What Is a Texas Nonprofit?
A Texas nonprofit is a nonprofit formed under the laws of the State of Texas. Most Texas nonprofits choose to organize as nonprofit corporations, which don’t issue stock but which benefit from the limited liability protections available to for-profit corporations. Texas offers a business-friendly, low-cost environment for starting and maintaining a new nonprofit corporation, which is just one reason why the Lone Star State is an excellent place to enter the vital and continually growing nonprofit sector.
Below you’ll discover more benefits to starting a nonprofit in the State of Texas, as well as the basic steps to starting a Texas nonprofit corporation yourself.
Why Start a Nonprofit in Texas?
- It’s Affordable
In Texas you’ll pay a low state filing fee to start your nonprofit, no fees at all to apply for the available Texas state tax exemptions, and a measly $5 fee every four years or so to file a periodic report with the state (at least if your nonprofit obtains an exemption from the Texas franchise tax). And most Texas charitable organizations, apart from those raising funds for veterans and law enforcement organizations, don’t have to register as charities with the state. That means lower costs up front, lower costs along the way, and less paperwork to distract you from pursuing your nonprofit’s mission. And while it’s true that Texas nonprofits aren’t automatically exempt from state taxes (you’ve got to apply!), the state provides manageable opportunities for many nonprofits to obtain exemptions from the state’s franchise tax, sales tax, and hotel occupancy tax. Texas also allows nonprofits to apply for state tax exemptions even if the nonprofit doesn’t seek or obtain 501(c) federal tax-exempt status through the IRS, which means our state isn’t just more affordable, it gives your nonprofit more options for how to conduct its business.
- It’s Home
You’ll find a ton of websites advising nonprofits to incorporate in whatever state is friendliest to the nonprofit sector, but even if Texas didn’t have low fees and low taxes, it’s almost always best to incorporate in the state where you actually live and where your nonprofit plans to do its work. Why? Because if you incorporate outside of Texas, your nonprofit will likely have to register as a foreign corporation. This could add unnecessary starting fees and annual reporting requirements, which are already very manageable in Texas anyway, and it requires you to navigate the business laws and tax-structures of more than one state for no other reason than to possibly save a few bucks along the way.
- It’s Needed
Texas has one of the nation’s fastest growing economies, and we all know how rapid economic growth comes paired with rapidly increasing social problems. Yes, Texas is a nation-sized state with a lot to offer, but it also has nation-sized problems with urban and rural poverty, low educational attainment, homelessness, and crime. The need to fight issues like these is partly why Texas has such a rapidly growing nonprofit sector and why we need more Texans like you to start successful nonprofit corporations.
Why Hire Us to Form Your Texas Nonprofit?
Lone Star Registered Agent LLC is a Texas company run by Texans, and we know the ins and outs of the Texas nonprofit sector in ways outsiders don’t. We aren’t some virtual office run by a bunch of faceless people at computer screens scattered around the country. We own our own building here in Austin, and, unlike most of our competitors, our registered agent service isn’t something we just do on the side. It’s truly our bread and butter, and we’ve worked hard to become the expert Texas registered agent service. When you place an order with Lone Star LLC, we’ll quickly get your documents filed with the state, and we’ll stock your online account with adaptable templates, forms, and compliance reminders to help your nonprofit start successful and stay successful.
Hire Lone Star Registered Agent, and we’ll provide:
- Preparation and filing of certificates of formation
- Speedy filing services
- Access to adaptable nonprofit templates including bylaws
- Texas registered agent service
- Annual nonprofit compliance reminders
- Expert local customer service
- BOI Report Filing for only $9
Form your Texas nonprofit corporation today for just $176 (which includes all state filing fees). Once we submit your documents to the state, you can expect the state to respond within two business days.
How to Start a Texas Nonprofit
At Lone Star Registered Agent, we provide a safe and affordable way to incorporate your Texas nonprofit, and our formation service comes with a year’s worth of our Texas registered agent service. But if you’d rather strike out on your own, or if you just want to know how the process works, read through the following overview on how to form a Texas nonprofit corporation:
1. Fill out the Certificate of Formation – Nonprofit Corporation
Texas nonprofits incorporate by filing a Certificate of Formation with the Texas Secretary of State. You can file online at the Texas Secretary of State’s website and pay with a credit card, or you can print and mail the completed state form with a check or money order to the Texas Secretary of State’s Austin office. Filing online saves you time and postage, but you will pay an additional 2.7% convenience fee for paying with a credit card (changing the filing fee from $25 to around $25.68). Your nonprofit will also need a Texas registered agent to accept official state mail and legal notices on its behalf. Lone Star LLC offers the best registered agent service in Texas for $50 a year.
