Starting a Nonprofit Corporation in Texas 2024: Your Step-by-Step Guide

Are you passionate about making a difference in your community? Starting a nonprofit organization in Texas can be a fantastic way to create lasting change and positively impact the lives of those around you. However, navigating the legal and regulatory requirements of starting a Nonprofit Corporation can be daunting, especially if you are new to the process.

This guide aims to simplify the process of forming a Nonprofit Corporation in Texas by providing a step-by-step approach to ensure that your organization is set up for success from the start. At LLCBase, we understand that forming a nonprofit corporation can be an overwhelming experience, so we are here to help you achieve your goals every step of the way.

What is a Nonprofit Corporation

A Nonprofit Corporation is a legal entity organized and operated for purposes other than profit-making. The primary goal of a Nonprofit Corporation is to serve the public interest, promote a specific social cause, or support a charitable, religious, educational, scientific, or artistic mission. Unlike traditional for-profit corporations in Texas, Nonprofit Corporations do not distribute profits to shareholders or owners. Instead, surplus funds are reinvested into the organization to further its mission and objectives. When starting a nonprofit corporation, consult the best formation service in Texas to assist you.

Nonprofit Corporations are granted special tax-exempt status under Section 501(c) of the Internal Revenue Code in the United States, which exempts them from federal income taxes. Nonprofit Corporations may also be eligible for state and local tax exemptions. This tax-exempt status allows Nonprofits to receive tax-deductible donations and grants, making it easier for them to raise funds for their cause.

Some common types of Nonprofit Corporations include charities, foundations, social welfare organizations, trade associations, and religious institutions. These organizations play a vital role in society by addressing various social, environmental, and cultural issues, providing essential services, and enhancing the overall quality of life for communities.

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Steps to Form a Texas Nonprofit Corporation

Below is an extensive overview of the steps to initiate a nonprofit corporation in Texas:

Step 1. Choose a Name

The first step in starting a Nonprofit Corporation in Texas is choosing an appropriate name for your organization. The name must be unique and distinguishable from other businesses registered in the state. You can conduct a preliminary name search on the Texas Secretary of State‘s website to check the availability of your desired name. Additionally, the name should not include any prohibited words or phrases, such as “bank” or “insurance.”

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Step 2. Appoint Texas Registered Agent

When forming a Nonprofit Corporation in Texas, you must appoint Registered Agent in Texas. The Registered Agent is responsible for receiving legal documents and correspondence on behalf of your organization. They must have a physical address in Texas and be available during regular business hours. You can choose an individual or a professional Registered Agent service to serve in this role.

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Step 3. Appoint Board Members and Officers

In Texas, a Nonprofit Corporation must have at least three board members responsible for overseeing the management and operations of the organization. The board must also elect officers, such as a president, secretary, and treasurer. It is important to choose individuals who are passionate about your organization’s mission and have the skills to carry out their duties effectively.

Step 4. File Certificate of Formation – For Profit Corporation

To officially form a Nonprofit Corporation in Texas, you must file the Certificate of Formation – For Profit Corporation with the Texas Secretary of State. The filing fee is $300 for filing online, by mail, in person filing, or by Fax. Your Certificate of Formation – For Profit Corporation must include the following required provisions:

• Name of the Nonprofit Corporation
• Purpose of the organization
• A statement that the organization is a Nonprofit Public Benefit Corporation
• Name and address of the Registered Agent
• Statement of how the organization’s assets will be distributed upon dissolution

Optional provisions that can be included in the Certificate of Formation – For Profit Corporation are specific limitations or restrictions on the organization’s activities, indemnification of directors and officers, and any additional information that may be relevant to the organization.

Step 5. Apply for EIN

After filing your Certificate of Formation – For Profit Corporation, you must obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This nine-digit number is used to identify your organization for tax purposes and is required when applying for tax-exempt status or opening a bank account. You can apply for an EIN online, by fax, or by mail.

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Step 6. Draft Bylaws and Policy

Bylaws are the internal rules and procedures that govern the operation of your Nonprofit Corporation. They should outline the roles and responsibilities of board members and officers and the process for holding meetings and making decisions. Additionally, your organization should adopt a conflict of interest policy to properly address potential conflicts involving board members or officers.

Step 7. Hold an Organizational Meeting

Once you have drafted your bylaws and conflict of interest policy, you should hold an organizational meeting with your board members and officers. During this meeting, you will adopt the bylaws and conflict of interest policy, elect officers, and make any other initial decisions necessary for the operation of your Nonprofit Corporation.

Step 8. Obtain Licenses and Permits

Depending on the nature of your organization, you may be required to obtain business licenses and permits in Texas to operate legally. This can include local business licenses, zoning permits, and any specific licenses required for your organization’s activities. Consult your Texas Secretary of State for more information.

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Step 9. Register for Texas State Taxation

While many Nonprofit Corporations are exempt from federal income tax, they may still be subject to Texas state taxes. You must register with the Texas Comptroller of Public Accounts and may be required to file annual tax returns.

Step 10. Register for Charitable Solicitation

If your Nonprofit Corporation plans to solicit donations from the public, you must register with the Texas Office of the Attorney General. This registration is required before legally soliciting charitable contributions in Texas.

Fee Schedule for Starting a Texas Nonprofit Corporation

Here are the fees associated when starting a corporation in Texas:

• Certificate of Formation – For Profit Corporation Filing Fee: $300 for filing online, by mail, in person filing, or by Fax
• Employer Identification Number (EIN) Application: Free
• Form 1023 (Application for Recognition of Exemption) User Fee: $600 (for most organizations)
• Form 1023-EZ (Streamlined Application for Recognition of Exemption) User Fee: $275
• Statement of Information Filing Fee: $25 if domestic, $25 if foreign

Please note that these fees are subject to change, and additional fees may be applicable depending on the specific requirements of your nonprofit organization, such as obtaining licenses and permits. Always consult the respective agency websites and experts for the most up-to-date information.

