 What
is a nonprofit corporation?
 Forming an organization to serve an unmet need
 Benefits and limitations of a nonprofit corporation
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A
corporation in which no part of its income is
distributed to a member, director or officer of the
corporation
 A nonprofit must qualify for federal Tax-Exemption
under section 501(c)(3) of the Internal Revenue Code
 It must be organized and operated exclusively for
one or more of the following purposes: religious,
charitable, scientific, testing for public safety, literary,
educational, or prevention of cruelty to children or
animals
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 What
is the primary purpose of the nonprofit?
 Does the community have an unmet need?
 What target audience will be served?
 What are competing organizations already
providing?
 Is there a strong commitment from organizers and
participants to build the nonprofit?
 Is there an adequate source of funds to support the
organization?
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 Benefits:
o Members and directors are shielded from personal liability
o Organization can be eligible to receive government or
community development loans and grants
 Limitations:
o Nonprofit cannot be organized for the purpose of financial
profit for its members or directors
o Nonprofits are absolutely precluded from engaging in partisan
political campaign activities and their lobbying is heavily
regulated
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 Charitable
purposes are broadly defined as services
that are beneficial to the public’s interest
 The organization must serve an open class of people
and not limit its activities to specific individuals
 Examples: Providing food for homeless, relief of the
poor, distressed, or underprivileged, advancement of
education, formation or maintenance of public
buildings, promoting the development of arts
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 Educational
purposes include instruction of the
public on subjects useful to individuals for the
benefit of the community and for self-development
 Examples: Publishing public interest educational
materials that do not conflict with certain rules and
regulations with the Internal Revenue Service;
conducting public discussion groups, forums, panels,
lectures, or workshops; serving educational
institutions, such as a college bookstore, alumni
association, or athletic organizations
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 Publishing
groups can obtain nonprofit status if they do
not target their activities to commercial markets and
sell the publications
 Examples: Publishing material on environmental
preservation, highway safety, or drug and alcohol
abuse information
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 Characterized
by community based leadership and its
work primarily in the development of affordable
housing, job training, and small business assistance
 There are four independent bases for federal taxexemption for a nonprofit community development
organization:
o Relieving the poor and distressed
o Combating community deterioration
o Eliminating discrimination
o Lessening the burdens of government
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 For-profit
Corporation: Profits are controlled and
distributed to shareholders
 Unincorporated Association: Lacks the strict
organizational, reporting, and registration
requirements imposed on nonprofit corporations
 Fiscal Sponsorship: Occurs when a group partners with
an existing organization to conduct a certain activity or
program
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 Step
1: Check availability of name with the Texas
Secretary of State in Austin at
www.sos.state.tx.us/corp/forms_boc.shtml
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 Step
2: Prepare Certificate of Formation in the
document filed with the Secretary of State to form the
nonprofit corporation. Certificate of formation must
include:
o Purpose Clause - Defines the charitable purpose of the
corporation
o IRS Language - Special clauses relating to the dissolution of
the nonprofit, “inurement”, and a general statement that the
corporation will follow nonprofit requirements
o Initial Directors – Names the directors constituting the initial
board, with a minimum of 3 directors
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 Step
2: Prepare Certificate of Formation in the
document filed with the Secretary of State to form the
nonprofit corporation
o Incorporator – The person who signs the certificate of
formation
o Registered Agent and Address – The agent is the incorporator
or the officer of the corporation. The registered office
generally cannot be a post office box
o Members - The nonprofit corporation needs to be governed
by voting members, board of directors, or a combination of
the two
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 Step
3: File the certificate with the Secretary of State
o The incorporator needs to submit the completed Certificate
of Formation in duplicate together with a $25 filing fee.
This is mailed to P.O. Box 13697, Austin, TX 78711-3697.
o The incorporator needs to order a “certified copy” of the
certificate of formation to submit with the federal taxexemption paperwork
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 Step
4: Prepare Bylaws
o Meetings
o Leadership
o Provisions for Membership
o Quorum
o Controls
o Committees
o Fiscal Year
o Bylaw Amendments
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 Step
5: Meeting of initial directors to adopt bylaws
and transact business
o Adopt Bylaws
o Elect Officers
o 501(c)(3) Application
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 Step
6: Apply for a federal employer identification
number
o In order to be tax-exempt, an organization must obtain a
Federal Employer Identification Number and is needed
whether or not the organization has members
o The organization should complete an IRS form SS-4,
available on the IRS website at www.irg.gov and place the
completed form in the organization’s minute book
o When the information is completed the EIN is obtainable
easily online at
https://sa2.www4.irs.gov/modiein/individual/index.jsp
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 Step
7: Prepare federal tax-exemption application
o Must file a Form 1023 with the IRS at www.irs.gov. The site contains
step by step directions of what a Form 1023 entitles
o The following must be included in the Form 1023:
 Certified copy of the certificate of formation
 Copy of bylaws
 Financial statements including: Revenue and Expense Statement for
current year, and three preceding fiscal years; proposed budgets for
the next two fiscal years with anticipated financial support
 Narrative description of past, present and future planned activities
with an emphasis on broad public benefit of the organization’s
activities
 Annual accounting period (fiscal year)
 Employer Identification Number (EIN)
 Statement as to whether the organization is claiming status as a
private foundation or public charity
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 Step
8: Apply for sales, franchise and hotel taxexemption from Texas comptroller
◦ To apply for state exemption based on the federal exempt
status, complete Form AP-204 located at
www.window.state.tx.us/taxinfo/exempt/index.html
◦ Include a copy of the exemption determination letter issued
by the IRS, including any addenda
◦ The organization name on the IRS letter must match the
organization’s legal name as listed in the certificate of
formation
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 Step
9: Apply for property tax-exemptions from
the local tax appraisal district
◦ To receive the exemption, an organization should
submit Form 50-299 at
www.window.state.tx.us/taxinfo/taxforms/02form06.html
◦ Also include a copy of the comptroller determination
to their local appraisal district
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A
nonprofit corporation must:
o Hold an annual meeting
o Prepare alphabetical list of names of all voting members
o Refrain from making a loan to a director.
o Maintain current and accurate financial records
o Prepare annual reports in accordance with accounting
standards
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A
nonprofit corporation must also:
o Keep records, books and annual reports at its principle
office for three years for public inspection
o Keep current registered agent on record
o Submit IRS Form 990 every tax year
o Submit Secretary of State Form 802-General Information
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 The
Board of Directors
 Private Watchdog Groups (National Charities
Information Bureau and the American Institute of
Philanthropy)
 The State (The Attorney General’s Office)
 IRS
 Individual Donors and Members
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A
lawyer is not required, but may help you by avoiding
unnecessary mistakes which might jeopardize your
ability to incorporate or gain tax-exempt status
 Lawyer will also advise on certain corporate
responsibilities
 Lawyer may also be able to recommend an accountant
to comply with ongoing federal and state tax,
bookkeeping, and reporting obligations
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 The
University of Texas Pan American
o 1201 W University Dr, ITT 1.404R
o Edinburg TX, 78539
 (956)
292-7566
 sbnrc@utpa.edu
 Hours of Operation:
o Mon – Fri
o 8 am to 5 pm
 http://ce.utpa.edu/sbnrc
 Join
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