If you're wondering how to start a non-profit organization in Texas, what you need to know are the steps to take when establishing a non-profit, which can be created for any legal purpose in Texas and can receive tax exemptions from the IRS. According to the Texas Business Organization's code, a non-profit is defined as a corporation that distributes none of its income to members, officers, or directors.

What Will Your Organization do?

Non-profits in Texas are usually charitable, educational, or religious organizations, but your organization is also eligible to be a non-profit if it operates in other areas. To outline the areas of your non-profit's work, you should start by drafting a vision statement. Your vision statement should:

  • Explain concisely what your organization wants to achieve
  • Be restricted to 1-3 sentences

In addition, you should prepare a mission statement to describe how you'll go about realizing your vision. For example, while your vision statement might read, "Our organization aims to support lifelong education in Houston," your mission statement might declare, "We will provide accessible classes and courses in the community that everyone can attend."

Choosing a Name

It's critical to select a good name for your organization in order to reflect its values to the public. It must also be a unique name so that it can be properly incorporated by the state.

Check first to see if your desired name is available by searching the business entities database on the Texas Secretary of State's website. If it is, you have the option of reserving it for 120 days with the Secretary of State by filling in a Form 501. Before making a final decision, it would be a good idea to make sure a good domain name is available so that you can set up a website that members of the public can easily find.

Preparing to Register

Texas requires a public document, known as a certificate of formation, which explains the purpose of your non-profit and identifies the people charged with running it. You can use Form 202, a template for non-profits provided by the Secretary of State that includes the minimum requirements to secure 501(C)(3) tax exemption status. Your certificate of formation must include:

  • The organization's purpose
  • The names of the board of directors, which must number at least three people
  • The name of the non-profit's incorporator, who is responsible for filing the certificate of formation
  • The organization's registered agent, who will receive all legal documents
  • The non-profit's office address

Your certificate also needs to clearly state that any funds remaining after the dissolution of your 501(c)(3) corporation will be given to other non-profits.

When filing the certificate, the incorporator must include a duplicate copy and the filing fee of $25. When the incorporator has received a certified copy of the certificate of formation, they should submit it to the IRS along with an application for a 501(C)(3) tax exemption.

Board of Directors

Once your certificate of formation has been approved, the incorporator or a majority of the board of directors should call the first meeting of the board. This meeting will need to discuss and approve:

  • Your non-profit's by-laws, which explain how the organization is governed and how it works
  • A conflict of interest procedure for situations when a leading member of your non-profit has competing interests
  • The election of directors and appointment of officers
  • The election of a president and secretary
  • The adoption of other resolutions, such as opening a bank account

Since you'll be reaching a number of important decisions, be sure to take minutes of the meeting.

Applying for 501(C) Status

Now, you can apply for a section 501(C)(3) tax exemption by filing Form 1023 with the IRS. In order to get accepted, you'll first need to apply for an employee identification number on the IRS website.

When the IRS has ruled on your application, they will send your non-profit a determination letter. Since a 501(C)(3) application only concerns federal taxes, you may also need to apply for state tax exemptions. To do this, download Form AP-204 from the website of the Texas Comptroller for Public Accounts.

To find out about the various business licenses you need to obtain, visit the Small Business Administration's Business Permit look-up tool, and search by selecting your state and business type.

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