How to Start a 501(c)(3) in Texas

By Michelle Kaminsky, J.D.

How to Start a 501(c)(3) in Texas

By Michelle Kaminsky, J.D.

Starting a 501(c)(3) in Texas requires your nonprofit corporation to meet certain requirements of both the Texas Business Organizations Code and the Internal Revenue Code.

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In Texas, a nonprofit corporation does not distribute any of its income to members, directors, or officers of the corporation, and the corporation may be organized for any lawful purpose. To be eligible for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code, the nonprofit must be organized and operated for specific purposes, which include religious, charitable, educational, scientific, or educational.

Step 1: Make sure your chosen name is available.

The Texas Secretary of State will reject any registration submitted with a company name that is the same as, or deceptively similar to, a name already in use by another company registered in Texas.

SOSDirect allows you to begin the process of making sure that your name is available and reserving it online, or you may call the Secretary of State's office to request a preliminary name check. Both options require a small fee.

Step 2: Choose directors.

Unless your nonprofit is managed by members, Texas law requires at least three directors on its board, and you will need to list them on your filing documents.

Step 3: Prepare a nonprofit corporation certificate of formation.

The certificate of formation is a public document that identifies the purpose of the nonprofit charitable organization and those responsible for its management. In Texas, you may use Form 202, a Certificate of Formation - Nonprofit Corporation, which includes all of the basic information you must supply, such as the name and address of the corporation, as well as its registered agent and the purpose for which the nonprofit is being formed.

Sections 3.005 and 3.009 of the Texas Business Organizations Code provide more detail on what you must include on your certificate of formation.

Step 4: Place Section 501(c)(3) required language in the certificate of formation.

The Texas form does not include the specific language necessary to qualify for tax-exempt status from the IRS, so you will need to add it.

This required language includes, but is not limited to, the organization's purpose, stated so that it falls into one of the IRS tax-exempt categories, as well as a statement that any assets remaining after dissolution of the nonprofit shall be distributed to other 501(c)(3) organizations.

IRS Publication 557, Tax-Exempt Status for Your Organization, can provide more guidance on the language you'll need to include.

Step 5: File the certificate of formation.

The incorporator must submit the completed certificate of formation in duplicate, by mail or fax, to the Secretary of State with the required filing fee, which is currently $25. You will need a certified copy of the certificate of formation to submit to the IRS, along with your application for a 501(c)(3) federal tax exemption.

Step 6: Prepare bylaws.

While preparing the certificate of formation or soon thereafter, the board of directors should prepare and adopt bylaws for the nonprofit corporation that comply with Texas law. The bylaws set out the rules that govern the structure, the management, and the operations of the corporation, including rules for meetings and for electing officers and directors.

You don't have to file the bylaws with the state, but a signed copy of the bylaws adopted by the board of directors is required with the nonprofit corporation's application for a 501(c)(3) federal tax exemption.

Step 7: Hold an organizational meeting of the board of directors.

The incorporator or a majority of the board of directors should call a meeting soon after the Secretary of State approves the certificate of formation. In addition to adopting the bylaws, the corporation must elect a president and a secretary, and the board of directors should vote to authorize the preparation and filing of an Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code, IRS Form 1023.

Step 8: Apply for a federal employer identification number (EIN).

The IRS does not issue 501(c)(3) tax exemptions to organizations that do not have EINs. You may request an EIN through IRS Form SS-4.

Step 9: Apply for tax-exempt status with the IRS.

Prepare and file Form 1023 with the IRS to request a Section 501(c)(3) tax exemption. Smaller nonprofits—those with total assets of less than $250,000 and projected annual gross receipts of less than $50,000—may be eligible to file the EZ version of the form, which is much shorter and far less complicated.

Step 10: Obtain state and local tax exemptions.

For state sales, franchise, and hotel occupancy tax exemptions, you must submit Form AP-204 to the Texas Comptroller of Public Accounts (TCPA) after you receive your 501(c)(3) federal tax exemption. You will need to include the IRS letter affirming your federal tax-exempt status with your application.

You may also be eligible for local property tax exemptions. You can find further information on this from the TCPA and from the county or municipality in which the nonprofit corporation is located. You will need to file Form 50-299 with the local property tax appraisal district.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.