How to Start a Nonprofit in Texas
Understand Texas Nonprofit Tax Exemptions
Texas nonprofits can qualify for franchise tax exemptions under multiple statutory pathways. Your organization's exemption depends on its federal tax status and organizational purpose. Understanding which exemptions apply to your nonprofit prevents costly tax liability and ensures compliance with Texas Tax Code Chapter 171.
Federal 501(c) Status Exemptions
If your nonprofit holds federal tax-exempt status under Internal Revenue Code Section 501(c)(3), (4), (5), (6), (7), (8), (10), or (19), you automatically qualify for Texas franchise tax exemption under Tex. Tax Code § 171.0726. You must file evidence of your federal exemption with the Texas Comptroller of Public Accounts to establish this exemption.
Submit a copy of the IRS letter of exemption to the Comptroller. This letter establishes your exemption as of your organization's charter or certificate of authority date under Tex. Tax Code § 171.0726(c) and (e).
If you've applied for federal exemption but haven't received the IRS letter yet, you can claim provisional exemption by filing evidence of your good-faith application. File this evidence no later than 15 months after the last day of the calendar month nearest your charter date under Tex. Tax Code § 171.0726(d).
If the IRS denies your federal exemption application, Texas imposes no penalty on your organization from your charter date through the denial date under Tex. Tax Code § 171.0726(f). However, you lose your state exemption once the IRS withdrawal becomes effective under Tex. Tax Code § 171.0726(g).
Purpose-Based Exemptions
Texas provides franchise tax exemptions for nonprofits organized for specific purposes, regardless of federal 501(c) status. These exemptions apply to organizations meeting statutory definitions under Tex. Tax Code § 171.0726.
Religious worship organizations qualify for exemption if organized for the purpose of religious worship under Tex. Tax Code § 171.0726.
Educational nonprofits organized solely for educational purposes receive exemption under Tex. Tax Code § 171.0726.
Public charity organizations organized for purely public charity qualify for exemption under Tex. Tax Code § 171.0726.
Conservation and wildlife nonprofits organized solely to educate the public about protection and conservation of fish, game, wildlife, grasslands, or forests receive exemption under Tex. Tax Code § 171.0726.
Agricultural fair organizations holding agricultural fairs and encouraging agricultural pursuits qualify for exemption under Tex. Tax Code § 171.0726.
Burial place organizations organized to provide places of burial receive exemption under Tex. Tax Code § 171.0726.
Student loan and scholarship nonprofits organized solely to provide student loan funds or scholarships qualify for exemption under Tex. Tax Code § 171.0726.
Senior and disabled housing nonprofits organized to provide convalescent homes or housing for persons 62 years or older, or handicapped or disabled persons, receive exemption whether or not organized for purely public charity under Tex. Tax Code § 171.0726.
Cooperative housing nonprofits engaged solely in owning residential property for cooperative housing qualify for exemption under Tex. Tax Code § 171.0726.
Public interest nonprofits organized solely to promote the public interest of a county, city, town, or other area in Texas receive exemption under Tex. Tax Code § 171.0726.
Water and sewer nonprofits organized under Water Code Chapter 67 in behalf of a city or town receive exemption under Tex. Tax Code § 171.0726.
Natural gas facility nonprofits organized to construct, acquire, own, lease, or operate a natural gas facility for a city or its residents qualify for exemption under Tex. Tax Code § 171.0726.
Establishing Your Exemption
Contact the Texas Comptroller of Public Accounts to file your exemption claim. The Comptroller's office requires specific documentation depending on your exemption type.
For federal 501(c) exemptions, submit your IRS determination letter. For purpose-based exemptions, you may need to provide your certificate of formation and bylaws demonstrating your stated purpose.
File your exemption documentation with the Comptroller before your first franchise tax return deadline. Exemptions are recognized retroactively to your charter or certificate of authority date under Tex. Tax Code § 171.0726(e).
Contact the Texas Comptroller of Public Accounts at https://comptroller.texas.gov or call for specific filing instructions and documentation requirements for your exemption category.
Maintaining Your Exemption
Your exemption remains valid as long as you maintain your qualifying status. If you hold federal 501(c) exemption, monitor your IRS status—any withdrawal of federal exemption automatically ends your Texas exemption on the effective date of the IRS withdrawal under Tex. Tax Code § 171.0726(g).
