Form a Nonprofit in Texas
Step 1: Select and Secure Your Nonprofit's Name
The name you select for your nonprofit will establish its brand. It is the first thing most people will learn about your organization. It is important to pick a name that both aligns with your mission and follows the rules of naming in Texas.
The name of your nonprofit must be distinct from any existing corporations in Texas. To check availability and secure your corporation’s name we recommend the following resources:
- Business entity search through the state.
- Form 501 to Reserve Corporate Name for 120 days - $40 filing fee.
- The Trademark Forms page through the state.
Secretary of State's guidelines has the complete rules about naming your organization in Texas.
If you plan to have a website for your organization, you will want to make sure that a suitable URL is currently available on GoDaddy.
You may want to buy any URLs you are interested in, to make sure they are available when you are ready to finalize and create your website.
Once you have decided on a URL, you can set up your professional email account (@yourNonprofit.com). Google's G Suite offers an easy to use business email service that comes with many handy tools including cloud storage space where you can share documents with everyone else in your organization. Try it for free.
Step 2: Decide if you Want to Incorporate
Not all non-profit organizations choose to become corporations. Non-profit organizations can choose to form in one of two ways:
- Unincorporated Non-Profit Associations
- Non-Profit Corporations
There are certain benefits to each option:
Unincorporated Non-Profit Associations
An unincorporated non-profit association is an unofficial way of forming a non-profit that does not require any legal paperwork. This option may be a suitable choice for low-risk, low-scale groups. In Texas, this structure has the following features:
- Requirement: In Texas, an unincorporated non-profit needs a minimum of 3 people to come together for a cause.
- Formation: No legal paperwork required.
- Liability: Individual members are personally responsible for debts and legal issues that come against the organization.
NOTE: If you are only interested in forming an unincorporated non-profit, you can skip ahead to Section 2: How to Apply for Tax Exemptions
A non-profit corporation is a more formal way of forming a non-profit. This option involves more paperwork and compliance but offers more protection for its members. In Texas, this structure has the following features:
- Requirement: A non-profit organization that needs to file a Certificate of Formation with the Secretary of State. Also requires bylaw adoption and paperwork filing
- Personal Liability Protection: Organization is considered a separate legal entity from its members.
- Credibility: This is especially helpful if an organization needs to raise larger funds.
NOTE: If you are interested in forming a non-profit corporation, continue onto steps 3-10 of this section below.
Step 3: Appoint a Registered Agent
A nonprofit corporation in Texas is required to have a registered agent with a Texas address.
A registered agent is a person or a business who will be responsible for receiving any legal documents on behalf of your nonprofit.
It is required that the registered agent must always be available at the address listed during normal business hours. So while you can legally list yourself as a registered agent, it will likely be more convenient to hire a third-party service for this purpose.
You can expect to pay up to $160/year for a third-party service, or you can get a qualified registered agent free of charge when you incorporate with Incfile.
If you decide not to incorporate your nonprofit organization you can still choose to file with the secretary of state a statement appointing a registered agent who will be authorized to receive all government and legal documents on behalf of your association.
Step 4: Decide how your Organization will be Managed
If you have decided that being a nonprofit corporation is best for your organization, you must decide whether your corporation will be managed by a board of directors or by the members themselves.
If you decide that it will be managed by directors you will need a minimum of three directors who will make up the governing body of the nonprofit. To meet IRS requirements at least 3 of the directors must be unrelated.
Step 5: File Article of Formation
To become a nonprofit corporation in Texas you must file Form 202, the certificate of formation for nonprofit corporations.
Here are the sections that you will need to complete.
Section 1: Entity Name and Type
This is where you will put in the Name you selected in step 1.
Section 2: Registered Agent and Registered Office
The registered agent can be any entity registered to do business in Texas or any person who is a resident of the state. Your organization cannot act as its own registered agent.
Any person you designate as the registered agent must have explicitly consented to act as the registered agent for your organization, but you do not need to include proof of such consent with your Form 202.
Section 3: Management
If your organization will be managed by a board of directors at least 3 directors will need to be named. When filling the form do not use any prefixes such as “Mr.” or “Ms.” and only use the suffix box for titles of lineage such as ‘Jr.’, ‘Sr.’, or ‘III’ but not for designations such as M.D. or Ph.D.
