If you are starting a nonprofit, you already understand passion. While this passion will get you far, the process of starting a nonprofit organization can be confusing. 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 if you plan on starting a nonprofit. Read our article below and get started on this exciting journey.
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 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 members will be crucial.
Texas requires you to have three directors. The IRS looks closely at the number of directors you have when deciding on your tax-exempt 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.
Your board members also do not have to be members of your organization. Texas also states 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 this person 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 at the 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.
After finalizing your Articles of Incorporation with the state of Texas, you can apply for an Employer Identification Number 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 official 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 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 IRS and the state to get this status.
To receive 501(c)3 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 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.
When starting a nonprofit in Texas, you must apply for the Texas franchise and sales tax exemption. All nonprofits are qualified to receive this exemption, but you will need to file for this status with the state first.
For no additional fee, you can apply for your franchise tax exemption with the Texas Comptroller’s office online. There are different applications for 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 status. You will also need your Certificate of Formation and your bylaws.
If you plan 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 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.
Your application must include the following:
It will take two to three weeks to receive the permit once you have applied.
Unlike most states, 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 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 organization, you will want to start a nonprofit bank account. Banks 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 charges every corporation, even nonprofits, a franchise tax unless you receive an exemption from the Texas Comptroller. You will need to pay state franchise tax until the state recognizes your exemption.
If your nonprofit pay 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.
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 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 nonprofit, 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 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 a 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. 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!
The cost can be a touchy subject when starting a nonprofit, but do not let these costs get in your way since they are not as high as you may expect. 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 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 status unless all members are tax-exempt themselves.