How to Start a Nonprofit in Texas

Here are general informational steps for how to start a nonprofit in Texas. We strongly advise you to consult with an attorney for more detailed information on this process.

1. Determine the Organization’s Purpose

Before you set up a nonprofit organization in Texas, you must select a specific “purpose” so that it qualifies for tax exemption. The Internal Revenue Code states that acceptable purposes for a nonprofit organization include “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.”

The federal tax code limits a nonprofit’s ability to engage in political activities. If political activities are important to your organization, you may need to structure your organization differently.

2. Name the Organization

You can select any name for your nonprofit as long as it is noticeably different from the names of other Texas organizations. Check with the Texas Secretary of State to see if the name you want is available.

3. Select the Organizer and the Board of Directors

The organizer is an individual who sets up your Texas nonprofit. This person, also known as the incorporator, signs the articles of incorporation.

The board of directors governs the nonprofit. Texas requires a minimum of three directors. Directors owe what is called a “fiduciary duty” to the organization. This generally means that they must act in the best interest of the organization. Failure to do so constitutes a breach of fiduciary duty. Prospective board members should discuss their many duties with an attorney.

4. Choose a Registered Agent

A registered agent is a person or organization who accepts legal papers for the organization. They must have a physical address within Texas. Your nonprofit cannot act as its own registered agent.

An employee, director, or organizer can, however, be a registered agent.

5. Prepare and File the Articles of Incorporation

Preparing and filing the articles of incorporation is what legally establishes your nonprofit. In Texas, you must use Form 202.

Form 202 requires:

The name of the organization;
The purpose of the nonprofit organization;
The name and address of the organization’s organizer;
The names and addresses of each of the directors;
The name and address of the registered agent; and
A dissolution clause.

The dissolution clause says what will happen if the nonprofit dissolves. It is not specifically requested by Form 202. However, it is required for your application for tax exemption. For example, your dissolution clause could state that if your nonprofit were to dissolve, any remaining assets would be used for a charitable purpose as defined by 501(c)(3) of the Internal Revenue Code.

You can file Form 202, along with the $25 fee, with the Texas Secretary of State by mail, fax, or online. Expedited filing is also available.

6. Prepare the Bylaws and Conflict of Interest Policy

Bylaws determine how the nonprofit will operate and how decisions will be made.

The bylaws include information such as:

How board meetings will be conducted;
The titles and job duties of the officers; and
How elections for the officers will be conducted.

The officers take care of the day-to-day business of the organization. In Texas, a minimum of two officers are required: a president and a secretary.

A conflict of interest policy protects the organization from interference from an individual’s personal or financial interests. Directors and officers cannot act in the organization’s best interest if they have a personal stake in the nonprofit’s financial decisions.

7. Hold the First Meeting of the Board of Directors

The initial meeting of the board is where the nonprofit organization takes its first steps as a legal entity.

At the initial meeting, the board of directors must:

Pass the bylaws,
Elect the officers,
Select the accounting year and tax year for the organization,
Transact the initial business of the organization, and
Approve the applications for tax exemption with the IRS and Texas Comptroller.

Minutes must be taken. These minutes should be kept with a copy of the bylaws, the conflict of interest policy, and the articles of incorporation.

8. Get an Employer Identification Number

An employer identification number (EIN) is a number assigned to an organization for federal tax purposes. Once your organization is legally formed, you can apply for an EIN on the IRS website. It will be issued immediately. Print a copy of the EIN for your records.

9. File Applications for Tax Exemption

An important step in starting a nonprofit in Texas is to apply to the IRS for tax-exempt status. You must file either IRS Form 1023 or IRS Form 1023-EZ. An IRS worksheet can help you select the right form.

After receiving the IRS tax exemption, you can apply for exemption from Texas state taxes, such as franchise tax and sales tax. Complete and file Form AP-204, “Texas Application for Exemption – Federal and All Others,” with the Texas Comptroller. Include the IRS determination with your application.

10. Other Considerations

Depending on your organization, you may need business licenses. The Texas Department of Licensing and Regulation lists license types and the application process for each.

Texas does not require a nonprofit to register to solicit donations unless its activities involve law enforcement, public safety, or veterans’ services. If your organization will solicit donations outside of Texas, however, it may need to register in other states.

Annual Reporting and Recordkeeping Requirements

Nonprofit organizations are subject to regular reporting requirements.

They must file a periodic report with the state and Form 990 with the IRS. Additionally, a nonprofit must keep and maintain its books and records in a particular way. Depending on the type of nonprofit, there may be other ongoing legal obligations.

Contact The Hunnicutt Law Group Before Starting Your Texas Nonprofit

Starting a nonprofit in Texas requires you to navigate many state and federal laws. It is important to consult with an attorney to understand how to set up a nonprofit organization in Texas.

The Hunnicutt Law Group has experienced attorneys who can help you open a nonprofit organization in Texas. Give us a call at (214) 361-6740 or fill out our short form to schedule a consultation.

We are located in Dallas, Texas, and we offer video conferencing consultations.

J. Stephen Hunnicutt

Our founding attorney, Stephen Hunnicutt, set the precedent for a commitment to excellence and a focus on the client. With 25 years of experience, he has handled countless cases involving business litigation and commercial litigation. Over the years, Mr. Hunnicutt has worked as in-house counsel for a Fortune 500 energy company, a large firm, a small firm, and finally, in his own practice.

Steps for How to Start a Nonprofit Organization in Texas