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.

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.

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.

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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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