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How to Start a Nonprofit in Texas (Step by Step Guide) With FAQs

Bisma HanifContent Writer

Bisma Hanif,

Content Writer

Apr 02, 2022

Forming a nonprofit organization requires several steps that differ for each country and state. If you are thinking of starting your nonprofit in Texas, you’ve come to the right place.

From choosing your nonprofit structure to obtaining tax exemption, we will walk you through all the steps of forming your NPO in Texas. So let’s get started.

Quick Reads

Types of Nonprofit Organizations in Texas

types of nonprofit organizations The answer to, “how to start a nonprofit in Texas?” depends on the structure of your organization.

Most nonprofits register themselves as nonprofit corporations. However, they can also be formed under two more structures which are Unincorporated Nonprofit Associations and Nonprofit LLCs.

Depending on the type, each structure offers a different level of legal liability and probability of getting tax-exempt. Similarly, they all have different requirements for getting registered with the federal state.

Unincorporated Nonprofit Association

When a group of people joins together to accomplish a nonprofit task without submitting any legal document, they form an unincorporated nonprofit association.

An unincorporated nonprofit association with less than $5000 in annual revenue can obtain a tax exemption without submitting an application to the IRS. An organization with annual revenues over $5,000 must apply to the IRS for getting tax-exempt status.

An unincorporated nonprofit association does not have a separate legal existence without its members. Therefore, its members are legally liable for their debts and liabilities. This is one of the reasons why nonprofits form unincorporated associations for only short-term goals such as collecting funds for a hospital.

People with long-term goals usually register themselves as nonprofit corporations.

Nonprofit LLC

A nonprofit LLC is a company owned by one or more members and works for nonprofit purposes. The advantage of an LLC over a corporation is that it has a more flexible structure in terms of management and offers limited liability protection to its members.

However, setting up a nonprofit LLC and getting a tax-exempt status for it is a complex procedure. Therefore, most organizations never register themselves as nonprofits LLC.

Nonprofit Corporation

This is the most common structure of nonprofit organizations as it offers limited liability, is easy to register, and has a seamless process for tax exemption.

For a nonprofit corporation, you will need three board members, one registered agent, and the articles of incorporation submitted to the Federal state. Once you have your certificate of formation for your organization, you can then apply for tax exemption at IRS.

Since the majority of these organizations register as nonprofit corporations, that will be our primary focus here.

15-Step Guide on Starting a Nonprofit in Texas

If you are looking for creating your nonprofit corporation from step one, this is your place to get started.

The following is a step-by-step guide on how to start a nonprofit organization in Texas.

Step 1: Give Your Nonprofit a Name

Choosing a name for your nonprofit is the most important step since it gives you an identity as well as appears on your certificate of formation.

  • Think of a name that is easy to remember. Do a name search to make sure that it is not already listed with the state of Texas since the government does not allow two businesses to be registered under the same name.
  • Also, check if the name you selected does not have a URL domain already. This will help you build a website under your organization’s name.
  • Make sure your name does not include words that show association with legal or federal bodies like National, Federal, US, Syndicate, Trust, Republic, or Cooperative or terms that make you look like a profitable business, for example, Bank, Doctor, or Lawyer.

Unlike other states, you are not required to add designators with your organization’s name like Inc or Corp. You can visit the Texas secretary of state's official website for further information regarding naming rules.

Step 2: Hire Incorporators and Initial Board of Directors

hire directors and officers

You must have one incorporator and three directors to form your nonprofit.

An incorporator is a person who makes and files the article of incorporation to the secretary of state. You can have one or more than one incorporator for your organization.

The directors are the strategic backbone of your nonprofit corporation. They are the stakeholders who make all the important strategic and financial decisions regarding your organization. IRS necessitates you to select three nonrelated directors to form a nonprofit corporation.

Additionally, you will also need one president and one secretary to submit their names to the IRS.

Step 3: Nominate a Registered Agent

A Registered agent handles legal paperwork on behalf of nonprofit organizations such as tax notices, annual reports, and notices of litigation.

Your appointed agent should be in Texas or affiliated with a nonprofit consulting firm that is authorized to do business there. You can also appoint someone from your organization including yourself.

Also, make sure that your registered agent is available during business hours to look after your legal affairs.

Step 4: Create and Submit The Articles of Incorporation

articles of incorporation

When you form a nonprofit corporation, you have to submit paperwork known as articles of incorporation to the federal state to register your organization with the state. The process of preparing and submitting it is known as incorporation.

How to Prepare the Articles of Incorporation?

