Annual Internal Financial Reporting Requirements for California Nonprofit Corporations

Annual Internal Financial Reporting Requirements for California Nonprofit Corporations

California law requires certain California nonprofit corporations to send an annual financial report to directors and members within 120 days after the close of the corporation’s fiscal year. For calendar year filers, this is by April 30.

The reporting requirement has two components: financial reporting and reporting on transactions involving potential conflicts of interest. The content of the reporting requirement varies slightly depending on whether the nonprofit is a California nonprofit public benefit or mutual benefit corporation. California nonprofit religious corporations are exempt from this reporting.

The financial report must be accompanied by either a report of a certified public accountant or, if there is no accountant’s report, a certificate of an authorized officer of the corporation stating that the statements were prepared without audit from the books and records of the corporation.

Reporting Requirement for Nonprofit Public Benefit Corporations

The Financial Report

California nonprofit public benefit corporations, unless subject to an exemption described below, must send to members and directors a report containing the following information in appropriate detail:

  • The assets and liabilities, including the trust funds, of the corporation as of the end of the fiscal year;
  • The principal changes in assets and liabilities, including trust funds, during the prior fiscal year;
  • The revenue or receipts of the corporation, both unrestricted and restricted to particular purposes, for the prior fiscal year; and
  • The expenses or disbursements of the corporation for both general and restricted purposes during the prior fiscal year.

Certain exemptions apply to this financial reporting requirement as follows:

  • If annual gross receipts are less than $25,000 for the prior fiscal year, the nonprofit must only send a copy of the report to its board of directors, not to its membership.
  • If the nonprofit solicits contributions in writing from 500 or more persons, includes with its solicitation materials a written statement that the annual report will be sent upon written request to the nonprofit at a name and address in the statement, on receipt of such a request promptly mails a copy of the report to the requester, AND publishes its annual report within 120 days after the close of its fiscal year in a newspaper of general circulation in the same county as the nonprofit’s principal office, it is exempt from the financial reporting requirement.
  • If the bylaws of the nonprofit provide for membership meetings less than annually, the report can be provided to members at the same frequency as those meetings.

If the annual registration renewal form sent to the California Registry of Charitable Trusts by the nonprofit (Form RRF-1), contains the same information required in the annual financial report, the nonprofit can distribute that form as a substitute for the report.

The Report on Conflicted Transactions

Regardless of whether the nonprofit public benefit corporation must send financial reporting, it is required to provide a written statement to its directors and members including the following:

  • A statement of any transaction (i) to which the Corporation, its parent, or its subsidiary was a party, (ii) which involved more than $50,000 or which was one of a number of such transactions with the same person involving, in the aggregate, more than $50,000, and (iii) in which either of the following interested persons had a direct or indirect material financial interest (a mere common directorship is not a financial interest):
  • Any Director or Officer of the Corporation, its parent, or its subsidiary;
  • Any holder of more than 10% of the voting power of the Corporation, its parent, or its subsidiary.

The statement must include:  (i) a brief description of the transaction; (ii) the names of interested persons involved; (iii) their relationship to the Corporation; (iv) the nature of their interest in the transaction, and; (v) when practicable, the amount of that interest, provided that, in the case of a partnership in which such person is a partner, only the interest of the partnership need be stated.

  • A brief description of the amounts and circumstances of any indemnifications or advances aggregating more than $10,000 paid during the fiscal year to any officer or director, unless such indemnification was approved by the members.

Reporting Requirement for Nonprofit Mutual Benefit Corporation

The Financial Report

All California nonprofit mutual benefit corporations with gross revenues or receipts of $10,000 or more during the fiscal year must send a report to directors and members containing the following information in appropriate detail:

  • A balance sheet as of the end of the fiscal year, an income statement, and statement of cashflows for the fiscal year; and
  • A statement of the place where the names and addresses of current members are located.

The Report on Conflicted Transactions

Regardless of annual gross revenues or receipts, all California nonprofit mutual benefit corporations must provide a statement including the below information to members and directors:

  • A statement of any transaction during the previous fiscal year (i) to which the corporation, its parent, or its subsidiary was a party, (ii) which involved more than $50,000 or was one of a number of such transactions with the same person involving, in the aggregate, more than $50, 000, and (iii) in which either of the following interested persons had a direct or indirect material financial interest (a mere common directorship is not a material financial interest):
  • Any director or officer of the corporation, its parent, or its subsidiary;
  • Any holder of more than 10 percent of the voting power of the corporation, its parent, or its subsidiary.

The statement shall include a brief description of the transaction, the names of interested persons involved, their relationship to the corporation, the nature of their interest in the transaction, and, when practicable, the amount of that interest, except that, in a partnership in which such person is a partner, only the partnership interest need be stated.

  • A brief description of the amounts and circumstances of any loans, guaranties, indemnifications, or advances aggregating more than $10,000 paid during the fiscal year to any officer or director of the corporation, unless the loan, guaranty, indemnification, or advance has already been approved by the members, or the loan or guaranty is not subject to Corporations Code §7235(a).

Please consult with the nonprofit’s accountant to ensure compliance with the above reporting requirements.

Written by Cameron Holland.