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texas-501c3

How to Start a 501c3 in the State of Texas

Corinne

Are you looking to establish a nonprofit organization in the state of Texas, but need help knowing where to begin? Look no further! We have consolidated all the most important information regarding how to do so in an easy-to-read and intuitive format, clarifying the legalities and guidelines you need to observe to qualify for tax-exemption. 

Starting a 501(c)(3) in Texas involves a similar process to that of other states; however, there are a few key differences. No matter where you are located, you must apply for 501(c)(3) status through the IRS, and then adhere to the different rules and compliances for nonprofits seeking state tax exemption. Read on to discover how to establish a nonprofit charity, religious, or educational corporation in Texas!

Let’s go!

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Launching Your 501(c)(3) in Texas

First of all, if you are here that means you are ready to start your nonprofit journey. Let us be the first to congratulate you! We are thrilled to join you on this adventure. 

As we all know, each state has its own set of rules and regulations that exist independently of federal law. Starting a 501c3 falls under this category. Unlike many states, Texas does not, for example, require most nonprofits to register with the condition that they will solicit funds. The only exceptions to this are nonprofits benefiting veterans or public safety. Instead, veterans’ organizations must fill out Form 3500 in the state of Texas.

Furthermore, Texas does not have an official, specific provision to distinguish nonprofit Limited Liability Corporations from other LLCs. This does not affect the status of Texas nonprofits seeking to register as LLCs, however. Nonprofits in Texas may still apply for state and federal tax exemptions. In addition, Texas nonprofits can register as either incorporated or unincorporated organizations.

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Before Applying For Tax-Exempt Status

Before applying for your nonprofit’s tax exemption, you need to have much of the organization’s structure in place. There can be a lot of work involved if you are building your organization from the ground up - but if you understand the process beforehand and file all your paperwork correctly, obtaining 501c3 status does not need to be complicated! With a little gusto, focus, and of course the right information on your side, you can make your vision for a better future into a reality. Here are some important steps to follow before applying for tax-exempt status in Texas.

texas-501c3-before-applyingTristan is excited to get started with the 501c3 process!

Conduct Research

Conducting thorough research should always be the first step when launching a nonprofit, no matter where you plan to do so. There are a number of reasons for this. For one, research can help you broaden your goals, find new contact areas, and expand your nonprofit’s horizons. But most importantly, it will ensure that you know how to comply with all state and federal regulations, so you can complete your application and registration process as quickly as possible. Review the IRS Application for Recognition for an overview of the federal process. The Texas Secretary of State's website provides detailed information for those specifically looking to start a nonprofit in Texas.

Pro Tip: Part of your 501(c)(3) application process will include documenting your organizational purpose. It can be beneficial to you, in the long run, to factor this into your early research. The better you can define your nonprofit’s mission from the get-go, the easier the application process will be later on.

Name Your Organization

Naming your nonprofit organization is fundamental; it is a rite of passage that reflects your identity and what you do. Not only that, an effective name can help build up the community around you by allowing the public to one, recognize and recall you, and two, get a feel for the work your nonprofit does before they even have a chance to research you. Coming up with a term that captures the spirit of your nonprofit is therefore crucial to putting your best foot forward - and having fun, as this is perhaps one of the most enjoyable and creative undertakings of the entire process.

But your name is also necessary to the process of registering with the state of Texas and applying for tax-exempt status. First and foremost, you must ensure another organization does not already have your name. This is so your organization can be distinguishable from all other entities for tax purposes. You may search the index of registered names online through the Texas Secretary of State's office.

Second, your name must comply with all state and federal naming regulations, the principles of which are listed in the IRS Application for Recognition. Your name may not imply any connection or association with a government agency. This means it cannot contain certain words like "bank", "cooperative", "federal", "national", "United States", or "reserve". 

Pro Tip: Additionally, it can be helpful to make sure that a viable domain name is available for your nonprofit. While not essential, having a web address that is easily associated with your organization will make it easier for people to find you.

Set Up Your Nonprofit’s Governing Structure

Like your name, the governing structure of your nonprofit organization plays a significant role both during the filing process and beyond. When establishing your organization in Texas, you must follow some organizational structure guidelines.

The governing structure of your nonprofit must include a board of directors and appointed officers. In Texas, the minimum required number of directors is three. Members of the board of directors are not required to live in Texas, and there are no state-imposed rules regarding term limits. To receive a 501(c)(3) tax exemption, federal requirements stipulate that all members of your board of directors be unrelated.

Texas requires only two officers appointed for every nonprofit: a president and a secretary. You may add other officers as preferred or needed while establishing your nonprofit. In Texas, an individual may hold two or more officer positions, except for the president and secretary. Other officers may also serve on the board of directors.

The board of directors oversees a corporation's more extensive operations but has no individual authority. The directors often hire the officers and hold control regarding certain aspects of the corporation’s activities. There may be some overlap between officers and directors if allowed by the organization’s bylaws (which is discussed in the following section).