Your articles of incorporation will include details such as:

  • Name and location of your nonprofit
  • Details of your registered agent, incorporators, and board of directors
  • Duration of your nonprofit
  • Purpose of your nonprofit

The document is prepared in a specific format, keeping the guidelines of the IRS in mind. Use Glue Up’s template for the articles of incorporation to avoid amendments or rejection by the state.

How to Get the Articles of Incorporation Approved?

Once you prepare the articles of incorporation, you can submit them along with the form 202 to the Texas Secretary of State by mail, fax, or in person at the following addresses:

Mailing address:
Secretary of State
P.O. Box 13697
Austin, TX 78711-3697

Submitting in-person:
James Earl Rudder Office Building
1019 Brazos St
Austin, TX 78701

You can also apply directly on the Texas secretary of state online portal. The agency charges a filing fee of $25 to process the applications.

The agency takes around three to five business days to send you the approved copy. You may need to make certain amendments in case your article has some mistakes.

The secretary of state can also reject your article in case it does not comply with the Texas Business Organization Code. Once approved, you can now view them as non profit organization license or certificate of formation.

Step 5: Get Your Employer Identification Number (EIN)

After you receive your certificate of formation from the state of Texas, it is now time to apply for the Employer Identification Number (EIN) also known as Federal Tax Identification Number.

The Employer Identification Number (EIN) is the unique nine-digit number assigned by IRS to your business. You will require an EIN for hiring employees, opening a bank account for your organization, and submitting your 990 returns to the state.

How to Apply for EIN?

You can apply for your EIN by filling out the IRS Form SS-4. The form requires details like the date of formation and the legal name of your nonprofit. You can submit the form either online, by mail, or by fax.

An EIN can be obtained immediately online, while a reply via mail or fax can take up to six business days. There is no fee for obtaining the EIN.

Step 6: Create Bylaws and Conflict of Interest Policy

bylaws and conflict of interest policies

In addition to the approved Articles of Incorporation, IRS also requires you to submit Bylaws and Conflicts of Interest Policy for tax exemption.

What is a By-Law?

A by-law is a set of rules that guides the operational procedures of your nonprofit.

It covers meeting and membership guidelines, procedures for hiring employees, quorum requirements for decision-making, and proxy voting procedures. In addition, the document outlines the rules related to finances, including borrowing money and preparing and submitting financial statements.

What is a Conflict of Interest Policy?

A conflict of interest policy is another set of rules that guides what a board member should do in case a conflict occurs between personal interest and the organization’s benefit.

Since nonprofits are made to benefit the public, board members are not allowed to keep their personal affairs over the organization. A conflict of interest policy ensures the integrity of the organization’s benefit by setting clear guidelines to follow in case of conflicts.

Note: After you have both the documents ready, get them approved by two-thirds of the members of your organization to make them effective.

Step 7: Hold a Meeting With Your Board of Directors

hold a meeting

Plan a meeting with all the stakeholders to discuss the future of your nonprofit. Your team will make important decisions in this meeting including adopting the bylaws and conflicts of interest policies, appointing members, and approving resolutions.

You will also decide on how finances will be managed, what programs will be launched, and how solicitation campaigns will be conducted. Record all meeting minutes to keep a record of your important discussions.

Once you have all your documents ready, create a record book to keep all your paperwork safe. Your initial record book should contain the following documents:

  • Conflict of interest policy
  • Bylaws
  • Name and contact details of the stakeholders
  • Article of incorporation
  • Meeting minutes of the proceedings between the stakeholders and committees of the filing entities
  • Records of financial accounts (if any)

Your record-keeping both before and after the creation of your nonprofit should comply with the state of Texas rules. You can find further information regarding the record book under Texas Business Organization Code section 3.151.

Step 8: Prepare a Records Book

Once you have all your documents ready, create a record book to keep all your paperwork safe. Your initial record book should contain the following documents:

  • Conflict of interest policy
  • Bylaws
  • Name and contact details of the stakeholders
  • Article of incorporation
  • Meeting minutes of the proceedings between the stakeholders and committees of the filing entities
  • Records of financial accounts (if any)

Your record-keeping both before and after the creation of your nonprofit should comply with the state of Texas rules. You can find further information regarding the record book under Texas Business Organization Code section 3.151.

Step 9: Request for State and Federal Tax Exemptions

get your tax exemption

As a Texas nonprofit, you are exempted from paying state taxes. However, you must register with both the IRS and state to get your tax-exempt status.

501(c)3 Federal Tax Exemption

To apply for the Federal Tax Exemption, you will need your certificate of formation, your EIN, bylaws, conflict of interest, and the name of three directors.

Once you have them all ready, fill out Form 1023-EZ with a fee of $275 or Form 1023 with a fee of $600. To determine which form you have to fill out, see the instructions here.

IRS can take up to six months to approve your 501c3 status. They will send you a determination letter stating that your organization is exempted from paying taxes under section 50c13.

