The Texas Non Profit Corporation Act

By Heather Frances J.D.

Nonprofit corporations in Texas are governed by Chapter 22 of the Texas Business Organizations Code. Though forming a nonprofit corporation doesn’t automatically mean your organization will be tax-exempt under IRS rules, creating the corporation is often a first step toward tax-exempt status. Forming a corporation also allows your organization’s personnel to shield themselves from some liability risks.

Nonprofit corporations in Texas are governed by Chapter 22 of the Texas Business Organizations Code. Though forming a nonprofit corporation doesn’t automatically mean your organization will be tax-exempt under IRS rules, creating the corporation is often a first step toward tax-exempt status. Forming a corporation also allows your organization’s personnel to shield themselves from some liability risks.

Organizations Covered

A nonprofit corporation differs from a typical corporation because the income from a nonprofit corporation is not distributed to its members, but the members and officers can receive compensation for services provided. A nonprofit corporation could be an educational, religious, societal, or other type of organization. For example, certain health and dental organizations can be organized as nonprofit corporations. As long as its purpose isn’t prohibited by law, any type of organization can be formed as a nonprofit corporation.

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Certificate of Formation

In Texas, nonprofit corporations are created by submitting a Certificate of Formation – previously known as Articles of Incorporation – to the Secretary of State. The Certificate will include information such as the name of the corporation, its address, its registered agent and whether the corporation has members. Nonprofit corporations that operate in Texas are also required to file periodic reports that include the name and address of the corporation’s registered agent. This registered agent is the person to whom the state will send notices regarding the corporation’s status. If anyone needs to serve the corporation with legal paperwork, they must use the registered agent as the corporation’s point of contact.

Board of Directors

A Board of Directors is the group that manages the affairs of the corporation, though Texas allows an organization’s members to manage the corporation instead of a board of directors. Initially, these board members will be named in the Certificate of Formation. Once the corporation’s Certificate of Formation is filed, the board members or members will meet to adopt bylaws and choose officers for the corporation.

Bylaws

Bylaws are rules adopted by the corporation to guide the corporation’s actions. For example, the bylaws may describe when the members or board meets and who has voting rights. Texas law requires a nonprofit corporation to adopt bylaws, initially approved by the board of directors or members. The board of directors can change the bylaws after they are initially adopted unless the members are given this authority exclusively.

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References

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Utah Nonprofit Corporation Act

The Utah Revised Nonprofit Corporation Act outlines the process for creating, operating and dissolving a nonprofit corporation in Utah. A nonprofit created under Utah law may qualify for tax-exempt status under Internal Revenue Service rules and regulations. Incorporating as a nonprofit corporation in Utah can also provide numerous benefits under state law. Common types of business activities performed as nonprofits in Utah include local charities, charter schools and low-income housing corporations.

Non-Profit Vs. Incorporation

When we think of corporations, the image that comes to mind is usually a for-profit venture. However, nonprofits can also benefit from incorporation, particularly if the organization is interested in pursuing federal tax exempt status. Yet, the formalities of being incorporated under state law may not be desirable for all organizations operating in the public interest. Smaller nonprofits that receive limited contributions may choose to remain an unincorporated association. Knowing the benefits and drawbacks to incorporation can help you decide whether it makes sense to pursue a corporate structure for your nonprofit.

The Difference Between Non-Profit Corporations & For-Profit Corporations

Not all corporations are created equal. For-profit corporations include large publicly traded corporations, such as Microsoft, and tiny entities, such as mom-and-pop stores, which are rarely publicly traded. On the other hand, non-profits include super-PACs, charities, churches, and professional organizations. Both state and federal laws make sharp distinctions between the two, as there are important organizational differences and tax implications.

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