For purpose-based exemptions, ensure your organization's activities remain consistent with your stated exempt purpose. Changes to your organizational purpose or activities may affect your exemption eligibility.
Report any changes to your organizational structure, purpose, or federal tax status to the Texas Comptroller promptly. Failure to maintain qualifying status may result in retroactive franchise tax liability.
File Your Certificate of Formation
You must file a Certificate of Formation with the Texas Secretary of State to legally establish your nonprofit corporation. This foundational document creates your nonprofit entity and defines its basic structure under Tex. Bus. Org. Code Ch. 101.
What Document You Need to File
The Certificate of Formation is your nonprofit's charter. It establishes your organization's existence, governance structure, and operational framework in Texas.
Required Information in Your Certificate
Your Certificate of Formation must include specific details about your nonprofit's structure. Under Tex. Bus. Org. Code § 3.005 and § 3.007, you must provide:
- Your nonprofit's name
- Whether your nonprofit will have members
- If management is vested in members or a board of directors
- The number of initial directors and their names and addresses (or a statement that management is vested solely in members)
- If your nonprofit will distribute assets differently than the default method upon winding up, a description of that distribution method
These requirements ensure clarity about who controls your nonprofit and how it operates.
Where to File
File your Certificate of Formation online or by mail with the Texas Secretary of State:
Online Filing: https://www.sos.state.tx.us/corp/sosda/index.shtml
Mailing Address: P.O. Box 13697 Austin, TX 78711-3697
Phone: (512) 463-5555
Website: https://www.sos.texas.gov
Online filing is faster and recommended. The Secretary of State's website provides the official form and step-by-step instructions.
Filing Fee
There is no filing fee listed in the provided data for nonprofit certificates of formation. Contact the Texas Secretary of State at (512) 463-5555 or check their website to confirm the current filing fee before submitting your application.
Tax Exemption Considerations
Many nonprofits qualify for Texas franchise tax exemption. Under Tex. Tax Code Ch. 171, your nonprofit may be exempt if it qualifies under federal tax law.
Common exemptions include nonprofits organized for:
- Religious worship
- Educational purposes
- Purely public charity
- Student loans or scholarships
- Housing for seniors or disabled persons
- Agricultural fairs
- Wildlife and conservation education
- Public interest of a county or city
If your nonprofit obtains federal 501(c)(3) exemption status, you must file evidence of that exemption with the Texas Comptroller to claim state franchise tax exemption. Under Tex. Tax Code § 171.087(c), provide a copy of the IRS letter of exemption.
If you haven't yet received your federal exemption letter, you can file provisional exemption evidence under Tex. Tax Code § 171.087(d) by filing proof that you've applied for federal exemption—but you must file this within 15 months after your charter date.
Next Steps After Filing
After the Secretary of State approves your Certificate of Formation, you should:
- Obtain an EIN from the IRS (free) for tax purposes and opening a business bank account
- Apply for federal 501(c)(3) status if you want tax-exempt status (file IRS Form 1023 or 1023-EZ)
- Register for sales tax with the Texas Comptroller if you'll have taxable sales (free registration at https://comptroller.texas.gov/taxes/sales/)
- Check for industry-specific licenses through the Texas Department of Licensing and Regulation (https://www.tdlr.texas.gov) if your nonprofit provides regulated services
Your nonprofit's legal existence begins when the Secretary of State files your Certificate of Formation.
Establish Your Board of Directors
Your nonprofit corporation must have a board of directors unless management is vested solely in the members. Texas Business Organizations Code § 101.003 requires you to name your initial directors in the Certificate of Formation, including their names and addresses. You may have as few as one director, though most nonprofits have three or more for governance and credibility.
Initial Board Requirements
Texas requires your nonprofit corporation to include board information in your certificate of formation. Under Tex. Bus. Org. Code § 3.006, you must state the number of directors constituting your initial board and provide the names and addresses of those directors—unless management is vested solely in your members instead.
You have flexibility in board structure. If your nonprofit will have no members, or if members will manage the corporation directly, you can state this in your certificate instead of listing directors.
Naming Your Directors
Your certificate of formation must identify each director by name and address. This information becomes part of your public filing with the Texas Secretary of State, so verify accuracy before submission.
You can update director information later through a restated certificate of formation. Under Tex. Bus. Org. Code § 3.059, a restated certificate may omit prior director statements and insert current director names and addresses without requiring member approval—this is not considered an amendment.
