Nonprofit Formation & Development Attorney in Houston, Texas

Thinking of starting a nonprofit? Nonprofits can operate tax-free so long as they adhere to certain standards and provide benefits to the general public. Examples include charitable, educational, literary, religious, and scientific organizations.

Say you want to establish a charitable organization to help the homeless in your community, whether through food donations, shelter, or health-related services. You can organize as a corporation or a generic business entity with tax-exempt status.

You can also choose between being a public foundation – seeking funds from the general public and government sources – or a private foundation, which is funded by your own money or from funds from a few individuals or families.

Regardless of the format you choose, you can apply for what is known as 501(c)(3) status with the Internal Revenue Service (IRS) and be allowed to operate without paying taxes, provided you don’t go outside the requirements set forth for nonprofits.

If you’re considering founding a nonprofit in or around Houston, Texas, contact me, Deborah Hubbs, Attorney & Counselor at Law, PLLC. I have over 20 years of experience in helping businesses, both for-profit and nonprofit, get started, operate smoothly, and comply with all federal and state laws and regulations. My firm also proudly serves clients throughout Harris County, Montgomery County, and Fort Bend County, Texas.

Starting a Nonprofit

Although not everyone or every group starts a nonprofit by incorporating, there are advantages to doing so, including providing additional protections against lawsuits and judgments falling down into your lap. So, if you want to incorporate a nonprofit – which is not required – here are the steps, some of which will apply even if you don’t incorporate.

You first have to choose a unique name, and if it’s a fictitious name, you must make sure no one else has applied for it. If it’s just your name, such as the Jones Family Foundation Inc., you still have to make sure no one else is using it to avoid confusion and legal considerations.

The next step is to file articles of incorporation with your state, which must include specific language spelling out the charitable or nonprofit purpose of the organization. In Texas, a nonprofit corporation is created by filing a certificate of formation with the secretary of state in accordance with the Texas Business Organizations Code (BOC). 

The next step is to apply for nonprofit tax-exempt status 501(c)(3) with the IRS. This is done by completing the IRS Form 1023, “Application for Recognition of Exemption.” There is also a simplified version that can be completed online called Form 1023-EZ, “Streamlined Application for Recognition of Exemption.” Not all nonprofits, however, qualify for the streamlined application. Check the IRS website for details.

The next step for an incorporated nonprofit is to create bylaws, which set the standards for electing directors and officers, holding meetings, voting on issues, and more. At the first meeting of the board of directors, they must adopt the bylaws.

The Texas BOC requires a nonprofit corporation to have at least three directors, one president, and one secretary. The same person cannot be both the president and secretary. The first meeting of the board, in addition to adopting the bylaws, must appoint officers of the corporation. Minutes must be taken and filed for public review.

Finally, if any licenses or permits are needed, those must be applied for and approved before the corporation can begin operating as a nonprofit entity.

Of course, your nonprofit does not need to be organized as a corporation, but it still must qualify under IRS Form 1023 or the streamlined online version. Texas does not require a nonprofit to file, stating: “An unincorporated nonprofit association may, but is not required to, file with the secretary of state a statement appointing an agent authorized to receive service of process on behalf of the nonprofit association.”

How Does a Church Differ From Other Nonprofits?

Because the First Amendment guarantees freedom of religion, churches do not have to apply for tax-exempt status to be exempt, but to be a church, the entity must exist as a place of worship where people congregate in the name of their religion. What are called “integrated auxiliaries” of churches, such as seminaries, also qualify.

Though churches do not need to apply to the IRS for tax-exempt status, many do as a means to show their members and donors that their donations are officially tax deductible.

However, churches can be subject to taxes if some of their activities fall under the IRS category of “unrelated business income tax” (UBIT), meaning they have been engaged in income-producing activities such as bingo games, thrift sales, or low-cost giveaways, among other activities.

What Nonprofits Can’t Do

A nonprofit breaches its status if it gets involved in political activities that promote or oppose a particular candidate for office. If the organization engages in what the IRS calls “political campaign activity,” it can lose its nonprofit status. This generally means promoting or opposing the election of an individual. 

Other political activities are permissible, such as forums on political issues. Even lobbying for or against an issue before legislators is also generally permissible.