Starting a 501(c)(3) Nonprofit in Texas is Easy
To start a 501(c)(3) tax exempt Texas nonprofit organization, you must first start a nonprofit corporation according to the rules of the state and then apply to the Internal Revenue Service (IRS) for 501(c)(3) tax exemption.
Learn more about 501(c)(3) eligibility in our What is a 501(c)(3) guide.
Step 1: Name Your Texas Nonprofit
Choosing a name for your organization is the first and most important step in starting your nonprofit corporation. Be sure to choose a name that complies with Texas naming requirements and is easily searchable by potential members and donors.
To learn more, read our How to Name a Texas Nonprofit guide.
1. Follow the naming guidelines:
- The name you pick for your organization must not include:
- Words related to the United States Olympic Committee such as: 'Olympic', 'Olympiad', or 'Citis Altius Fortius'.
- Terms associated with financial institutions such as 'Bank', 'band and trust', or 'trust company'
- Any words or terms that could be considered grossly offensive
- The name need not include an organizational designation such as "Inc.", "Ltd.", "Incorporated", or "Company"
You can read the Secretary of State's official guidelines for the complete rules on naming a Texas-based organization.
2. Is the name available in Texas? Make sure the name you want isn't already taken by doing a name search on the State of Texas Website.
3. Is the URL available? We recommend that you check to see if your business name is available as a web domain. Even if you don't plan to make a business website today, you may want to buy the URL in order to prevent others from acquiring it.
Step 2: Choose a Registered Agent in Texas
Your nonprofit is required to nominate a Texas registered agent for your organization.
What is a Registered Agent? A registered agent is an individual or business entity responsible for receiving important legal documents on behalf of your business. Think of your registered agent as your business' point of contact with the state.
Who can be a Registered Agent? A registered agent must be a resident of Texas or a corporation, such as a registered agent service, authorized to transact business in Texas. You may elect an individual within the company including yourself.
Need help choosing a registered agent? Check out our complete guide on How to Choose a Registered Agent for your Texas Nonprofit.
Step 3: Select your Directors & Officers
The directors of an organization come together to form a board of directors. This board of directors is responsible for overseeing the operations of the nonprofit.
The president, secretary, and other members of nonprofit who have individual responsibilities and authorities are known as officers.
Note: An officer is not a board member.
To be eligible for 501(c)(3) status, the organization structure of your Texas nonprofit corporation MUST include:
- At least 3 directors not related to each other
- A president
- A secretary
NOTE: The president and secretary positions cannot be held by the same person.
To learn more about electing a Texas nonprofit board of directors, read our full guide.
Step 4: Adopt Bylaws & Conflict of Interest Policy
To be eligible to apply for 501(c)(3) status, your nonprofit is required to have the following two documents:
- Conflict of interest policy
What are Bylaws? Bylaws are the rules outlining the operating procedures of the nonprofit.
What is a Conflict of Interest Policy? A Conflict of Interest Policy is the collection of rules put in place to ensure that any decisions made by the board of directors or the officers benefits the nonprofit and not individual members.
NOTE: The bylaws and conflict of interest policy are important for nonprofit management and must be adopted by the nonprofit during its first organizational meeting where the directors and officers are officially appointed.
Step 5: File the Texas Certificate of Formation
To register your nonprofit, you will need to file Form 202 - Certificate of Formation for the State of Texas.
To ensure that your nonprofit is eligible to apply for 501(c)(3) status, in the Certificate of Formation you must explicitly state the following:
In order to qualify for 501(c)(3) status, the organization’s purpose must explicitly be limited to one or more of the following:
Charitable, Religious, Scientific, Educational, Literary, Fostering national/international amateur sports competition, Preventing cruelty to animals/children, Testing for public safety
You must explicitly state what the assets of the organization will be used for, and what will happen to the assets if the organization is dissolved.
To be eligible for 501(c)(3) status, the assets of your organization must only ever be used for purposes approved under section 501(c)(3).
Section 5 of this sample IRS document provides an example of these provisions required for 501(c)(3) eligibility.
Option 1: Submit the Certificate of Formation through the Secretary of State's online portal.
- OR -
Option 2: File by mail or in-person.
State Filing Cost: $25
Secretary of State
P.O. Box 13697
Austin, TX 78711-3697
James Earl Rudder Office Building
1019 Brazos St
Austin, TX 78701
Step 6: Get an EIN
What is an EIN? The Employer Identification Number (EIN), or Federal Tax Identification Number, is used to identify a business entity such as your nonprofit corporation. It is essentially a social security number for your organization.
