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How to Start a Nonprofit in Texas

Nonprofits are businesses with a cause. Nonprofit organizations are started by people who want to make the world a kinder, safer, and overall better place. Below are the steps to start a nonprofit organization in Texas. If you are someone who has a business idea that will help a benevolent cause, check out the following.

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Step 1: Describe Your Nonprofit's Purpose

The first step in starting a Texas nonprofit is to explain its purpose. Once you define the purpose of your organization you can determine whether your organization qualifies for specific grants and whether your donors qualify for particular tax exemptions.

A nonprofit corporation is different from other companies because every nonprofit corporation has a special purpose. Each nonprofit corporation has the goal of helping society in some way. Because of this, nonprofit organizations and donors enjoy certain tax exemptions.

Step 2: Register Your Name in Texas

Choose a unique name for your nonprofit organization and register the name with the secretary of state. The office will complete any work related to registering your business name within one to three business days. The cost of registering a business name in Texas is $25.00. You can find the secretary of state website here.

Step 3: Incorporate in Texas

A nonprofit organization is legally formed once it is incorporated. An incorporator is a person who is responsible for incorporating the nonprofit corporation. Incorporators file the certificate of formation with the secretary of state.

By filing a certificate of formation with the secretary of state, the incorporation process is completed. Include the name of the initial directors and incorporators in the certificate of formation.

It is important to note that simply filing a certificate of formation will not preserve the name of your nonprofit corporation. See the above section to learn how to register and protect the name of your nonprofit corporation.

Step 4: Have Your First Organizational Meeting for the Board of Directors

Once you name the initial directors and incorporators you will need to form the rest of your board. The Texas Business Organizations Code describes who must be on a nonprofit organization's board of directors. Board members must include at least three directors, one president, and one secretary. The same person cannot serve as both president and secretary. Officers and directors must be people, not businesses or other corporations.

The board members should discuss the organization's bylaws during the first organizational meeting.

Step 5: Obtain an EIN

EIN stands for "Employer Identification Number." Each business in the United States must have an EIN assigned by the Internal Revenue Service (IRS). This number is used for identification purposes only.

It is easy and free to apply for an EIN. There are several ways to do so. You can apply online, by fax, through the mail, or over the phone. If you apply online, be careful. You may be asked to pay a fee for an EIN on some sites, but you shouldn't. It's free to apply for an EIN through the IRS website. You can find the IRS website here.

Step 6: Appoint a Registered Agent

A registered agent is a person or company that is responsible for receiving service of legal process and other legal documents on behalf of a nonprofit organization. Any individual 18 years of age or older can be your registered agent. Your registered agent should be located in the state where your business is located. If your business operates in multiple states you must have a registered agent located in each state where you have operations.

You may choose to hire a registered agent service company. These companies typically operate in multiple states, so this can be convenient if you run your business in more than one state.

Step 7: Apply for a Federal Tax Exemption

Nonprofit organizations and donors enjoy 501(c)(3) tax-exempt status from the IRS. You can complete the application on the IRS website here if you wish to obtain 501(c)(3) tax status. You may also complete a Form AP-204 on the Texas Comptroller of Public Accounts website to apply if you already have a federal exemption.

IRS 501(c)(3) status is granted to approved organizations, including nonprofits. 501(c)(3) organizations include the following types of charitable organizations:

  • Religious
  • Educational
  • Scientific
  • Literary
  • Testing for public safety
  • Fostering national or international amateur sports competition
  • Preventing cruelty to children or animals

Step 8: Apply for State Tax Exemption

In Texas, nonprofit organizations can apply to be exempt from state sales taxes. This means purchases made to further the purpose of your nonprofit organization are exempt from state sales tax. This exemption is not automatic. A nonprofit must apply for the state sales tax exemption using a Form AP-205 on the Texas Comptroller of Public Accounts website.

Nonprofit organizations that may be eligible for the state sales tax exemption include:

  • A chamber of commerce. A chamber of commerce does not need to apply for state sales tax exemptions. This is the only nonprofit organization in Texas that does not need to apply for the exemption.
  • Homeless shelters and soup kitchens qualify for state sales tax exemptions.
  • Tourist promotion agencies are eligible for exemptions from the state's sales tax if they are sponsored by a city or county in the state.
  • Private elementary schools and parent-teacher associations or parent-teacher organizations may be exempt from state sales taxes.
  • Religious organizations may seek an exemption.
  • Rural volunteer fire departments may apply for state sales tax exemptions.
  • Little league sports teams may apply for exemption from state sales tax.

Step 9: Charitable Solicitation Registration

Every organization soliciting charitable donations in Texas must register before seeking money from individuals or businesses or before doing any fundraising. There are three bodies of law that explain the registration requirements for charitable solicitations in Texas. The three acts that require nonprofit organizations to register for charitable solicitation are:

  1.  Public Safety Solicitation Act (PSSA)
  2.  Veterans Solicitation Act (VSA)
  3. Law Enforcement Telephone Solicitation Act (LETSA )

The Texas Secretary of State will accept your registration documents for compliance with the PSSA and VSA. The Texas Office of the Attorney General will receive your registration documents to comply with the LETSA requirements.

Step 10: File Periodic Reports

A nonprofit organization must file a periodic report every four years. This report must include:

  • Business name
  • Name of the state or county where the company is incorporated
  • Registered office address and the name of the registered agent
  • Principal office address
  • Names and addresses of the directors of the corporation

Help Is Available

Consider using a DIY nonprofit formation tool that will walk you through the registration process so that your nonprofit corporation is set up correctly and will be entitled to a federal tax exemption.

You can also contact a business organizations lawyer for help with starting your business. 

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