Below you’ll find an overview of the information needed to complete your Texas nonprofit Certificate of Formation:
Your Texas nonprofit’s name must be different from any existing foreign or domestic filing entity registered in the state. To check the availability of your nonprofit’s name, do a taxable entity search at the Texas Comptroller of Public Account’s website. You can also email a name inquiry to the Texas Secretary of State’s Corporations Section, or call (512) 463-5555 and inquire by phone.
Registered Agent and Registered Office
A Texas registered agent is a person or business appointed to receive official mail and services of process on behalf of a Texas nonprofit. Your nonprofit must have a registered agent with a Texas address that documents can be delivered to at a physical location (not a post office box or virtual office). We offer our Texas registered agent service for $50 per year.
A Texas nonprofit may be managed by either its members or its board of directors. If your nonprofit will be member managed, check the appropriate box on the state form. If your nonprofit will be a directorship, list the names and addresses of at least three initial directors (in this case, post office box addresses are fine).
Indicate if your nonprofit will or will not have members. Members are often individuals or entities with the right to collectively appoint and remove directors (as in member-managed nonprofits), but Texas nonprofits may also have nonvoting members or no members at all.
Texas doesn’t require nonprofits to provide detailed statements of purpose on the Certificate of Formation, and you could get away a general description like “for any or all lawful purposes,” but this won’t work for nonprofits applying for federal or state tax exemptions. To obtain federal tax-exempt status, the IRS will expect your statement of purpose to include required language limiting your nonprofit’s activities to those goals described under Section 501(c) of the Internal Revenue Code. The Texas Comptroller of Public Accounts will likewise expect a clearly defined purpose satisfying the state’s approved activities if your nonprofit intends to apply for exemptions from the Texas franchise tax and sales tax.
The form for the Texas nonprofit Certificate of Formation provides additional space to either expand an existing article or to include optional provisions not required by (but consistent with) state law. If your nonprofit will seek 501(c)(3) federal tax-exempt status from the IRS, you could use this space to provide a dissolution clause stating that your nonprofit will distribute its assets to other 501(c)(3) organizations if it ever shuts down, and that no part of your nonprofit’s income and assets will ever go to its members, officers, or directors.
The organizer listed should be the person preparing and filing your Texas nonprofit’s Certificate of Formation.
Effectiveness of Filing
Select the date you want your filing to be effective. Texas allows a nonprofit to delay its official formation date up to 90 days after filing.
2. Confirm Your Texas Nonprofit’s Approval
If you file your nonprofit’s Certificate of Formation online through the Secretary of State’s website, you will receive a .zip file in around 2 business days containing scanned copies of your approved documents. If you file by mail, expect to receive your approved originals in the mail within 5-7 business days.
3. Obtain an EIN Tax ID for Your Texas Nonprofit
A Federal Employer Identification Number (FEIN/EIN) is like a social security number for your nonprofit. Without one, your nonprofit can’t apply for federal tax-exempt status, open a bank account, pay employees, or claim profits on your federal taxes. You can apply for an EIN at the IRS website or by phone, or you can hire us to do it for an additional $50 fee.
4. File Your BOI Report
A Beneficial Ownership Information report (BOI) is a mandatory filing for most corporations. There are exemptions (including an exemption for tax-exempt companies) which is described in detail in the Financial Crimes Enforcement Network (FinCEN)’s Small Entity Compliance Guide.
If required to file, your BOI report must include information about your nonprofit corporation, as well as the information of your beneficial owners. While nonprofits don’t have the same kind of controlling ownership interests as a profit corporation, they may still need to report those with substantial control over the company.
The report entails:
- Name of company (including DBA names)
- EIN or similar tax ID
- Address and jurisdiction of formation
- Full legal name of beneficial owners and company applicants
- Date of birth of beneficial owners and company applicants
- Residential address of beneficial owners and company applicants
- Copy of beneficial owners and company applicants’ photo IDs
As of January 1, 2024, all newly formed corporations must submit a BOI to FinCEN within 30 days of formation (or 90 days if formed in the year 2024). Corporations formed before 2024 have until the start of 2025 to file their BOI, and do not need to provide company applicant information. This filing is free.
5. Create Your Nonprofit’s Bylaws
Texas requires nonprofit corporations to create and adopt bylaws to help manage their affairs. Your nonprofit’s bylaws provide answers to a host of important questions, such as the qualifications necessary for someone to become a director, the responsibilities of each officer, and the privileges and rights of members.
