Legal Question in Business Law in California

Certainly. Many corporations have non-profit foundations of various sorts. I sit on a non-profit board that gets funding from the Clorox Foundation, for example. It requires come care and legal guidance in forming and operating the non-profit to make sure you don't run afoul of the limitations on non-profits, but it is certainly something that can be done and is done often.

In California, various kinds of nonprofit entities are formed under different Parts of Division 2 of the Corporations Code. For example, nonprofit public-benefit corporations are covered in Part 2 of Division 2. Section 5120(a) provides that one or more persons may form a nonprofit public-benefit corporation by executing and filing articles of incorporation. Section 5065 defines "person" very broadly, and includes corporations of virtually any kind. There are plenty of examples of non-profit organizations (corporations, associations, trusts, etc.) that were founded and are administered by for-profit corporations.

For obvious reasons, the activities, finances, assets, etc. of all nonprofit corporations, including those of any ownership or control, are subject to many statutory and regulatory restrictions. These are designed and administered to make sure, to the extent possible, that folks don't abuse their non-profit status for improper personal gain.

We in the business-law community often hear, directly or indirectly, about entrepreneurs' bright ideas to set up a non-profit, or use an existing one, for some kind of business or personal hobby activity. Their attorneys have to give them a lecture on the prohibitions that prevent the assets or cash flow from non-profit activities leak into their personal pockets except in rather limited approved ways.

Finally, I'd add that for many non-profits, there is a two-step process to getting up and running. The first step is formation of the non-profit entity, which is done through the Secretary of State and is relatively easy. The tough part is qualifying with the Internal Revenue Service to be "tax exempt" under Internal Revenue Code section 501(c)(3) or another of the subsections under IRC 501(c). This takes time and a very carefully prepared application.