Since this document will become public record you may want to use a post office box address rather than a residential address to maintain privacy.
If your organization will be governed solely by its members and not by a board of directors then skip to the end of this section and check the box that says “The management of the affairs of the corporation is to be vested in the nonprofit corporation’s members”
Section 4: Membership
Select the box appropriate depending on whether or not your nonprofit corporation will have members.
NOTE: If in the previous section you decided that your organization will be governed solely by its members then you must check Box A in this section.
Section 5: Purpose
Here is where you will describe the purpose of your organization.
NOTE: If you intend to seek federal tax-exempt status for your organization there is specific language required by the IRS that must be included here. Click the link for the exact IRS guidelines.
Section 6: Supplemental Provisions/ Information
This is additional space you may use if needed to include any statements required by the Texas Tax Code or IRS for granting tax-exempt or tax-deductible status.
Step 7: Organizer
The organizer, commonly known as the incorporator, is the person who completes, signs and submits the certification of formation. This person does not need to be a part of your organization.
Step 8: Effectiveness of Filing
This section allows you to determine when you want your nonprofit corporation to officially form.
If you select option A, your organization will officially form when the secretary of state files your certificate of formation.
Option B allows you to select the start date which can be up to 90days after filing.
Option C allows your corporation to officially form after the occurrence of a specific event up to 90days after filing. You will need to describe the event and explain how it will affect the incorporation procedures. In addition, you will need to find a statement with the secretary of state within 90days of filing form 202 regarding the event.
Step 9: Execution
When you sign and date the form you are affirming everything written in the form. You are also affirming that the registered agent you have listed has already consented to be the registered agent for the nonprofit organization.
Submit 2 copies of the Certificate of Formation (original plus a copy) to:
Secretary of State
PO Box 13697
Austin, TX 78711-3697
Information: (512) 463-5555
Fax: (512) 463-5709
Web Site: www.sos.state.tx.us/corp/nonprofit_org.shtml
The filing fee of $25 may be paid by
- Personal checks or money order
- LegalEase debit cards
- American Express, Discover, Mastercard or Visa credit cards
There is a 2.7% convenience fee if you decide to pay by credit card.
How long does it take to process Form 202?
- If you file online it typically takes about 2 business days. If you file by mail you may get a response in 5-7 business days.
- If you have filed by mail you can choose to pay an optional expedite fee of $25 to cut down on the processing time.
Step 6: Start a Corporate Records Book
As a nonprofit, your organization will need to keep track of many important documents. This includes things like:
- Certificate of Formation
- Tax forms
- Nonprofit bylaws
- Meeting minutes
We recommend having a dedicated corporate records book so that as you start receiving these critical legal documents, they can be kept organized from the very beginning.
While you can keep track of everything using supplies from any office store, it may be easier to use a pre-assembled kit that has the things you need in one place. Blumberg and Bindertek have some options specifically designed to meet the needs of nonprofit corporations.
Step 7: Draft Bylaws and Conflict of Interest Policy
Now is a good time to start drafting the bylaws and conflict of interest policy documents for your nonprofit. These documents will be central to the running of your nonprofit and you will want to have both of these ready in time for your first organizational meeting (Step 8) .
Bylaws are the rules that determine how your organization is governed and run. You can think about it as a constitution for your nonprofit. It makes the rules and priorities clear for everyone involved.
In your bylaws be sure to include:
- How the nonprofit is governed – by board (directors) or membership.
- How meetings are held, voting procedures, electing officers or directors.
- How records will be kept and managed
- How disputes will be handled
- How bylaws will be added amended in the future
Keep in mind that the bylaws will supplement any rules set forth by the federal government or the state.
Ready to get started ? Check out these bylaws templates which you can customize to suit the needs of your organization.
The Conflict of Interest Policy contains the rules that ensure that the people governing the nonprofit are making decisions that are best for organization and not by what is best for them as an individual.
In Appendix A the IRS provides a sample Conflict of Interest Policy. This would be a good place to start, especially if you plan to later apply for tax-exempt status at the federal level.
Step 8: Conduct an Organizational Meeting
An organizational meeting is the first official meeting of your nonprofit! Some of the things that are discussed in a typical organizational meeting:
- Taking attendance to show you have a quorum (minimum number needed)
- Appointing temporary officers, chairmen, secretary, etc.