State Taxes Exemption

You also need to register with the state to get franchise and sales tax exemptions. You can apply for them while your 501c3 Texas application is still in process.

Franchise Tax Exemption

You can apply online at Texas Comptroller’s office for the franchise tax exemption. Choose the correct form as per the nature of your nonprofit such as religious organization, education, charity, etc.

Submit the certificate of formation, bylaws, and letter of determination from the IRS (If you have one). The state does not charge any fee for processing franchise tax applications.

Property Tax Exemption

Applying for property tax exemption is important when you are purchasing a property for your organization in Texas.

However, for this step, you must have your IRS determination letter as well as your Franchise tax exemption. Once you have them, fill out the 50-299 form on the comptroller’s website. There is no additional fee for applying for property tax exemptions.

Step 10: Register as a Charity Fundraiser

register as a charity organization

Most nonprofits don't need any prior registration as charity fundraisers in Texas for solicitations, even when conducting large capital campaigns. However, you will need a permit from the state if you fall into one of the following categories:

  • Veteran nonprofit
  • Public Safely nonprofit

If you are nonprofit benefiting veterans, you must fill out form 3501 and submit it to the secretary of state’s office with a filing fee of $150. If your nonprofit works for public safety, you will submit form 3200 to the state with a fee of $250.

Veteran nonprofits with an outside solicitor are also required to post a surety bond ranging from $1,000 to $25,000, depending on the number of countries in which they are soliciting.

Step 11: Set Up Your Nonprofit Bank Account

Setting up a nonprofit account will allow you to collect funds from the public. Depending on your structure and requirements, you can have more than one bank account.

To open a bank account, you will need a copy of your Texas nonprofit certificate of formation, a copy of your bylaws, and your EIN.

Step 12: Submit Your Nonprofit Reports

Once your organization starts operating, keep a track of important dates for report submissions. Essentially, you will have to submit three main reports, including Franchise Tax, Public Information, and Periodic reports.

Texas Franchise Tax Report

Your organization will pay the franchise taxes unless you get tax-exempt status from the state. Make sure that you pay your taxes on time and submit duly reports to the state till you receive the exemption.

Annual Public Information Report

An Annual Public Information Report is to be submitted to the Texas Comptroller by May 15th. Nonprofits that have not yet received their franchise tax exemption must file this report.

The report includes articles of incorporation, the name of your registered agent and directors, and the address of your nonprofit.

Periodic Report

Once you receive your franchise tax exemption, you will now submit periodic reports detailing the following information:

  • The name and primary address of your nonprofit
  • Name and address of your board members and directors
  • Name and address of your registered agent
  • The file number on the certificate of formation

You have to submit the periodic report after every four years will a processing fee of $5.

Step 13: Ensure All Documents Are Signed Correctly

It is common for board members to sign as sole individuals, rather than as a representative of the nonprofit. While may seem like a small error, this may lead to legal liabilities.

To make sure all your documents are signed correctly, design the signature section of your paperwork in the following order:

  1. Name of your nonprofit
  2. Your signature
  3. Your Name followed by your designation in the organization

This step will ensure that all the members of your nonprofit are signing as representatives. Whenever any designation is replaced by another member, you can hand over the responsibility to them.

Step 14: Other Steps for Nonprofits in Texas

Make sure you keep on updating your reports periodically to keep everything in order. Here are some additional steps to make sure your nonprofit comply with the state's ongoing obligations.

Annual Reports

Compile a public report at the end of every year to keep your information accurate. The report will include activities and changes that happened during the year including your projects, fundraising, hiring, and board members.

You will also include financial reports stating the equipment you purchased, spending on the project, and the number of funds you collected. You can show this report to the sponsors and directors to highlight your achievements and get more donations.

IRS Form 990

The IRS Form 990 is another requirement by IRS for nonprofits. The form includes details regarding the income and expenditures, your organizational structure and operations, and fundraising activities conducted during the period.

Step 15: Create a Website for Your Nonprofit

A website for your nonprofit is a gateway to sharing your great work with the public.

Most nonprofits, if not all, rely on public donations for their operations. Building your online presence is a great way to share your missions and ask people to participate in your ongoing programs.

Additionally, you can also share updates on your website, educate people, promote volunteering, recruit staff and encourage donations.

Your nonprofit website should have elements like:

  • Mission and vision statements.
  • A blog section for educating your audience.
  • A news section to update people with the latest nonprofit trends and successes.
  • An “About Us” page describing what you do and why it is important.
  • A page about your key organization members with their bio.
  • An “Events and Announcement” page to share your latest activities.
  • A Contact Us” section with your address, email, and contact number.
  • A method of accepting donations
  • Different “Call-to-Action” buttons for downloading ebooks, signing up for a newsletter, making donations, or registering for internships.

