The Lone Star State offers opportunities for those looking to start a nonprofit. In this post, we’ll guide you through the step-by-step process for starting a nonprofit in Texas and obtaining your 501(c)(3) status.
Pick a Name
Choosing a name for your organization is a significant step, as it not only represents your mission but also needs to be distinct and in line with Texas’s specific requirements.
A name registration is a filing by an organization authorized to do business in Texas under the Texas Business Organizations Code. To be approved, the name must be distinguishable in the secretary of state records from the name of an existing filing entity, foreign filing entity, name reservation, or other name registration.
You cannot use a name currently registered in the state, so you should also check the availability of your chosen name.
Consider alternative variations that can be registered instead if your chosen name is taken.
Establish a Board of Directors
The Board of Directors is the cornerstone of your nonprofit, responsible for guiding and making decisions on behalf of the organization. They are not just a group of individuals, but a team of leaders who play a crucial role in the effective governance of your organization.
Think of the Board as the people who run and manage the nonprofit organization. They are responsible for setting the organization’s strategic direction, ensuring financial stability, and overseeing its operations. They may hire staff members to conduct business but are always responsible for the organization.
Per federal regulations, a minimum of three directors who are not related to one another must be appointed (unless the organization is a Private Foundation, where related board members are ok). The organization’s Bylaws typically outline the specific board positions, ensuring compliance with internal guidelines and state requirements.
Incorporate your Nonprofit
This step is a big one! Incorporation establishes your organization legally in Texas, making everything official. The Articles of Incorporation are a legal document that includes essential information about the nonprofit, such as its name, address, incorporator, registered agent, and more.
When the IRS establishes federal tax-exempt status (which we’ll discuss later in this guide), specific clauses must appear in your Articles of Incorporation. Texas does not automatically include these when filing.
Texas charges a $25 filing fee and typically processes applications in 5-7 business days.
Clauses
When the IRS establishes federal tax-exempt status (which we’ll discuss later in this guide), specific clauses must appear in your Articles of Incorporation.
The IRS requires specific clauses addressing the organization’s purpose and dissolution (what happens if the nonprofit closes or stops operating). For instance, the purpose clause should state that the organization is organized exclusively for charitable, religious, educational, or scientific purposes. The dissolution clause should outline that the organization’s assets will be distributed for a tax-exempt purpose if it dissolves. Here, the purpose is specific to all tax-exempt nonprofit organizations and is different from the primary purpose the organization is trying to fulfill. Sometimes, the IRS uses the same word to define multiple things.
The IRS requires this language to appear on every Texas nonprofit organization’s Articles of Incorporation. While a few states include this language by default, most do not. Filing for tax-exempt status, which we’ll address later in the guide, requires directing the IRS to this language. If it does not appear in the original Articles of Incorporation, an amendment to the language is necessary and may delay your 501(c)(3) status.
Create Organizational Bylaws
Bylaws are a comprehensive set of rules dictating the nonprofit’s operations and governance.
Conflict of Interest Policy
A Conflict of Interest or COI Policy establishes rules to prevent and or to disclose potential profitability conflicts. 501(c)(3) organizations are frequently subject to intense public scrutiny, especially where they appear to have inappropriately benefited their officers, directors, or trustees. The IRS also has an oversight role concerning charitable organizations. A well-written conflict of interest policy is a strategy we encourage organizations to adopt to establish procedures that will offer protection against charges of impropriety involving officers, directors, or trustees. This policy will reassure you and your stakeholders that your organization operates with integrity and transparency.
Establish a Federal EIN (Employee Identification Number):
Once you have obtained your Articles of Incorporation for your nonprofit organization, the next step is to apply for a Federal Employer Identification Number (EIN). You can do this online through the IRS website or by submitting Form SS-4. This unique number serves as an identifier for your organization and is issued directly by the Internal Revenue Service (IRS). An EIN enables your nonprofit to conduct various business activities, such as opening bank accounts, filing state and federal taxes, and hiring employees.
Apply for 501(c)(3) Federal Tax Exemption
Tax-exempt status means that an organization is exempt from paying federal corporate income tax on income generated from activities substantially related to the purposes for which the entity was organized (i.e., to the purposes for which the organization received tax-exempt status).
Did you know there are over two dozen types of 501(c) tax-exempt organizations? 501(c)(3) is by far the most common and well-known, but it may not be the one that fits your organization. Determine which type of 501(c) tax-exempt nonprofit your organization is and prepare the appropriate application. It will likely be the IRS 1023, 1023 EZ, or 1024.
The IRS charges a filing fee of $275 to $600 and typically processes applications in a few months.
It’s crucial to learn about the standard requirements to apply for 501(c)(3) Exemption. This knowledge will empower you to navigate the application process with confidence and ensure that your organization meets all necessary criteria. By being well-informed and prepared, you can increase your chances of a successful application and expedite the process.
File Additional State Paperwork
In most states, generating income through fundraising activities to help fund your programs and invest in your organization requires additional registrations upon receipt of 501(c)(3) approval. To learn about the ongoing Texas state compliance requirements, please visit the Texas Nonprofit Requirements page here!
Starting a nonprofit in Texas may seem daunting, but the process can be streamlined with the proper guidance and a well-defined plan.
If you want assistance establishing a nonprofit in Texas, please contact BryteBridge. Our team of experts is readily available to provide the support and guidance you need. Contact us today to get started on your nonprofit journey.