- Adoption of the bylaws established in Step 7
- Adoption of conflict of interest policy established in Step 7
- Don’t forget to record “minutes” of the meeting and have it signed by all attending directors. Here are some corporate minutes templates to help you get the ball rolling.
NOTE: This meeting must occur before your organization can apply for 501(c)(3) federal tax exempt status.
Step 9: Get an EIN
An EIN or Employment Identification Number (also called a Federal Tax Identification Number or Federal Employment Identification Number), is used to uniquely identify a business entity. You can think of the EIN as a social security number for your nonprofit. You can apply for an EIN whether or not you plan to incorporate your nonprofit.
The EIN number will be used for many things including opening a bank account, applying for tax exemption status and submitting tax returns.
You can easily apply for an EIN via the IRS online application. This is the fastest method as you’ll get your EIN as soon as you complete the application. You can also apply by mail or fax.
Keep in mind, however, that if you are using a nonprofit formation service, EIN assistance might already be included in the package.
Q: How do I get an EIN if I don't have a social security number?
A: An SSN is not required to get an EIN. You can simply fill out IRS Form SS-4 and leave section 7b blank. Then call the IRS at 267-941-1099 to complete your application.
Step 10: Start a Business Bank Account
You will typically need to take with you the following items to open a bank account for your nonprofit:
- The EIN for the nonprofit
- A copy of the nonprofit’s bylaws
- A copy of the articles of incorporation
In addition, if your nonprofit has several directors or officers, some banks may ask you for proof that you are authorized to open the account on behalf of the nonprofit.
It is always best to call ahead and ask in case the bank requires any additional documents
There are many great options when it comes to picking a bank. Here are the reviews of the top 5 business bank accounts we recommend.
Get $200 when you open a business checking account with Chase.
Having access to financing is essential for all nonprofits. Credit cards can be a great financial tool to help with the day to day running of your organization. There are many factors to consider when picking the right credit card for your organization. Learn about the best small business credit cards here.
How to Apply for Tax Exemptions
A nonprofit is like any other business in that it is an entity expected to pay taxes at both the federal and state level. Your nonprofit organization can specifically apply to the IRS to be exempt from federal taxes and to the Texas Comptroller of Public Accounts for exception from state taxes.
In Texas, you do not need to be exempt from federal taxes in order to apply for exemption from state taxes.
Applying for Exemption from Federal Taxes
The IRS provides a handy chart to help you determine which application form you would need to fill to apply for exemption from federal taxes.
Applying for 501(c) is a long and involved process. The IRS estimates that a well prepared application takes over 100hrs, so this would be a good time to consider working with a specialist.
Most nonprofits apply to be recognized under section 501(c)(3). In order to be approved as a 501(c)(3) organization you must have included specific language in your Article of Formation (Step 5) that shows that your organization will operate exclusively for one or more tax-exempt purposes.
The exact language that needs to be included depends on the nature of your particular organization. Click the link for the IRS guidelines. We recommend that you seek legal counsel to help you craft your Certificate of formation.
This overview course created by the IRS. will help you understand the timeline and steps involved with the 501(c)(3) application.
Applying for Exemption from State Taxes
The form you need to fill out to apply for tax exemption at the state level depends on the nature of your nonprofit.
Here is the list of the different tax exemption forms.
Protect Your Nonprofit
Get Insurance Coverage
Nonprofits gets started out of a passion to make a difference in the world. It is important to realize that like in any other business, there may be risks involved in running the nonprofit.
Getting insurance for your nonprofit will allow you to focus on your passion while minimizing your liability.
Here are some of the common types of insurance you may want to consider for your organization:
- General Liability Coverage
- Directors and Officers Coverage
- Improper Sexual Conduct Coverage
- Social Service Professional Coverage
Your coverage needs will vary based on your business.
How much will the right insurance cost you? Click here to find out.
Properly Signing Legal Documents
There will be times when you will be signing a document on behalf of your nonprofit. It is important that these times are easily distinguishable from when you are signing a document as an individual. If a document isn’t properly signed, you might suddenly find yourself personally responsible for something the organization should have been liable for.
