How To Start a Nonprofit in Texas

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 tax-exempt status and whether your donors qualify for tax deductions for charitable contributions to your organization.

A nonprofit corporation differs from others because every nonprofit has a specific purpose. A nonprofit's primary goal is to serve a predetermined mission rather than generate profits for owners or shareholders. Any extra capital generated gets reinvested into the organization's mission.

There are several types of nonprofits, but they all share a commitment to a social, cultural, environmental, or charitable purpose.

Because of this, some nonprofit organizations and donors enjoy certain tax exemptions.

Choose a unique name for your organization and register the name with the secretary of state. This requires some research before you are ready to register your nonprofit's name.

Start by brainstorming several potential names for your business. Choose a memorable name that accurately describes the nature of your nonprofit.

Then, you have to confirm the name you selected is available and not already in use. Your nonprofit's name must be unique and not conflict with any other business name registered in Texas. Check your name's availability on the SOSDirect section of the Texas Secretary of State website.

You should also check for federal trademarks if you plan to operate nationally or across several states. You can use the federal trademark database tool on the United States Patent and Trademark Office (USPTO) website to do this. It is essential to avoid accidental infringement — this can force you to disrupt your branding by changing your business name or even land you in a lawsuit.

Find FAQ for business name filing and registration on the Texas Secretary of State website.

Once you are ready, register your business name with the Texas Secretary of State. You can do this online through SOSDirect or by filing Form 502 in person or via mail or fax. This requires a $25 registration fee.

The Secretary of State office aims to process business name registrations within five to seven business days.

Unlike an unincorporated nonprofit association, incorporating your nonprofit provides liability protection for yourself and other members. This means your assets are safe from the organization's debts and liabilities. Going through the incorporation process also provides a formal legal structure for your organization.

You will start this process by naming an incorporator. An incorporator handles signing your organization's articles of incorporation. They will also file the nonprofit certificate of formation with the Texas Secretary of State. You only need one person to serve as your incorporator, but you can have more.

The certificate of formation must include the names of the initial directors and incorporators.

The incorporation process is complete once your incorporator files the certificate of formation.

Note that simply filing a certificate of formation will not protect the name of your nonprofit corporation. You must register your business name separately.

You will need to create bylaws and a conflict of interest policy.

Think of your bylaws as the governing documents for your nonprofit. They also outline how your business operates. Your bylaws should:

• List rules and procedures for making decisions
• Establish the roles and responsibilities of company officers and directors
• Address meeting protocols and voting procedures
• List the procedure for amending the articles of incorporation

Depending on the needs of your nonprofit, you may include other details in your bylaws.

Your conflict of interest policy outlines the procedure your nonprofit will follow should a board member's interests conflict with the organization's best interests.

You must have both your bylaws and conflict of interest in policy in place before you can file for 501(c)(3) tax-exempt status with the Internal Revenue Service (IRS).

You must form the rest of your board once you name the initial directors and incorporators. 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, including one president and one secretary.

The same person can't serve as president and secretary. People are officers and directors, not businesses or other corporations.

Board members should formally adopt the bylaws and conflict of interest policy during the first organizational meeting.

Every business in the United States must have an Employer Identification Number (EIN) issued by the IRS. An EIN is like a Social Security number for your business and is for identification purposes.

It is easy and free to apply for an EIN through the IRS. The fastest way to get your EIN is to apply online through the IRS website. Watch out for commercial sites that charge a fee for an EIN — many of them mimic the appearance of the official IRS website. If a website asks you to pay for an EIN, it is not the IRS.

You can also apply by fax, mail, or phone by filing IRSForm SS-4.

You will need an EIN to apply for a corporate bank account.

A registered agent is a person or company responsible for receiving legal documents on behalf of a nonprofit organization. Any adult can be your registered agent, but they should have a physical address in Texas.

If your business operates in several states, you must have a registered agent in each state.

You may choose to hire a registered agent service. These companies typically operate in many states, which is convenient if you operate nationally or across states.

Eligible nonprofit organizations and donors enjoy 501(c)(3) tax-exempt status from the IRS. To apply, complete the application on the IRS website.

You will use either Form 1023 or Form 1023-EZ. Form 1023-EZ is a streamlined form for smaller nonprofits. The filing fee for Form 1023 is $600. The cost for Form 1023-EZ is $275.

IRS grants 501(c)(3) status 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

With a determination letter, the IRS will notify you of its decision for your federal income tax exemption.

You must keep up with several ongoing requirements to keep your federal tax-exempt status. This includes filing an annual report (Form 990) with the IRS annually.

In Texas, nonprofit organizations can apply for exemption from state sales taxes. Your organization does not have to pay sales taxes on purchases to further your nonprofit's purpose. This exemption is not automatic. You must apply using Form AP-204 or Form AP-205 on the Texas Comptroller of Public Accounts website.

Nonprofit organizations eligible for the Texas sales tax exemption include:

• A Chamber of Commerce — this is the only nonprofit organization in Texas that doesn't need to apply for the exemption
• Homeless shelters and soup kitchens
• Tourist promotion agencies, if sponsored by a city or county in the state
• Private elementary schools and parent-teacher associations or parent-teacher organizations
• Religious organizations
• Rural volunteer fire departments
• Little league sports teams

Unlike some states, Texas does not make all charitable organizations register with the state before soliciting donations or fundraising. But organizations raising money for law enforcement, public safety, or veterans organizations must register.

Three bodies of law explain the registration requirements for these types of charitable solicitations in Texas:

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

The Texas Secretary of State accepts registration documents for compliance with the PSSA and VSA. The Texas Office of the Attorney General takes registration documents to follow the LETSA requirements.

Filing fees range from $50 to $500.

Texas does not require a general business license. But, you may need local licenses or permits depending on your nonprofit's scope and where it operates.

The U.S. Small Business Administration (SBA) website has a business license and permit lookup tool. This tool allows entrepreneurs to find the state and federal license requirements for their types of business.

You can also use the Texas Business Licenses and Permits Guide, published by the Texas Business Permit Office. This comprehensive guide provides a list of permits for different types of businesses operating in Texas.

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
• The registered office address and the name of the registered agent
• Principal office address
• Names and addresses of the directors of the corporation

You will use Form 802 for your periodic report, which requires a $5 filing fee. Remember to file your annual 990 tax return with the federal government.