Create a website with Glue Up

You can either use website builder tools, hire a coder, or contact Glue Up team to create a top-notch website for your nonprofit.

Glue Up: All-In-One Platform for Your Nonprofit

Glue Up is an all-in-one engagement management solution for member-based organizations. Our nonprofit community management software is built exclusively for nonprofit organizations.

The key objective of this module is to amplify engagements and build strong relationships with your community so that you can focus on your greater mission.

Glueup community management software for nonprofit

Glue Up’s community management software includes a user-friendly CRM with a private dashboard. It also features events management and email campaigns modules for creating top-notch events, sending invites and newsletters.

The private community module in the CRM allows you to build meaningful relationships with all the stakeholders including your lead sponsors. What’s more? You can find out which advocates are most engaged with your nonprofit to help you create opportunities for future success.

Would you like to learn more about Glue Up? Contact us to schedule a demo.

FAQs

How Long Does It Take To Start a Nonprofit Organization in Texas?

You can start a nonprofit in Texas as soon as you have your article of incorporation approved by the federal state. If you are applying online, you can receive the approval within 2-5 business days. For filings by mail, you can expect a response within a week, unless you pay an additional fee of $25 to get it done within two days.

After you receive your Texas article of incorporation, you can file for tax exemption which will take around six months to get approved.

What Are the Various Types of Nonprofit Organizations in Texas?

There are three types of nonprofit organizations in Texas namely Unincorporated nonprofit associations, nonprofit corporations, and nonprofit LLCs.

Most nonprofits register themselves as nonprofit corporations as it is easy to get tax exemptions on them.

What Is the Cost of Forming a Nonprofit in Texas?

The total legal cost of starting a nonprofit organization in Texas is around $350 to $650 (without any consultant’s fee).

The Secretary of State in Texas charges a 25$ filing fee and a 2.7% convenience fee for filing the article of incorporation. The IRS will charge another $275 to $600 when you submit your application for tax exemption.

Do I Need Bylaws for My Texas Nonprofit?

No, you do not need bylaws for starting your nonprofit in Texas. However, you will need one while submitting your application for tax exemption to IRS.

Do I Need to Register My Texas Nonprofit as a Charity?

Not all nonprofits are required to register as charities. They can work for social welfare, sports, community development, or any other purpose except for their personal benefit. Nonprofits (whether charity or not) are exempted from paying tax.

Is It Necessary to Register My Nonprofit in Texas Before Fundraising or Soliciting Donations?

Generally, nonprofits in Texas do not need to register before soliciting donations or conducting fundraising campaigns. However, you might need a prior registration if you fall under the following categories:

  • You are a nonprofit corporation based outside of Texas.
  • You are seeking donations for law enforcement, public safety, or armed forces.

Is My Texas Nonprofit Tax-Exempt?

Yes, all nonprofits in Texas are exempted from paying taxes. However, you must submit your application to IRS and get exempt status to be able to purchase tax-free.

Can I Lose My Tax-Exempt Status in Texas?

Yes, your nonprofit can lose its tax-exempt status under the following conditions:

  • Any member of your organization is caught benefiting from the nonprofit’s activity.
  • You are exceeding the permissible amount of lobbying activities.
  • Your nonprofit is participating in political activity.
  • You are generating a high income from a business that is not substantially related to your nonprofit’s exempt purposes.
  • You fail to fulfill the federal annual filing requirements.

Does a Nonprofit Organization in Texas Need a Business License?

No. You don't need a business license for forming a nonprofit organization in Texas. The only document you will need is the certificate of formation approved by the Federal state.

How Many Board Members Are Required for a Nonprofit in Texas?

You need at least three board members, one president, and one secretary to start a nonprofit corporation in Texas. Also, the president and secretary cannot be the same person.

Can an LLC Be a Nonprofit in Texas?

Yes, an LLC can be a nonprofit in Texas. However, the process for becoming tax-exempt is complicated in such cases and involves additional steps.

Do I Need a Lawyer to Start a Nonprofit Organization in Texas?

You do not need a lawyer to start a nonprofit. But you should hire one if you are not aware of the legal requirements of starting a nonprofit.

How Can You Dissolve a Nonprofit?

Essentially, you can dissolve a nonprofit by going through the legal process of dissolution, which involves voting to terminate, filing IRS Form 990, and distributing assets according to Federal state laws.

How to Start a 501c3 in Texas?

You can start a 501c3 organization by getting your certificate of formation from the secretary of state of Texas. Once you get your article of incorporation, you can then apply for a 501c3 tax exemption from IRS.

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