Apply for 501(c)(3) Tax-Exempt Status

Once you have successfully formed your Texas Nonprofit Corporation, the next crucial step is to apply for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. This status allows your organization to be exempt from federal income taxes and is essential for receiving tax-deductible donations and grants.

1. Prepare IRS Form 1023 or 1023-EZ: The first step in applying for 501(c)(3) tax-exempt status is selecting the correct application form. Most organizations will use IRS Form 1023, the Application for Recognition of Exemption. However, smaller organizations may be eligible to use the shorter Form 1023-EZ. This streamlined application is only available to organizations with annual gross receipts of $50,000 or less and total assets of $250,000 or less. Review the eligibility requirements on the IRS website to determine which form is most appropriate for your Nonprofit Corporation in Texas.
2. Submit the Application: After completing the appropriate application form, submit it with the required user fee to the IRS. The fee will depend on your organization’s size and financial status, so consult the IRS website for the most up-to-date information.Keep in mind that the IRS review process can take several months. During this time, maintain good records and continue to operate your Texas Nonprofit Corporation in compliance with state and federal regulations. If your application is approved, you will receive a Determination Letter from the IRS confirming your tax-exempt status.

Texas State Tax Exemption

In addition to federal tax exemption, your Texas Nonprofit Corporation may also qualify for state tax exemption. To apply, submit Form Form AP-204, Exemption Application, to the Texas Comptroller of Public Accounts and the required supporting documentation. If approved, your organization will be exempt from Texas state income tax and may qualify for exemption from other state taxes.

Ongoing Compliance

After successfully forming your Texas Nonprofit Corporation and obtaining tax-exempt status, it’s essential to maintain compliance with state and federal regulations. This includes filing annual reports, paying state and federal taxes, and maintaining good records.

• File Annual Reports: Your Texas Nonprofit Corporation must file an annual report with the Texas Secretary of State each year. This report, known as the Statement of Information, is due yearly within a specific time frame based on your organization’s registration date. Failure to file the report on time may result in penalties and suspending your organization’s corporate status.
• State Taxes: Even with tax-exempt status, your Texas Nonprofit Corporation may still be responsible for certain state taxes, such as sales tax permits on goods and services sold by your organization. Consult the Texas Comptroller of Public Accounts’s website for more information on state tax requirements.
• Federal Taxes: While your organization may be exempt from federal income tax, you must still file an annual information return with the IRS. This is typically Form 990, 990-EZ, or 990-N, depending on your organization’s size and financial activity. Consult the IRS website for more information on which form your Texas Nonprofit Corporation should file.
• Maintain Good Records: Keeping accurate and up-to-date records is essential for maintaining your Nonprofit Corporation’s compliance with state and federal regulations. This includes financial records, meeting minutes, and other organizational documents. Strong recordkeeping practices will help you stay compliant and provide a solid foundation for your organization’s growth and success.

FAQs

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Why You Should Start Texas Nonprofit

One of the main reasons why you should consider starting a Texas nonprofit is the ability to address a particular cause that you are passionate about. Each nonprofit focuses on a specific issue or cause, allowing you to hone in on what matters most to you. Whether you are concerned about environmental conservation, animal welfare, or social justice, creating a nonprofit provides a platform for you to actively work towards positive change in that area.

Furthermore, starting a nonprofit in Texas gives you the chance to build a strong community of like-minded individuals who share your vision and values. By bringing together a team of dedicated volunteers and supporters, you can amplify your impact and reach a wider audience. Working collaboratively with others who are just as passionate about your cause can be an incredibly rewarding experience and allow you to achieve even greater results.

Another benefit of starting a Texas nonprofit is the opportunity to access grant funding and other financial support. Nonprofit organizations are eligible for a wide range of grants and donations from both public and private sources, which can help you sustain and grow your impact over time. With the support of donors and funders, you can secure the resources needed to carry out your mission effectively and make a meaningful difference in the lives of others.

Additionally, creating a nonprofit in Texas can provide you with a sense of fulfillment and purpose that may be lacking in other aspects of your life. Knowing that you are working towards a greater good and making a positive impact on the world can bring a sense of meaning and satisfaction that is hard to find elsewhere. By dedicating your time and energy to a cause that you are passionate about, you can experience a profound sense of fulfillment that goes beyond material success.

Overall, starting a Texas nonprofit organization is a powerful way to make a difference in your community and beyond. Whether you are motivated by a particular cause, the desire to build a strong community, or the opportunity to access funding and support, creating a nonprofit can be a truly rewarding experience. By taking the initiative to start a nonprofit in Texas, you can become a changemaker and a force for good in the world. So why wait? The time to start your nonprofit is now.

Conclusion

Forming a Texas Nonprofit Corporation and maintaining compliance with state and federal regulations are crucial to creating a successful organization. By ensuring your organization remains compliant, you can focus on fulfilling your mission and serving your community without worrying about legal or financial setbacks.

While this guide provides an overview of forming a Nonprofit Corporation in Texas, it’s important to remember that each organization’s situation is unique. The process of starting a for-profit corporation is different from a nonprofit corporation. Seek the advice of experienced professionals, such as attorneys, accountants, or nonprofit consultants, to ensure your organization is set up for success from the start. Check LLCBase for more guides and resources for starting your business.