To avoid such confusion we recommend you and all the members of your organization follow the following format:
- Official Name of your nonprofit
- Your Signature
- Your full legal name
- Your position in the organization
Keep Your Nonprofit Compliant
Nonprofits that have incorporated are required to maintain a registered agent with an office address in Texas. If the agent or the office address changes, you must file Form 401 with the Secretary of State to effect a change to the certificate of formation.
Failure to do so may result in termination of the corporation.
The secretary of state may require your organization to file a report, no more than once every four years. If a report is required, the secretary of state will send a notice to the registered office with instructions on when the report is due.
Failure to file a requested report may result in termination of the corporation.
Public Inspection Rules for 501(c)(3) Organizations
Organizations that have been granted the 501(c)(3) status are required to disclose the following documents to the public when requested:
- Annual returns for 3 years after the due date (this includes returns like Form 990, 990-EZ, 990-PF, and any Forms 990-T)
- All Form 990 Schedules (except portions of Schedule B), attachments and supporting documents.
- Application of exemption and all supporting documents such as Form 1023
- The official paperwork from the IRS that shows that your organization has tax exempt status.
The following do NOT need to be shared with the public
- Portions of schedule B of Form 990/990-EZ that identify the contributors. ( You only need to disclose the amount contributed and the nature of the contributions)
- Any unfavorable rulings such as an earlier denial of tax-exempt status.
- Any information the IRS has said you can withhold. This may include things like sensitive patents and trade secrets.
Q: How long do I have to produce these documents if requested?
A: Ideally within in the same day. If your organization doesn’t have an office or maintains limited hours during parts of the year, the information should be made available within two weeks.
Q: Do I need to provide copies of the documents?
A: If someone asks for copies in person or in writing you must provide them with copies.
Q: Can I charge for copies?
A: You can charge a reasonable amount for making copies of the documents requested.
It may be easiest to have the documents available on your website so that anyone who requests copies can be sent to the site. This allows you to stay compliant without having to spend a lot of time dealing with document requests.
State Franchise Tax
Every nonprofit corporation in Texas needs to pay a franchise tax unless the organization has received an exemption from the Texas Comptroller of Public Accounts. Click the link to determine whether your organization can apply for exemption from franchise tax.
NOTE: Even after applying for exemption, your organization must keep paying the franchise tax until the exemption has been approved.
If you have any questions about franchise tax, you may reach the Texas Comptroller at 1(800)-252-1381 or email them at firstname.lastname@example.org
Texas Business Permits & Licenses
As a nonprofit in the state of Texas, your organization will not need a general business license.
If you organization will be selling goods or services, you will need a Texas Sales Tax permit from the Texas Comptroller’s Office. You can easily fill out this application online at https://comptroller.texas.gov/taxes/permit/
To file to obtain sales tax exemption you will need to fill out Form AP-205, Application for Exemption - Charitable Organizations
If your nonprofit is a charity, it is very likely that it is automatically exempt from registering with the Office of the Texas Attorney General. There are two main exceptions to this rule:
- If your organization will be raising money for veterans, you must register with the Texas Secretary of State using Form 3501, Veterans Organization Solicitation Registration Statement and Form 3502, Veterans Organization Solicitation Bond. The cost associated with this will depend on the nature of your organization and how many counties your organization plans to solicit. This status must be renewed every year, due on the date of registration.
- If your organization will be engaging in phone solicitation to raise money for law enforcement, you will need to office of the attorney general and pay a $50 filing fee. In addition a $50,000 surety bond will be required if your organization will be retaining the services of a commercial telephone solicitor.
You can read more about the Texas Law Enforcement Telephone Solicitation Act (LETSA) and how it affects your organization here.
Annual Returns for Tax-exempt organizations
Most tax exempt nonprofit organizations are required to file an annual return with the IRS (Click here for a list of exceptions).
The table below will help you determine which form you should file.
If filing by mail send to:
Internal Revenue Service
1160W 12th Street Ogden, UT 842201
For any questions you can call:
- (800) 829-3676 (Form related questions)
- (800) 829-1040 (general information)
Q: When is form 990 due?
A: You have a little over 4 months after your taxable year comes to an end to file Form 990. It is due on the 15th day of the 5th month. So if your taxable year ends on Dec 31st, your form 990 is due on May 15th.
NOTE: If your organization fails to file form 990 for 3 consecutive years, it will automatically lose its tax-exempt status.