How do you start a nonprofit organization? If you’re in Texas, then these are the steps you have to take. Basically, you have to formally incorporate your group, though you will designate it specifically as a nonprofit.
1. It Starts with a Name
Naming your organization isn’t just for convenience’s sake (as it’s better to just refer to it as “our NPO”). It gives your NPO a distinct identity, and it should help people realize your group’s specific goals. It separates your organization from other NPOs, and from other business organizations as well.
But there are naming rules to follow for a nonprofit in Texas. It actually depends on your group’s business structure, first of all. There are different sets of naming rules for corporations, LLCs, trusts, and both incorporated and unincorporated associations.
In general, however, the rules include the following:
- It must be distinct, and not too similar to other NPOs and business organizations. To make sure that you comply with this requirement, you will have to make a proper name search. The State of Texas has a name search tool you can use, as it can go through the official business names database in Texas.
- You can’t use obscene, vulgar, or any type of offensive words.
- The name cannot contain terms such as “university”, “trust”, “credit union”, or “bank”, since your NPO is none of these things.
- You cannot use words commonly associated with the US Olympics Committee.
It’s best if you also check that you don’t use a name that’s used in your state or other states, to avoid confusion. You can check the name availability here. It will also help your group tremendously if you choose a business name that you can use for your web domain. That way, you can set up your NPO website and it will be much easier for people (especially potential donors) to find your website online.
2. Pick Your Business Structure
There are options for Texas NPOs to pick from, and you should choose the option that best suits your needs. For example,
- Non-Religious corporations. This option is best for social welfare organizations and civic leagues meant for charitable goals. It includes NPOs that are involved in businesses and those that are not involved in businesses.
- Religious corporation. This is if your NPO is church-based.
3. Select Your Incorporators and Initial Directors
You’ll need at least one incorporator, but you can have more. The incorporator is the one who signs the Articles of Incorporation for your NPO.
Your NPO will have a governing body, and the members of that body are the directors. You’ll need at least 3 directors, and they can’t be related to each other. The board of directors is in charge of managing the operations.
You’ll also need at least 2 officers: the president, and the secretary. The president can hold dual jobs, however, they can’t also be the secretary. But it’s possible for one person to be both secretary and treasurer.
NPOs are required to pick the directors and officers during the first official NPO meeting.
4. Get a Registered Agent
The job of a registered agent is to officially receive legal notices on behalf of your NPO. A registered agent must be physically available to receive such notices, and maintain an office in Texas to receive the notices during business hours.
While you can appoint basically anyone as your registered agent as long as they’re a Texas resident, it’s best to make use of professional registered agent services. These services can just electronically forward any legal notices to all the directors and officers.
5. Set Up Your Bylaws
The bylaws are your set of rules and operating procedures for the NPO to follow. That way, the members, directors, and officers can calmly and efficiently go about making decisions and changes seamlessly. This is basically your NPO’s operating manual. The board of directors will have to review each specific bylaw before ratifying the entire document.
You also need to make sure you come up with a proper conflict of interest policy. This is your set of rules that make sure that the directors and officers make decisions for the benefit of the NPO, and not for themselves.
The directors should adopt the bylaws and conflict of interest policy during that first NPO meeting.
6. Prepare (and Then File) the Articles of Incorporation
The Articles of Incorporation for your NPO officially declare your group’s planned existence. In this document, you first have to state the type of purpose for your NPO. It can be at least one of the following:
- Fostering national or international amateur sports competition
- Preventing cruelty to animals or children
- Testing for public safety
Your articles of incorporation must clearly declare the purposes for which its assets will be used. These purposes must be covered by the Texas requirements for NPOs. You can learn more about the guidelines for the Articles of Incorporation for NGOs in Texas here.
If you want, either you can file it through the mail, fax, or in person. Just mail the completed paperwork to Corporations Section – Secretary of State, P.O. Box 13697, Austin, TX 78711. This will cost $25 only.
