Texas has many rules to start a nonprofit that you may not expect but Texans aren’t easily scared, and you are no exception. We have created a step-by-step list of what you’ll need to do to start a nonprofit in Texas, along with links to the correct forms. Read our article below and get started on this exciting journey.
If you are thinking to start a nonprofit, you already understand passion. While this passion will get you far, the process can be confusing. Be it a 501(c)3 or any other type of nonprofit, Texas has many rules that you may not expect along the way, and the state websites are a little hard to follow.
We have created a step-by-step list of what you will need to do to start a nonprofit in Texas, along with links to the correct forms. Texans are not easily scared, and you are no exception. Read our article below and get started on this exciting journey.
Forming a nonprofit has many steps and rules, out of which naming it is the first and a crucial one. A name is the first thing people learn about your organization. You will want to make sure it embodies everything your organization stands for and is easy to remember. In the state of Texas, your name must be different from every other organization in the state, but you will not need to include the abbreviations for Corporation or Incorporated. Visit the Texas Secretary of State website to check the uniqueness of your name and make it official.
Now that you have chosen a name, the next most crucial step is to select the Incorporators and Directors for your Board of Directors. These individuals will be the leaders of your nonprofit and can steer the organization in any direction they choose. The following are several legal responsibilities of a nonprofit’s Board of Directors.
As you can see, choosing the right board of directors and members will be crucial.
Texas requires you to have three directors. The Internal Revenue Service (IRS) looks closely at the number of directors you have when deciding on your 501(c)3 status. So, you will want to have more.
Texas also requires you to have a management committee, a President, and Secretary. You will likely add a Treasurer and Vice President as well. Two or more of these offices can be held by the same individual.
Your board members do not have to live in the state, so if you are a national or international organization, this makes it much easier. According to Texas law, to reach quorum, you must have a majority of your Board present at meetings, so be aware of this when choosing members outside of the state.
They also do not have to be members of your organization. Texas also states that your board members’ term will be until their successor is elected. These rules are the minimum required. When writing your bylaws, you can add additional requirements.
A Registered Agent will be responsible for receiving legal notices for your organization. The law in most states, including Texas, is that your registered agent must be physically located in the state and have an office that is open during regular business hours.
Filing your Articles of Incorporation in the state of Texas will make your nonprofit official. You can find the application required by the state on the Texas Secretary of State’s website. The Certificate of Formation for a Nonprofit Corporation can be applied for by mail, fax, or in-person for a $25 fee.
You must include the original application and one copy when you send the application. The Secretary of State will return a file-stamped copy to you when it is approved. It will take three to five business days to finalize this process, but you can pay an additional $25 to get it done in two business days.
You can also apply online for the same $25 fee with a 2.77% convenience fee. This can be quicker.
The next step to forming a nonprofit is applying for an Employer Identification Number (EIN) with the IRS. An EIN is given to every organization in the United States, and you can get one by filling out Form SS-4. Be sure to print out the paperwork before leaving the website because you will not receive another notice for this number.
When holding your nonprofit’s first organizational meeting, you must develop and vote on your organization’s bylaws and Conflict of Interest policy. This official meeting must include the majority of your Board and will be called by your Board President. Texas has no rules on when this meeting has to occur, but it is recommended that you hold this meeting before you apply for tax-exempt status with the IRS.
Writing your bylaws can be a grueling process, but we have written an article on this process to make it easier.
As a nonprofit, you do not have to pay taxes, but you must apply with the Internal Revenue Service (IRS) and the state to get this status of tax-exempt organization. Tax-exempt organizations have advantages over those which are not but there are processes one must follow to get this status. Let’s have a look –
501(c)3 Federal Tax Exemption
To receive 501(c)3 Federal tax-exempt status from the IRS, you will need to file either form 1023-EZ and pay a $275 fee or Form 1023 with a $600 fee. The form you file is based on several details. To find the correct version, visit the instruction forms.
When you are finished applying for tax-exempt 501(c)3 status, it can take up to six months to receive your letter of determination. Do not let this discourage you. You can continue the process and fill out much of the remaining paperwork without this letter.
Texas State Income Tax Exemption
When starting a 501(c)3 nonprofit corporation in Texas, you must apply for the Texas franchise and sales tax exemptions. All nonprofits are qualified to receive this exemption, but you will need to apply for this status with the state first.
Franchise Tax
For no additional fee, you can apply for your franchise tax exemption with the Texas Comptroller’s office online. There are different applications for 501(c)3 charitable organizations, homeowners’ associations, educational, and religious organizations, so be sure to choose the correct form.
When filling out your application for exemption, you will need a copy of your IRS determination letter, if you have one. You can apply for state tax exemption before receiving your federal tax-exempt 501(C)3 status. You will also need your Texas Certificate of Formation and your bylaws.
