does not define “charitable” so we don’t know for sure whether it covers all 501(c)(3) purposes even though I believe that most practitioners draft articles of incorporation as if it does and I’ve never seen the California Attorney General push back on this. So, it seems safe to say generally that a secular (not primarily or exclusively religious) nonprofit seeking 501(c)(3) status should incorporate as a nonprofit public benefit corporation with a charitable purpose.
A nonprofit exempt under 501(c)(4) of the Internal Revenue Code must have a social welfare purpose. From an NPBC context, a social welfare purpose may be a charitable or a public purpose. Many practitioners draft articles of incorporation for social welfare organizations that include only public purposes – both to differentiate the purpose of a social welfare organization from a charitable organization and to arguably avoid holding assets in charitable trust (see Charitable Trust Laws section below).
California Property Tax Exemption
According to the California Board of Equalization’s Publication 149: Property Tax Welfare Exemption:
California property tax law requires that in order to qualify for the welfare exemption, the most common category of exemption from property taxes, the organization must be organized and operated exclusively for one or more of the following purposes:
- Charitable
- Hospital
- Religious
- Scientific
Because a public purpose may include a purpose that does not fall within the four qualifying purposes listed above, a nonprofit whose articles of incorporation provide for a public purpose (without further limitation) would be disqualified from qualifying for the welfare exemption.
Charitable Trust Laws
Under the California Supervision of Trustees and Fundraisers for Charitable Purposes Act (the “Act”):
“Charitable corporation” means any nonprofit corporation organized under the laws of this State for charitable or eleemosynary purposes and any similar foreign corporation doing business or holding property in this State for such purposes.
Accordingly, a nonprofit public benefit corporation organized for public (and not charitable) purposes is not a charitable corporation. The Act applies to –
all charitable corporations, unincorporated associations, trustees, and other legal entities holding property for charitable purposes, commercial fundraisers for charitable purposes, fundraising counsel for charitable purposes, commercial coventurers, charitable fundraising platforms, and platform charities over which the state or the Attorney General has enforcement or supervisory powers.
Arguably, the Act does not apply to a nonprofit public benefit corporation organized for public (and not charitable) purposes and holding assets for public (and not charitable) purposes. This would exempt it from the Act’s many requirements, including regarding registration and reporting.
However, the Attorney General’s Guide for Charities provides:
A trust that holds assets for a public purpose is considered a charitable trust. Public purposes include the relief of poverty; the advancement of knowledge or education; the promotion of health; governmental or municipal purposes; and other purposes beneficial to the community.
and …
If the organization is classified as a California nonprofit public benefit corporation or has received federal tax exemption under Internal Revenue Code section 501(c)(3), it is considered a charity.
Despite these provisions in the Attorney General’s Guide, on several occasions, I have heard representatives of the Office of the Attorney General decline to express an opinion that 501(c)(4) organizations, regardless of their corporate legal form and where they may have been formed, need to register and report as charities.
Additional Resources
Purpose Statement – Nonprofit Articles of Incorporation