You can also submit the documents in person to the address: Corporations Section – Secretary of State, 1019 Brazos, Austin, Texas 78701. The fee to be paid is the same as the one above.
7. Get Your NPO Employer Identification Number
This EIN is also known as the FTIN, or the Federal Tax Identification Number. The federal government uses the EIN to identify your NPO in its records. It’s basically the social security number for your organization.
Despite the term employer identification number, you have to get your EIN even if your NPO doesn’t hire any employees at all. It’s imperative that you obtain the EIN, so that your NPO can operate properly. You’ll need the EIN for state and federal tax purposes, to open a corporate bank account for your NPO, and to employ workers for the NPO.
Once you’ve formed your NPO, you can just head on to the IRS website and obtain your NPO EIN. It’s free of charge and you get your EIN immediately. Then you should print the EIN for your records, so that you have a separate copy aside from the IRS record.
Doing this step by mail is simply inefficient because it wastes a lot of time. You may have to wait 4 to 5 weeks to get your EIN if you do this by snail mail.
8. Get Texas State Tax Identification Numbers/Accounts
In the State of Texas, all businesses, including NPOs must register with the Texas Comptroller of Public Account by submitting the Texas Tax Forms either through the online platform or the mail. You can learn more about the process here. The fee you’ll pay depends on the licenses and permits that are related to your NPO.
9. Apply for Your Tax Exemption
This won’t be easy at all, and even the IRS itself estimates that your NPO will need about 100 hours to properly prepare your 501(c) Tax Exemption application. However, it’s much easier if you get the help of a professional expert. That way, the expert can correctly guide your NPO through the entire process to minimize the hassle.
The expert can help determine the proper application form you need to submit. This is usually either Form 1023 or Form 1023-EZ, which is for 501(c)(3) nonprofits such as charities and foundations.
If possible, use Form 1023-EZ. It costs only $275, and you’ll get your application response in a month. Form 1023 costs $600 and will need up to 30 to 6 months before you get your response.
However, if you’re applying for 501(c)(4)s or 501(c)(6)s tax exemption, you will need to use Form 1024.
This application is crucial, since it determines your NPO’s tax-exempt status. You won’t have to pay any income tax to the IRS. Getting your tax exemption allows you to receive grants and expand your fundraising activities.
10. Apply for Texas State Tax Exemptions
The state of Texas gives exemptions to NPOs from the State Income Tax, you can do this by applying with the Texas Comptroller. You can also apply for the Sales Tax Exemption by submitting Form AP-205-2 to the Texas Comptroller.
There is no fee to be paid to complete any of the processes above.
11. File Your Initial Report
In most states, you must file your NPO’s initial report after you have successfully created your Organization. However, this step is not required in the State of Texas.
12. Maintain Your Records
As a publicly registered NPO, you need to make sure that you keep and organize all your records. You’ll need the information in these documents to file various required reports in the future.
These records should include your articles of incorporation, the bylaws, and conflict of interest policy, the printed EIN letter, and eventually your NPO [501(c)(3) determination] letter.
Whenever your board of directors meets, you also have to take notes regarding the minutes of the meeting. These minutes should also be part of your records.
There are computer applications you can use to help you maintain and organize your records. Some of these apps may even permit access to the records for authorized persons, and to directors and officers for upcoming meetings.
It’s up to you to determine what type of nonprofit organization you want to set up. Regardless of the type of NPO you want to establish, it’s a good guess that you just want to help others in your Texas community.
You’re joining many other people who feel the same. In just Texas alone, there are thousands of nonprofit organizations operating. All of these NPOs help out in their own way.
It may seem like the whole process of starting an NPO may be too bothersome, when you just want to help. Don’t think of the process as a hindrance. Perhaps you should think of it as a way for your NPO to gain legitimacy and credibility instead. That way, you can be more successful in helping others!