Property Tax
If your nonprofit corporation plans on purchasing an office in Texas, you are also eligible for property tax relief. To get this exemption, you will need to have your 501(c)3 nonprofit status from the IRS and your Texas Franchise tax exemption. 50-299 is a downloadable form on the Comptroller’s website. There is no extra fee, but you must apply between January 1st and April 30th. The chief appraiser will determine whether you qualify for the exemption.
Texas does not require your organization to apply for a business license unless you sell goods or services. If you are one of these organizations, you must apply for a sales tax permit with the Texas Comptroller’s office. Check this website for more information on applying via eSystems, applicable state fees, and more.
Your application must include the following:
It will take two to three weeks to receive the permit once you have applied.
The state of Texas requires you to file Form 202 to incorporate a nonprofit organization and raise funds. Form 202 is the Texas certificate of formation for all nonprofits including 501(c)3.
Unlike most states, 501(c)3 and other nonprofits do not have to register with the state before soliciting funds. This is true for every organization, except Veterans and Public Safety nonprofits.
If you are a Veterans organization, you must register with the Secretary of State’s office and fill out form 3501. The Veterans Organization Registration Statement includes a $150 fee.
If your Veterans organization uses an outside solicitor, you will need to post a surety bond. This bond ranges from $1,000 to $25,000 and must be renewed every year.
Public Safety organizations, independent promoters, and Public Safety publications must also register with the Texas Secretary of State before soliciting funds. Form Series 3200 is necessary, along with a $250 fee. Solicitors for these organizations also register and pay a $500 filing fee.
Before soliciting funds for your 501(c)3 or other nonprofit organization, you will want to start a bank account. Your nonprofit bank account will require the following paperwork to start the account:
Your bank may require a resolution authorizing you to open a bank account for your nonprofit, be sure to call ahead of time.
Texas Franchise Tax Report
Texas charges every corporation, even nonprofits (501(c)3 or others), a franchise tax unless you receive an exemption from the Texas Comptroller. You will need to pay this tax until the state recognizes your exemption.
Public Information Report
If your nonprofit association pays the franchise tax, you will also need to file an Annual Public Information Report with the Texas Comptroller. This report will include the following information:
There is no additional filing fee for this report, but it is due by May 15th every year.
Periodic Report
If you are exempt from paying the franchise tax, you will not need to file a Public Information Report. You are required to file a Periodic Report with the Texas Secretary of State. This report requires the following information:
This report is only necessary to file when the Texas Secretary requests the report, usually every four years. There is also a $5 filing fee.
Texas requires nonprofits to file an Annual Report or Periodic Report every one or four years. As a 501(c)3, it is best to publish and make public an Annual Report every year. Major donors, corporations, and foundations look at these reports before donating to any organization. This is your chance to brag about the good you have done the previous year. Making it easy for people to find this information is the first step to getting larger gifts.
Tax Form 990 is another report required by the IRS. This form is similar to a tax return. It asks for a description of income and expense activity, details about your 501(c)3 organization’s operations and structure, and any major donor information.
There are several versions of Form 990. Whichever one you file depends on the amount of revenue you collect every year. It is recommended that you use a professional accountant to help with this form.
Starting your nonprofit can be challenging, but like most Texans, you like a challenge. We hope this step-by-step article makes the process a little easier. It is always advisable to seek expert help while thinking to start a nonprofit since it involves many legal steps, documentation, and requirements. Even the apparently easier ones can be very crucial in deciding the success of your application with the IRS. For example, appointing a registered agent; you may not have much knowledge about recruiting one, their responsibilities, and the location requirements but an expert can thoroughly walk you through the process.
Read the step-by-step guides if you are looking for information to start nonprofits in the US states of Georgia, California, and Florida. We strive to provide the latest fundraising tips to nonprofits of every shape and size. Visit our blog for more articles for nonprofits like yours!
Here is a list of required fees to start a nonprofit in Texas:
If not chartered by the US government:
In Texas, most charities do not have to register before soliciting funds. The exception is with Veterans and Public Safety organizations.
You do not have to file for a business license in Texas unless you sell goods or services.
Texas requires a minimum of 3 directors. The IRS looks closely at this number when granting tax-exempt 501(c)3 status, though. It is best to add more members depending on the size and purpose of your organization.
The Texas Business Organizations Code (BOC) does allow a nonprofit to form an LLC. The IRS will not give a nonprofit LLC tax-exempt 501(c)3 status unless all members are tax-exempt themselves.
Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits. As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development.
Subscribe to our e-newsletter to receive the latest blogs, news, and more in your inbox.
Kristine Ensor