How to Start a Nonprofit In Texas: Step-by-Step Tips for How to Form Your Texas Nonprofit

Starting a nonprofit fundraising organization in Texas involves several steps. These include incorporating the organization as a nonprofit, obtaining tax-exempt status from the Internal Revenue Service (IRS) and Texas comptroller, and raising money by hosting fundraisers.

Before you can get into any of that, however, it's vital that you decide what type of Texas nonprofit you want to form. This will not only determine what type of paperwork you need to fill out when you start a nonprofit but also its purpose, activities, and even service location. 

For instance, if you're interested in knowing how to start a nonprofit community social welfare organization in Texas, you'll need to create a 501(c)(4) organization. On the other hand, if your nonprofit corporation is better suited for the business leagues, you'll want to form a 501(c)(6). Then there are religious/educational/charitable organizations (501(c)(3)) and voluntary employees beneficiary associations (501(c)(9)).

It doesn't stop there. In fact, there are at least 32 types of nonprofits you can form -- with some that require an act of Congress to form and others that can only serve local communities. All this means you'll want to read and learn about all the different types of nonprofit organizations out there and see which ones line up best with the vision for your nonprofit association.

Once you've narrowed down your choice, it's time to file the necessary paperwork to start nonprofits Texas will recognize. You'll need to apply for the right licenses and create the necessary bylaws. Here is our step-by-step guide to start a nonprofit.

Choose a Name for Your Texas Nonprofit 

Selecting the right name for your Texas nonprofit is important since it will serve as a vital branding tool to market your organization and convey the purpose of your group. When choosing your business name, it's essential that your nonprofit's name reflect your basic mission while leaving room to grow. For instance, if the purpose of your nonprofit association is to to feed underserved children in your community, then "Meals for the Community" would be a good general name as it communicates your mission and doesn't need to be changed if you later decide to serve other underserved populations, like the homeless.

It's also important that you choose a name for your organization that it is not already in use by another nonprofit in Texas. To check and see if your nonprofit's potential name is already in use, go to the Texas Secretary of State website and run a search for that name to see if it's "in use." New nonprofit corporations are being formed all the time, so it's a good idea to check back periodically before formally forming a nonprofit and incorporating your name.

Select Members to Serve as Board Management

When you form a Texas nonprofit, you'll want to select good people who can serve as board management. These include:

• Directors: Directors guide your nonprofit organization's development, mission, and business practices. They attend board meetings and carry out your board's fiduciary duties. You will need to choose at least three unrelated directors who can manage key tasks, like your finances and fundraising efforts.
• Incorporator: An incorporator signs your articles of incorporation. This could be your lawyer, a member of your board, or even yourself, provided you're at least 18 years old.
• Registered Agent: Registered agents receive key paperwork (including legal documents) for your nonprofit and need to be available at your nonprofit office during business hours. While you don't need to have a registered agent in the state of Texas if you're unincorporated, it's still a good idea. You can do an online search for "Best Texas Registered Agent Service" to find an affordable agent for your nonprofit. 

Obtain and Register Articles of Incorporation for Your Texas Nonprofit

Now, with the help of your new board, you're ready to file your articles of incorporation (also known as a certificate of incorporation). This public document registers you with the government, establishes the purpose of your nonprofit, determines your board of directors, and allows the IRS to approve your tax exemption.

You can obtain articles of incorporation from the Texas Secretary of State. Select Form 202, the Certificate for Formation of a Nonprofit Corporation. Fill out the form with your organization name, purpose, and signature of your incorporators. Mail, fax, or submit your form electronically along with the required fee. We recommend submitting your form electronically or paying for expedited service if sending it by mail. It'll make processing faster and make it easier for for corporation to form.

Write Your Nonprofit Bylaws for Your Texas Organization

Before you can apply for tax exemption status, you'll need to write your nonprofit bylaws. These outline how your nonprofit corporation is run by your board and how you manage your ethical standards.

You already have some of the information needed to include in your bylaws, including the name of your nonprofit corporation and the names of your board members. You'll want to gather everyone together so they can all agree on how meetings will be conducted going forward. You'll also want to create a conflict of interest clause that outlines what ethical practices your board needs to follow in order to avoid ethical conflicts. (For instance, if any member of your board has a personal or financial interest in any matter that comes up before the board, the clause should describe how that member should disclose their interest and withdraw from voting or lobbying on the matter).

To help write your nonprofit bylaws, you can use a bylaw template to outline your early drafts. Once your board agrees on the bylaws, it's a good idea to have a nonprofit attorney well versed in Texas laws to review your document before you finalize it.

Get an Employer Identification Number (EIN) 

An employer identification number (EIN) is a unique nine-digit number assigned by the IRS that identifies a business entity. Texas nonprofits need to have an EIN in order to open a business bank account, hire employees, and obtain/maintain your tax exempt status. 

You'll need to go to the IRS website and fill out Form SS-4 to receive your nonprofit EIN. You'll want to mail, fax, or submit your form online at least five weeks in advance of when you file for your tax exemptions and business license in order to ensure you have all the necessary paperwork.

Obtain a Business Tax License for Texas State

If you're going to sell goods or services to raise funds for your nonprofit, then you're going to need a tax license in Texas. In order to apply for one, you'll need to already have your EIN, the Social Security numbers from your directors and officers, and your North American Industry Classification System (NAICS) code. This NAICS code classifies the type of business you're in. For instance, there are different NAICS codes for nonprofit religious organizations, human rights organizations, conservation organizations etc.

Go to the North American Industry Classification System page at the United States Census Bureau website to find your NAICS code. Once you have all this information, you can visit the Texas Department of Licensing & Regulation to apply for your tax license and any other Texas business licenses your nonprofit may need.  