6. Hold Your Organizational Meeting
Once your Texas nonprofit has drafted its bylaws and successfully filed its nonprofit Certificate of Formation, your organizers or a majority of your board of directors should call your first official meeting to adopt bylaws, elect officers, and complete any other business necessary to complete the formation of your nonprofit. This should happen before you attempt to apply for federal or state tax exemptions.
7. Apply for Federal and/or State Tax Exemptions
Texas nonprofits are potentially eligible for federal and state tax exemptions, but your nonprofit must seek them out. To obtain tax-exempt status at the federal level, you will need to apply to the IRS and prove that your nonprofit qualifies as one of around two dozen exempt organizations recognized under 501(c) of the Internal Revenue Code (most nonprofits are charitable organizations and seek 501(c)(3) status). You’ll pay either $275 or $600 to apply, depending on the size and nature of your nonprofit, and you should expect to wait several months while the IRS examines your nonprofit’s finances, purpose, and structure. A nice thing about Texas, however, is that nonprofits can apply to the Texas Comptroller for state tax exemptions without qualifying for (or even bothering to apply for) federal tax-exempt status.
8. Open a Bank Account in Your Nonprofit’s Name
Nonprofit corporations don’t exist to personally enrich their members and management, so it’s important to separate your nonprofit’s finances from that of its members, officers, and directors. Opening a bank account in your nonprofit’s name is an important part of making this happen. Most banks will require your nonprofit’s Certificate of Formation, bylaws, and federal EIN to open a bank account, so you should only go to the bank once you have incorporated with the state and held your first official meeting.
Nonprofit vs. For-Profit Corporations
What’s the difference between nonprofit and for-profit corporations? Strangely, it isn’t that for-profits corporations make a profit and nonprofits don’t. Nonprofit corporations, despite the name, often make a profit, just as many new for-profit corporations shut down because they end up losing money. No, the difference is that for-profit corporations exist to benefit and enrich their shareholders, so whatever profits they make get distributed to the corporation’s owners in the end. Nonprofit corporations, on the other hand, exist to benefit the public (as with mosques, churches, schools, and public and private charities) or particular groups of people who share common interests and needs. Whatever profits a nonprofit makes remain dedicated to pursuing the organization’s larger goals.
How Do I Maintain and Manage My Texas Nonprofit?
Your Texas nonprofit will need some occasional maintenance to stay in good standing with the state, and your obligations may differ depending on the type of nonprofit you form. Here is a general list of actions you might need to take down the road:
- Keeping Your Registered Agent Service Up To Date
Texas expects every nonprofit to maintain an active, dependable registered agent, and if your registered agent ever changes, resigns, or changes addresses, you will have to amend your Certificate of Formation to reflect the change.
- Amendments to Your Nonprofit Certificate of Formation
To make a change to any details or provisions in your Texas nonprofit’s Certificate of Formation, you’ll need to file a Certificate of Amendment (form 424) with the Texas Secretary of State. You’ll need to file a Certificate of Amendment to change your nonprofit’s name, registered agent, or any other details and provisions in your original document.
- State Franchise Tax
Texas nonprofits pay the state’s franchise tax unless they seek and obtain an exemption from the Texas Comptroller, but your nonprofit is expected to pay the tax until your application gets approved. See the Texas Comptroller’s website for more information about the Texas franchise tax and the available Texas state tax exemptions.
- Public Information Report
Nonprofits responsible for paying the annual Texas franchise tax file an annual public information report with the Texas Comptroller of Public Accounts. This annual report updates your nonprofit’s information in the state’s records, including your registered agent information and the names, addresses, and term expiration dates of your nonprofit’s directors and officers (among numerous other details). The report is due on May 15th each year, and there is no filing fee.
- Periodic Report
If your nonprofit gets approved for an exemption from the Texas franchise tax, it also won’t have to file the annual information report. Instead, you’ll file the periodic report with the Texas Secretary of State, which is just a form that updates your nonprofit’s information on the state’s records. You’ll only file when the Secretary of State requests it, which usually happens every four years or so, and there is a $5 filing fee.
- Annual Charity Renewal
Most charitable nonprofits don’t have to register as Texas charities, but there’s an exception for nonprofits raising money for veterans organizations or law enforcement. Nonprofits that raise funds for veterans organizations must register with the Texas Secretary of State and renew their registrations each year by January 15th. Nonprofits that raise funds for law enforcement must register with the Texas Attorney General and renew their registrations each year by May 15th. In both cases, the initial registration and renewal fees are $50 each.