An Administrator's Guide to California Private School Law

Chapter 2 - Governance

Under pre-existing California nonprofit law, the Corporations Code did not distinguish between nonprofits organized for various purposes. That changed in 1978 when the California Legislature, recognizing that the different purposes for the various types of nonprofit corporations warranted different sets of governing rules, enacted the current public benefit, mutual benefit and, religious corporation law. 1 Non-profit private schools may be formed as either Nonprofit Public Benefit Corporations under Corporations Code sections 5110-6910 or Nonprofit Religious Corporations under Corporations Code sections 9110-9690. Accordingly, this section will focus solely upon these two nonprofit corporate forms. 1. P UBLIC B ENEFIT N ONPROFIT C ORPORATIONS Public Benefit Nonprofit Corporations may be created for a public or charitable purpose and cannot be created for the private gain of any person. It also cannot distribute any profits or gains to a private person. Creating a private school is a permissible purpose for a Public Benefit Nonprofit Corporation. 2. R ELIGIOUS N ONPROFIT C ORPORATIONS Religious Nonprofit Corporations may only be created primarily or exclusively for “religious” purposes. Creating a religious private school is a permissible purpose for a Religious Nonprofit Corporation. A religious private school may be organized as either a Religious Nonprofit Corporation or as a Public Benefit Corporation. However, there are advantages to organizing a school as a Religious Nonprofit Corporation. Specifically, Religious Nonprofit Corporations cannot be sued for punitive damages without prior court approval. 2 Furthermore, private schools organized as Religious Nonprofit Corporations are not subject to the California Fair Employment and Housing Act, which generally prohibits discrimination and harassment. 3

Many religious schools incorporate as non-profit public benefit corporations. Doing so may limit the defenses to potential legal claims. Therefore, religious schools should carefully consider how they would incorporate under California law. Ministers that are employed by or perform services for schools may be eligible for special tax rules. Ministers may qualify for housing allowance and parsonage tax exclusions 4 and they may be exempt from Social Security coverage, 5 as well as the income tax withholding requirement. 6 7

LCW Practice Advisor

LCW Practice Advisor

An Administrator’s Guide to California Private School Law ©2019 Liebert Cassidy Whitmore 26