Pro Tip: You should also recruit an incorporator during this stage of the process. Your incorporator(s) will be the individual or individuals responsible for officially signing the Articles of Incorporation later. This can be an individual that is already a member of your organizational structure (but not the president or secretary).

Establishing your governing structure early is essential for several reasons. First, this process will help you better determine the scope and direction of your nonprofit organization early on. You will also need a board of directors and officers for many of the formal steps later in your 501(c)(3) application process.

Form Bylaws and Conflict of Interest Policy

Once you have your Board of Directors in place, you can establish organizational bylaws and a Conflict of Interest Policy. Your organizational bylaws will establish procedures for everything from holding meetings to electing or replacing officials. All nonprofits hoping to receive 501(c)(3) status must submit their organizational bylaws as part of their application. When establishing bylaws, you must also comply with all Texas state laws for nonprofits. When your bylaws are complete, they must be fully approved by the Board of Directors.

The IRS does not require a documented Conflict of Interest Policy for nonprofits seeking 501(c)(3) status. The state of Texas, however, does. This policy protects Directors and Officers from receiving improper personal gains through their direct involvement with your nonprofit organization. Therefore, you should provide a signed document affirming that all Directors have agreed to this policy in your registration.

Appoint a Texas Registered Agent

All Texas nonprofits must appoint a Texas-registered agent, whether incorporated or unincorporated. Your registered agent will be the individual responsible for receiving all legal paperwork and documentation from the state, and he or she must have a legal residential address in Texas to do so. More information about Texas Registered Agents can be found on the Secretary of State Office website. Written Agent Forms may also be accessed on the same website.

If you do not appoint an individual as your agent, you may also hire a registered agent service. In this case, a registered corporation will perform the duties of an agent for your nonprofit. This option is costlier but can be more convenient for and appealing to those who can afford it. For example, the fact that your registered agent’s address will be a matter of public record raises privacy concerns for some. An agent service eliminates this problem. Your agent must also be available to accept paperwork from the state at all times. This can be difficult for some people to keep up with.

Pro Tip: Anybody can be registered as an agent, provided they live in Texas and are over 18. No legal background is required, though some familiarity with legal documents is usually beneficial.

Articles of Incorporation

If your nonprofit is incorporated, you must provide Articles of Incorporation to receive 501(c)(3) status. Unincorporated nonprofits may also qualify for 501(c)(3) status, but most nonprofits choose to incorporate for financial reasons. For example, there is no legal tax distinction between an unincorporated nonprofit and its members. Because of this, nonprofit members can, for example, be liable for debts and other obligations. This lack of personal protection leads most nonprofits to incorporate. 

The Texas state requirements for nonprofit Articles of Incorporation can be found on the Texas Secretary of State's website. Here is some of the key information you must include in your Articles of Incorporation:

  • The name, street address, and mailing address of your nonprofit. The street and mailing address may be the same. However, your nonprofit’s registered office must be a physical address in Texas.

  • Your Texas Registered Agent’s identity, signature, and address.

  • The names of all your nonprofit’s Directors and Officers.

  • Your organizational purpose. This is broader than a generic "mission statement". In this section, you should describe the charitable role your nonprofit will fulfill.

  • The effective date of formation. This is usually the date that your Articles are filed, but the date can be delayed for up to 90 days after filing.

  • The signature of your Incorporator or "organizer".

Additionally, there is a $25 filing fee during this process which must be included along with your Articles of Incorporation.

File for a Texas Certificate of Formation

A Texas Certificate of Formation is a document provided to all companies and corporations confirming that they are certified to operate in Texas. Nonprofit LLCs must use Form 202 when filing for their Certificate of Formation. There is, again, a $25 filing fee for your Texas Certificate of Formation.

texas-501c3-before-applyingMatt is getting all the documents he needs to file in order!

This step naturally follows many of the previous actions. Once you have followed all the rules above to make your organization compliant, you are eligible to receive your Texas Certificate of Formation. 

Apply for a Federal Employer Identification Number

You must also apply for a federal Employer Identification Number (EIN) through the IRS. The IRS uses your EIN to identify your organization for tax purposes. You can apply for a federal Employer Identification Number on the IRS website.

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Applying for 501(c)(3) Status

Applying for 501(c)(3) status is separate from registering your nonprofit with the state and IRS. Not all recognized nonprofits will be endorsed as 501(c)(3)’s. Moreover, applying for tax exemption is a part of applying for 501(c)(3) status, although not all organizations will qualify for the former even while being approved for the latter.

To be eligible for 501(c)(3) status, your organization must comply with all IRS requirements. Most importantly, your organization must not operate to benefit private interests. That means your directors and officers cannot profit directly off of your organization’s earnings and that your organization may not lobby as a substantial part of its activities.

