A 501(c)(3) nonprofit is exempt from federal income taxes and includes tax-deductible contributions. To qualify, your nonprofit must be established exclusively with the purpose of religion, charity, science, testing for public safety, literature, education, or the prevention of cruelty to children or animals. A nonprofit corporation is prohibited by Texas law to distribute any amount of income to any person involved in the corporation.
Before beginning the process, you may want to consider–what is your primary intent? Are there adequate resources to support your organization? Are there organizations already providing similar resources to your given community?
If you are unsure if you meet the requirements, you should assess filing for an unincorporated association, as there are no formal requirements. A fiscal sponsorship may be more convenient, where an existing organization partners with an established tax-exempt nonprofit organization. What is involved in business formation?
If you are confident in proceeding, there is a specific procedure to follow. You must first check the availability of name to ensure that it is “distinguishable” from other organizations and gain approval from specific entities if needed. For example, you must obtain prior approval from the Texas Higher Education Coordinating Board to use the terms college, university, seminary, school of medicine, school of law, and terms with similar meaning.
Preparing and filing your Certificate of Formation will begin the process. Your Certificate must include a Purpose Clause, Dissolution Clause, Inurement Clause, and an IRS clause. The board of directors should simultaneously adopt bylaws regarding the structure of the organization. Although some provisions are mandated by state laws, Texas laws are used by default if the certificate or bylaws do not pertain.
Once the bylaws have been implemented, there is a meeting of initial directors to adopt bylaws, elect officers, and set up organization details, e.g., to appoint members of committees, select a bank and authorize an account, or to authorize the filing of tax-exemption applications.
An organization must also apply for a Federal Employer Identification Number (EIN) to serve as a form of identification on federal tax files. You should then complete an IRS application within 27 months—any later could result in failure to qualify for exemption.
The attorneys at The Weaver Law Firm are experienced business attorneys. If you would like the assistance of an experienced attorney, feel free to contact us at 713-572-4900.
