A non-profit organization can be defined as those organizations whose sole purpose of formation is not to make a profit. These organizations are more interested in causes that benefit the public. They use their income to achieve this purpose.
Please note: That their purpose is not to make a profit doesn’t mean that they do not generate profits.
If your organization is engaged primarily in educational, scientific, religious or charitable, you probably want to form a nonprofit corporation to enjoy liability protection and tax benefits that this entity provided.
Starting a non-profit organization.
Registering your company as a non-profit organization will establish legal protections to keep you and your director’s personal assets separate from the corporation’s liabilities. There are many advantages of forming a non-profit organization.
Generally, non-profit companies enjoy the following benefits:
Liability protection: The directors and officers are not personally liable for the debts and losses of the organization.
Durability: The company continues even if the director dies or leaves the company.
Grants: Non-profit organizations are eligible for certain public and private donations.
While non-profit organizations operate by different state laws than for-profit companies. Generally, their formation processes are very similar. Just like regular corporations, nonprofit organizations must file articles of incorporation with the state in which they wish to operate.
The IRS requires that non-profit organizations seeking tax exempt status should file Form 1023. Several states also require non-profit organizations wishing to operate in their states to apply for tax exempt in the state.
The non-profit status usually sought after by corporations is the IRS 501(c) tax-exempt status. Organizations eligible for 501(c) enjoy the following benefits:
Tax-free status: Eligible non-profit organizations may apply for the federal and state tax-exempt status.
Credibility: Potential donors are more inclined to donate to a corporation that has the official nonprofit status.
Tax-deductible donations. Donations made by individuals to nonprofit corporations may be tax deductible.
How to incorporate a nonprofit company in Texas.
Name availability: Check if the legal name of your nonprofit company is in conflict with an already registered company.
Appoint incorporators and directors: You need to recruit incorporators/organizers, their duty is to execute the certification of formation and file it to the state. Texas requires that you must have at least one incorporator/organizer.
Recruit a registered agent: This agent must be registered in the state of Texas. The agent acts as a legal appointee whose duty is to receive and send out notices for your nonprofit.
Submit Texas nonprofit certificate of formation: To create a nonprofit corporation you have to file a certificate of formation. This form can be obtained from Texas secretary of state website or office.
Create organization records: You need to generate bylaws, meeting minutes and other official records like EIN.
Arrange meeting of the directors: Hold your first meeting of directors. On this meeting, approve the bylaws, elect more directors, approve the opening of bank account and appoint officers.
Apply for federal employer identification number (EIN): The corporation must obtain the EIN from IRS.
Apply for Texas state tax identification number.
Apply for 501(c): Applying for 501(c) is the most complex and time-consuming process is incorporating a nonprofit. It is also the most important because tax-exemption is what enables your nonprofit to raise funds and apply for grants.
Apply for Texas tax exemption: Texas state laws allows certain types of corporations to be exempted from paying tax.
Register for charitable fundraising: You need to register in the state where you wish to solicit for donations.
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