Federal Tax Exemption

Most nonprofits will use Form 1023 from the IRS when applying for 501(c)(3) status.  However, smaller organizations may use Form 1023 EZ, a less detailed and more streamlined document. Organizations with annual receipts under $50,000 and total assets under $250,000 are eligible to use Form 1023 EZ. 

Form 1023 (or 1023 EZ) is used exclusively for nonprofits filing for 501(c)(3) status. Organizations filing under any other tax-exempt section must use Form 1024.

After the IRS has processed your 501(c)(3) application, you will receive a Letter of Determination. This letter will grant your nonprofit 501(c)(3) federal tax exemption if approved (wahoo!). This document can then be used to receive other state tax exemptions.

Texas State Income Tax Exemption

All nonprofits are eligible for a state income tax exemption. More information about the qualifications for this exemption can be found on the Texas State Comptroller website. Most nonprofits will use Form AP-205 when filing for their state income exemption.

Texas Franchise Tax Exemption

Most corporations in Texas are required to pay a state franchise tax. However, nonprofits can receive a Texas Franchise Tax exemption through the Comptroller of Public Accounts Office. Full details on the eligibility of 501(c)(3) organizations and the application process can be found on the State Comptroller's website.

Property Tax Exemption

In addition to income and franchise tax exemption, your 501(c)(3) nonprofit can receive a property tax exemption in Texas. This can be hugely beneficial if your nonprofit plans on buying property for an office in Texas. Your nonprofit can apply for the Texas Property Tax exemption by filling out Form AP-199.

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Summary & Definitions

Understanding each of these documents and definitions really should be the foundation of any organization’s attempt to apply for 501(c)(3) status, and tax-exempt status. Make sure you have a firm grasp on the purpose of each.

texas-501c3-summary-and-definitionsSalma is taking note of some important definitions!

Required 501(c)(3) and Tax-Exempt Application Documents

  • Articles of Incorporation - The Articles of Incorporation document a corporation's key is identifying information and organizational structure. This document is used to register nonprofit organizations in the state of Texas.

  • Bylaws - Your organizational bylaws outline the rules and procedures for conducting operations within the corporation.

  • Form 1023 - Form 1023 is the official IRS document filed by corporations seeking to receive 501(c)(3) tax-exempt status.

  • Form 1023 EZ - Form 1023 EZ is a shorter, more streamlined version of Form 1023, intended for smaller nonprofit organizations.

Certification Documents

  • Certificate of Formation - A Texas Certificate of Formation is awarded to all corporations registered and allowed to conduct business in Texas.

  • Federal Employer Identification Number - Number used by the IRS to identify a corporation for tax purposes.

  • Letter of Determination - Document provided by the IRS that either grants or denies an organization 501(c)(3) tax-exempt status.

Organizations

  • 501(c)(3) - A 501(c)(3) organization is an officially recognized nonprofit charitable, religious, or educational organization that received tax-exempt status from the IRS.

  • IRS - The Internal Revenue Service is the branch of the federal government responsible for administering federal tax law.

  • Texas Comptroller of Public Accounts - The Comptroller's office oversees all financial records, tax laws, and revenue in the state of Texas.

  • Texas Secretary of State’s Office - The Office of the Secretary of State oversees official and commercial documentation and certification in the state of Texas, along with other statewide responsibilities.

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Final Thoughts

Filing for 501(c)(3) status as a nonprofit in Texas is similar to the process of applying in most other states, with several unique components. Texas offers full state tax exemptions in addition to the federal tax exemption provided to all 501(c)(3) organizations.

When registering your nonprofit and filing for tax-exempt status, it is essential to take it one step at a time. An incomplete application will not be granted tax-exempt status. Therefore, if you are seeking a 501(c)(3) tax exemption for your Texas nonprofit, review each of the above steps carefully.

Your tax-exempt status relies on continued compliance with state and federal laws. Therefore, you must continue operating within that framework for as long as you wish to remain eligible for 501(c)(3). 

Ultimately, if you follow all the steps listed above, you should soon find yourself with a Texan 501c3 nonprofit. Congratulations and good luck!

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FAQ

đź’ˇHow do I form a 501c3 in Texas?

First, you’ll need to choose your board of directors, a name for your organization, and a registered agent to handle state documents. Then, fill out a Certificate of Formation for your organization with the state government, prepare your bylaws with your directors, and secure an employer identification number (EIN). Finally, obtain any necessary business licenses for your operation, file a form 1023 at the federal level, and apply for any Texas state tax exemptions. Find out more. 

🔑 How much does it cost to form a 501c3 in Texas?

Between the registered agent and all of the documents and filing fees, you can except to spend around $350 to form your 501(c)3 in Texas. That cost can go up depending on your registered agent. Find out more. 

đź“ť What to prepare before applying for 501c3 status in Texas?

Before filing your form 1023 to apply for 501(c)3 tax-exempt status in Texas, you will need to have a board of directors lined up, a name for your organization, an employer identification number, and your articles of incorporation. Find out more.  

Organization & HR
Corinne