Fill Form 1023 to Obtain Tax Exemptions for Nonprofit Organizations

Your Texas nonprofit can gain tax exempt status from the IRS provided that you fill out the right paperwork. You'll need to fill out Form 1023. This will provide you with recognition of your tax exempt status under section 501(c)(3) of the Internal Revenue Code.

Keep in mind that to achieve this status, you'll need to provide detailed information about your nonprofit organization, including the name of your nonprofit, its location, and organizational structure. You'll also need to provide information on the populations you help and the service you provide them. Beyond that, you'll need to have your financial information on hand, including any grants you received. Knowing how to register for exempt status can be difficult, so it's a good idea to read the instructions carefully and then consult with an attorney or another professional who's familiar with all the laws concerning exempt status to achieve tax exemptions for your nonprofit.

File for Texas Tax Exemptions

Once you've obtained tax exempt status from the IRS, you'll receive an IRS-issued exemption determination letter. This will let you apply for state exemption status in Texas. Not only will a Texas exemption certificate make you exempt from taxes when purchasing taxable items from sellers, it's required for all 501(c))(3) nonprofits (or nonprofits that allow donations made to its organization to be tax deductible) to apply for this exempt status.

Filing for exemption from franchise and sales tax requires you to fill the Form AP-204, Texas Application for Exemption - Federal and All Others. This form can be downloaded from the Comptroller Texas website. Keep in mind that you'll need to show a copy of the IRS-issued exemption determination letter showing your exempt status from the IRS, so make sure to have that ready before you apply for state exemption.

When applying for exemption, submit your application using one of the methods below:

Mail: Texas Comptroller of Public Accounts
Exempt Organizations Section
P.O. Box 13528
Austin, Texas 78711

Fax: 512-475-5862

Email: exempt.orgs@cpa.texas.gov

Once you complete the registration process, you'll receive an exemption certificate you can show to sellers when purchasing taxable items. Please note: if a seller will not recognize your exemption certificate, you can still receive a tax refund from the Comptroller. Just request that the seller provide a completed Assignment of Right to Refund which you can then use to receive your own tax refund when you contact the Comptroller.

Open a Bank Account for Your Nonprofit Corporation

In order to handle the funds that will be coming in to your organization through grants, fundraisers, or other support, you'll need to open a bank account. This will help you keep track of your finances, make payments, and otherwise manage your money.

Different nonprofits benefit from different bank accounts. You might want to work with a credit union, local Texas bank, or a national bank. Each type of bank has its own advantages and disadvantages for nonprofits, so be sure to spend time looking over each application with your board and financial advisers to decide which one is right for you.

Once you choose the right bank account for your Texas organization, you'll need to have some paperwork on hand. Make sure you have:

• A copy of your Texas Articles of Incorporation
• A copy of the bylaws
• Your EIN

Certain banks may have other requirements, so work with the managers to see what else you might need.   

Raise Money for Your Activities by Fundraising 

Okay, so you've written your bylaws, fulfilled the incorporation requirements, achieved exemption status (from both the IRS and Texas comptroller), and opened a bank account. Now your Texas nonprofit needs to raise the funds necessary to support your programs and provide a service to the populations you want to help. 

The good news is that there are a lot of options now for successful fundraisers, events, and galas. These include silent auctions, nonprofit raffles, school carnivals, game nights, talent shows and more. Many of these activities can be held in-person in your local community. However, if you'd like to expand your pool of donors and supporters, you can host a completely virtual gala or a hybrid gala that collects donations from both in-person guests and online supporters.

All of these nonprofit galas can be hosted using a service like PayBee. Our user-friendly online tools make it easy for you to create fundraising web pages to collect donations, ticketing campaigns that let you keep track of your guests, and online marketing campaigns that promote your galas across multiple social media sites. In addition, our mobile app enables your volunteers and staff to coordinate their activities during the actual fundraiser, making management a snap. To top it all off, the PayBee system automatically generates reports of your gala activities, making it simple to keep track of your finances and share financial records with key members. 

Continue Complying with All State and Federal Regulations Concerning Nonprofits

Keep in mind that even after starting your nonprofit, you'll need to keep up with any new registration requirements and submit annual reports with the Texas Secretary of State and the IRS to maintain your nonprofit status. Nonprofit regulations in Texas state and the U.S. do change periodically, so it's a good idea to stay in contact with every state and federal agency and learn how to stay in compliance. Make sure your members keep accurate financial records of your activities and continue following guidelines for using donated funds.    

Creating a Nonprofit Organization in Texas: Moving Forward

Knowing how to start a nonprofit in Texas requires careful planning to comply with all state and federal laws. Be prepared to spend adequate time forming your board, bylaws, and articles of incorporation. Consult with experts to know what forms you need to fill out and what articles you need to register. Although the process of forming nonprofit organizations can be tedious, if you take the proper precautions, your later nonprofit business activities will go much more smoothly. 

If you're interested in having help running your nonprofit, the PayBee system can help. Our software is not only extremely helpful in running in-person, virtual, and hybrid fundraisers, it will keep automatic records of your financial activities to make complying with nonprofit regulations much easier. Your members already have so much to do in the running of your nonprofit, so having a computer system backing you up will only make the process simpler.

But don't just take our word for it. Sign up for a free demo of the PayBee platform to see how we support nonprofit organizations. You'll be able to participate in a mock live auction that reveals how intuitive our system is for both your staff and your guests. Interested in learning more about how your foundation or nonprofit can use our online tools? Our team of experts is always available to answer your questions. Sign up for a free demo today and see how we can support your nonprofit starting now!     

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