Most nonprofits in Texas are formed as Nonprofit Corporations, which provide legal protections for founders and members. Other structures include unincorporated associations and nonprofit LLCs, but these are less common.

B. File a Certificate of Formation with the Texas Secretary of State

• Name the organization (must be unique and include “Inc.,” “Association,” or “Foundation” if incorporated).
• State the purpose (must align with IRS tax-exempt categories).
• List a registered agent in Texas to receive legal notices.
• Appoint directors (at least three) to oversee governance.
• Include a dissolution clause stating that assets will be distributed to another nonprofit upon dissolution.

Cost: $25 filing fee with the Texas Secretary of State.

C. Draft Bylaws & Governance Policies

Bylaws define the rules for operation, including board structure, voting procedures, and financial oversight. Additional policies (e.g., conflict of interest policy) are required for IRS tax exemption.

D. Obtain an EIN from the IRS

An Employer Identification Number (EIN) is required for tax purposes and banking. It is free and can be obtained online from the IRS.

• File IRS Form 1023 (for large organizations) or Form 1023-EZ (for small nonprofits with expected revenue under $50,000).
• Provide a detailed mission statement, financial projections, and governance policies.
• If approved, donations become tax-deductible and the nonprofit is exempt from federal income taxes.

Processing Time: 1-6 months depending on the complexity of the application.

• Franchise Tax Exemption – Exempts the nonprofit from business taxes.
• Sales Tax Exemption – Allows the organization to make tax-free purchases for nonprofit activities.
• Property Tax Exemption – Available for nonprofits that own property used exclusively for charitable purposes.

File Form AP-204 with the Texas Comptroller for sales tax exemption.

• Form 990, 990-EZ, or 990-N must be filed annually to maintain tax-exempt status.
• Failing to file for three consecutive years results in automatic revocation of 501(c)(3) status.

B. Texas State Filings

• Annual Report with the Texas Secretary of State (if required by the organization’s structure).
• Charitable Solicitation Registration (only required in certain counties or for specific fundraising activities).

C. Employment & Payroll Compliance

• If the nonprofit hires employees, it must comply with state and federal employment laws (e.g., payroll taxes, workers’ compensation).
• Volunteers are not employees, but proper agreements should be in place to protect the organization.

Texas nonprofits must operate for the public benefit and follow governance rules:

• Board of Directors – At least three members required, responsible for oversight.
• Conflict of Interest Policy – Prevents board members from benefiting financially from nonprofit activities.
• Financial Transparency – Public disclosure of financial statements and IRS filings.

The board must act in the organization’s best interest to avoid legal liability.

• Donor Acknowledgment – Donations over $250 require a written acknowledgment letter for tax purposes.
• Charitable Raffles & Gaming – Requires compliance with Texas gambling laws.
• Grant Reporting – Many foundations require specific financial tracking for awarded grants

We work with clients who wish to form the following types of nonprofits:

• 501(c)(3): Churches, religious organizations, scientific organizations, and charitable nonprofits.
• 501(c)(4): Social welfare organizations and employee associations (e.g., neighborhood watch and lobbying organizations).
• 501(c)(5): Any type of agricultural or horticultural organization.
• 501(c)(6): Real estate boards, business leagues, and other business network organizations.
• 501(c)(7): Any type of social or recreational club.

• Assist with formation & 501(c) application.
• Ensure legal compliance with state and federal laws.
• Provide governance & fundraising guidance.
• Help resolve disputes or legal challenges.