Legal Question in Business Law in California

There is no minimum you must donate. That is not a factor in 501c(3) status. What is important is that it be a meaningful portion of your gross revenues. You can't set up a 501c(3), generate $150,000/yr in donations/revenue, pay yourself $145,000/yr to run the organization, and dedicate $5,000/yr to the charitable purpose. There is no exact formula. The rule is that the compensation for work done by an officer, director or other person in control of the organization must be at or below fair market value. So even though the top executives of the Red Cross, for example, are paid nice six figure salaries, that is OK because that is the going market rate for highly qualified top level nation-wide non-profit management. You also do not have to pay out all of your net profits from sales at the store. It is OK to keep retained earnings either as a reserve, or as savings towared expansion or improvements. The profits simply must not be paid out to anyone if it is not for fair value in services, goods, or property that benefit the organization.

As far as the steps, you first have to create an organization. That's a fairly simple process. You need to decide whether you want the store to be operated as a trust, a corporation, or an unincorporated association. Most 501c(3) organizations are corporations. You form the corporation just like any other corporation. Nolo Press has a good book on forming a corporation in California, and it comes with a CD with lots of forms. Next you have to deal with the IRS. Their website has a step by step series of pages that outline what you have to do. You can find that at: http://www.irs.gov/charities/charitable/article/0,,id=122670,00.html

Forming a nonprofit organization is the easy part, just follow the steps in the Nolo or similar paperback self-help law book. (Of course, make sure your book covers nonprofits and that you follow the nonprofit recipe!).

After the organization comes into existence, it will be a nonprofit and tex exempt for California franchise-tax purposes only. Qualification to be tax exempt in the sense that people making donations can deduct them as charitable contributions is obtained from the IRS -- Section 501(c)(3) is the most common, but not the only, category of exemption under the Internal Revenue Code (IRC). The application process is significantly more time-consuming, technical and demanding than the orgainizational-formation step.

When you shop for a Nolo-type book, finding for one that is specific to California for the organization-formation steps is necessary, and one that is aimed at nonprofits in particular will probably also contain your IRC 501 application instructions.