How to start a Texas nonprofit

Start by doing research. Is your nonprofit serving a mission in the community? And do you have the means to maintain it? Then make your case: write your mission statement, think about a name, and select your directors carefully. After that, all there’s left to do is file. 

Advantages and disadvantages of having a Texas nonprofit organization

A nonprofit is an entity or association created to promote and maintain the well-being and greater good of a community, in which profits (or surplus) are directed towards the business and mission rather than divided among the owners and shareholders. Here are the pros and cons of having one in Texas:
 

PROS	CONS
Only your corporation's assets or property are vulnerable to your nonprofit's lawsuits or creditor claims. The personal property of trustees, officers, and managers is not at risk.	Planning a nonprofit requires significant time and effort. If control, autonomy, and independence in running your organization are important to you, nonprofit status may not be right for you.

How to form a nonprofit in Texas

1. Developing a business plan for your Texas nonprofit

• Define the purpose and goals of the organization.
• Research the issues and determine what resources you have and need.
• Establish your priorities.
• Market your idea to possible volunteers and board members.
• Create a budget and timeline.

2. Writing a mission statement 

A mission statement clarifies your goals and explains how you plan to meet them. As a guideline, describe what, where, when, and how your nonprofit's purpose will be met, as well as who is going to help your nonprofit meet it. It may take a few tries to narrow your ambitions down into a workable plan.

Although you're creating a nonprofit because you want to give back to your community, you still have to meet certain requirements to protect yourself and to ensure that you achieve your organization's goals. When you create a mission statement, you can explain your organization's purpose. Consider what problem or issue your organization wants to address, then focus your statement on including the efforts and values that will guide your nonprofit to these goals.

3. Choosing a unique name 

Your nonprofit's name must be distinguishable from existing names registered with the Texas Secretary of State. This means it shouldn't be the same as or too similar to another organization's name. The name should also not be misleading to the public – it must accurately reflect the nature and purpose of your organization.

4. Filing your Certificate of Formation in the state of Texas

This is the legal document that brings the business to life. It includes important information like the nature of the company and the location of the corporate headquarters. Once accepted, the corporation becomes its own legal entity.
 

Other forms and requirements for Texas nonprofits: If your nonprofit was initially registered in a state other than Texas, file a Nonprofit Corporation Application for Registration using Form 302. File a Consent of Registered Agent to Appointment, using Form 401-A. If you want to reserve a business name, file a Name Reservation, using Form 501. If your nonprofit was initially registered in a state other than Texas, file a Name Registration, using form 502. If your nonprofit will use an assumed name, file Assumed Name Form 503. File a nonprofit periodic report, or informational report, if requested, using Form 802. The Secretary of State can't request an informational report more than once every four years. If an informational report is requested, you must file it within 30 days, as failure to do so may result in forfeiture of your nonprofit status and possibly involuntary termination. To obtain status as a 501(c)(3) corporation with exemption from federal income taxes, file Form 1023, Application for Recognition of Exemption with the IRS. To retain your tax-exempt status, file Form 990-N, Form 990-EZ, or Form 990 with the IRS, depending on your nonprofit's annual gross income. Meet the requirements of Texas Comptroller of Public Accounts to obtain tax-exempt status. The Secretary of State's Form 202 meets minimum state law requirements for tax-exempt status.

5. Applying for grants and loans in Texas 

Grants and loans from federal, state, and private sources are a major source of funding for Texas nonprofits. A not-for-profit corporation is responsible for complying with grant requirements and keeping appropriate records. It's important for nonprofits to keep money received from grants separate and apart from the nonprofit's general fund. A good reputation in administering grant monies helps nonprofits obtain more funding from these sources. 

What to do after forming a nonprofit organization in Texas

After forming your Texas nonprofit organization, you must follow specific guidelines to retain your status:

• Keep detailed records of all sources of income.
• File annual reports.
• Keep unrelated activities separate from your nonprofit, and pay separate taxes on them. Unrelated activities could jeopardize your nonprofit status if they make up a substantial portion of your business.
• Ensure that the time and resources spent on your nonprofit are related to the organization's exempt status.
• Maintain detailed records of corporate meetings.
• Make sure that if and when your nonprofit dissolves, its assets are distributed to another tax-exempt group.
• Do not make loans to any of your directors or officers.
• Do not issue shares of stock or pay out dividends or other shares of income to members, directors, or officers.

Texas nonprofit resources

• North Texas Nonprofit Resources: "Grant Central Station" has provided grant writing, fundraising, and development consulting services to North Texas nonprofits since 2004.

Still have questions? Learn more about how to register your own nonprofit with Rocket Lawyer and get started today!
 

Key takeaways Starting a nonprofit takes planning, like creating a mission statement, picking a name, and choosing responsible directors to lead the group. There are good things about having a nonprofit in Texas, like tax breaks and protection from personal lawsuits, but it also comes with extra paperwork and public financial records. After forming a Texas nonprofit, it’s important to stay organized, follow state laws, and stay focused on helping the community to keep your nonprofit status.

Additional resources

Learning how to enforce a contract is just one step. Explore these additional topics to learn more and take the next steps.

• What is a nonprofit organization?
• How to start a nonprofit organization
• How are nonprofits taxed?
• How to get 501(c)(3) tax-exempt status
• How to register a nonprofit by state