Director Roles and Responsibilities
Directors do not need to be Texas residents or members of your nonprofit. They serve as fiduciaries responsible for overseeing the organization's mission, finances, and compliance. Your bylaws should specify director terms, removal procedures, and meeting requirements. Most nonprofits hold annual director elections and require quarterly or semi-annual board meetings.
Special Rules for Churches
If your nonprofit is a church where management is vested in members under Tex. Bus. Org. Code § 22.202, your original certificate may omit the director statement. However, any restated certificate must include a statement confirming that management is vested in the church's members.
Filing Your Board Information
Submit your board details with your certificate of formation to the Texas Secretary of State. You can file online at https://www.sos.state.tx.us/corp/sosda/index.shtml or contact the Secretary of State at (512) 463-5555 for filing assistance.
Once approved, your board structure becomes part of your official corporate record.
Adopt Bylaws and Governance Documents
Your nonprofit must adopt bylaws governing its internal operations, though Texas does not require bylaws to be filed with the Secretary of State. Bylaws should address director and officer roles, meeting procedures, voting rights, committee structure, conflict-of-interest policies, and amendment procedures. Many nonprofits use model bylaws from national nonprofit organizations or consult an attorney to ensure compliance with their specific mission and structure.
Why Bylaws Matter for Texas Nonprofits
Texas nonprofit bylaws establish your organization's internal governance structure and operational rules. While the Texas Business Organizations Code does not mandate bylaws in your Certificate of Formation, adopting them protects your nonprofit by clarifying decision-making authority, member rights, and director responsibilities. Bylaws also demonstrate organizational legitimacy to donors, grantmakers, and the IRS during your federal tax-exemption application.
What Your Certificate of Formation Must Specify
Your Certificate of Formation filing with the Texas Secretary of State must include specific governance information under Texas Business Organizations Code § 3.005. You must state whether your nonprofit will have members, whether management is vested in members or a board of directors, the number of initial directors and their names and addresses, and any non-standard asset distribution plans upon dissolution.
If your nonprofit will have no members, you must explicitly state this in your Certificate. If management will be vested in members rather than directors, you must declare that as well. This information becomes part of your public filing and cannot be changed without amending your Certificate.
Recommended Bylaw Provisions
Your bylaws should address board structure, including the number of directors, their election process, term limits, and removal procedures. Include provisions for board meetings (frequency, notice requirements, quorum), committee structure, and officer roles (president, treasurer, secretary). Define member rights if applicable, including voting rights, membership classes, and admission procedures.
Address financial management by specifying who approves budgets, signs checks, and handles financial reporting. Include conflict-of-interest policies and document retention requirements. Many Texas nonprofits also adopt whistleblower and document destruction policies to strengthen governance.
Aligning Bylaws with Federal Tax-Exemption Requirements
If you plan to apply for 501(c)(3) status with the IRS, your bylaws must comply with federal requirements. The IRS requires that your bylaws prohibit private inurement (no profits benefit individuals), restrict lobbying activities, and prohibit political campaign activities. Your bylaws should also address asset distribution upon dissolution—the IRS requires that remaining assets go to another tax-exempt organization, not to members or directors.
Texas nonprofits organized for religious worship, education, public charity, or other qualifying purposes under Texas Tax Code § 171.061 may qualify for state franchise tax exemption. Your bylaws should support your stated charitable purpose to strengthen your exemption claim.
Filing and Adoption Process
Bylaws are not filed with the Texas Secretary of State—they are internal governance documents adopted by your board or members. Your board should formally adopt bylaws at an organizational meeting, documented in meeting minutes. Keep the original signed bylaws in your corporate records along with all amendments.
When you apply for federal 501(c)(3) status, you will submit a copy of your bylaws with your IRS Form 1023 or 1023-EZ application. The IRS reviews bylaws to confirm compliance with tax-exemption requirements, so ensure they clearly reflect your charitable mission and governance structure.
Updating Bylaws Over Time
You can amend bylaws without filing with the state, but your bylaws should specify the amendment process—typically requiring board approval or member vote. Document all amendments in writing and maintain them with your original bylaws. If your governance structure changes significantly (adding members, changing board size, restructuring management), update your bylaws to reflect current practice.
If you later amend your Certificate of Formation to change director information, this does not require bylaw changes. However, if you change your management structure (moving from member-managed to board-managed, for example), you must amend both your Certificate and your bylaws to remain consistent.