Why do I need an EIN? An EIN is required for the following:
- To open a business bank account for the company
- For Federal and State tax purposes
- To hire employees for the company
How do I get an EIN? An EIN is obtained from the IRS (free of charge) by the business owner after forming the company. This can be done online or by mail. Check out our EIN Lookup guide for more information.
Step 7: Apply for Tax Exemption
Applying for Federal Tax Exemption Status: under section 501(c)(3)
Before a nonprofit can apply for 501(c)(3) tax exempt status with the Internal Revenue Service it must,
- Elect at least 3 directors not related to each other
- File the Certificate of Formation with the required provisions (As covered in Step 5)
- Adopt the bylaws and conflict of interest policy
- Have an EIN number
Once these four conditions have been met your nonprofit can apply for tax exempt status under section 501(c)(3) with the Internal Revenue Service (IRS) by filing Form-1023 online.
If your application is approved, the IRS will send you a determination letter stating that your organization is exempt from federal taxes under section 501(c)(3).
FAQ: Starting Your Nonprofit
When should an organization apply for federal tax exemption?
Form 1023 must be filed within 27 months from the end of the first month your organization was created.
How long will it take for the IRS to process Form 1023/1023-EZ?
Soon after sending your application you should receive an acknowledgment of receipt of your application.
If your application is simple and complete, IRS will send your determination letter within 180 days for Form 1023
If you have not heard from them by that time you can call (877) 829-5500 to inquire about your application.
Applying for State Tax Exemption Status
Once you have received your 501(c)(3) determination letter from the IRS, you can file for Texas income tax exemption with the Texas comptroller using Form AP-204.
To file to obtain sales tax exemption file Form AP-205, Application for Exemption - Charitable Organizations with Texas comptroller.
Important Steps After Forming a Nonprofit
1. Opening a business bank account:
- Separates your personal assets from your company's assets, which is necessary for personal asset protection.
- Makes accounting and tax filing easier.
To open a bank account for your nonprofit corporation you will typically need the following:
- The EIN for the nonprofit
- A copy of the nonprofit’s bylaws
- A copy of the Certificate of Formation
Read our Best Small Business Banks review to find the right bank for your nonprofit’s needs.
2. Getting a business credit card:
- Helps you separate personal and business expenses.
- Builds your company's credit history, which can be useful to raise capital later on.
3. Hiring a business accountant:
- Prevents your business from overpaying on taxes while helping you avoid penalties, fines, and other costly tax errors
- Makes bookkeeping and payroll easier, leaving you with more time to focus on your growing business
- Helps effectively manage your business funding and discover areas of unforeseen loss or extra profit
For more business accounting tools, read our guide to the best business accounting software.
Business insurance helps you manage risks and focus on growing your business.
The most common types of business insurance are:
- General Liability Insurance: A broad insurance policy that protects your business from lawsuits. Most small businesses get general liability insurance.
- Professional Liability Insurance: A business insurance for professional service providers (consultants, accountants, etc.) that covers against claims of malpractice and other business errors.
- Workers' Compensation Insurance: A type of insurance that provides coverage for employees’ job-related illnesses, injuries, or deaths.
Build a Business Website
Creating a website is a big step in legitimizing your business. As a nonprofit, your website will be the primary way to share your organization’s mission and story to supporters. Your website should be a great resource for anyone interested in your nonprofit’s upcoming events, goals, and news to help advance your cause.
Some may fear that creating a business website is out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Properly Sign Legal Documents
Improperly signing a document as yourself and not as a representative of the business can leave you open to personal liability.
When signing legal documents on behalf of your nonprofit, you could follow this formula to avoid problems:
- Formal name of your organization
- Your signature
- Your name
- Your position in the business as its authorized representative
See the image below for an example:
This ensures that you are signing on behalf of your nonprofit and not as yourself.
State of Texas Quick Links
- IRS - Information for Charities & Nonprofits
- IRS - Required Provisions for Organizing Documents
- IRS - 990 Series for Tax-Exempt Organizations
- IRS - Applying for Tax-Exempt Status
- IRS - 501(c)(3) Compliance Guide
- Small Business Administration - License and Permits
- Texas Comptroller - Tax Exemption Applications
- Texas Secretary of State - Nonprofit Organizations