What is a nonprofit corporation?
A “nonprofit corporation” is a corporation no part of the income of which is distributable to members, directors, or officers. A nonprofit corporation is created by filing a certificate of formation with the secretary of state. See Form 202 (Word 149kb, PDF 114kb). A nonprofit corporation may be created for any lawful purpose, which purpose must be stated in its certificate of formation.
A Texas nonprofit organization—whether a corporation or an unincorporated association—is not automatically exempt from federal or state taxes. To become exempt, the organization must meet certain requirements and apply with both the IRS and the Texas Comptroller of Public Accounts.
To learn more about the rules and procedures for obtaining federal tax-exempt status, read IRS Publication 557, “Tax-Exempt Status for Your Organization.” Questions about federal tax-exempt status can be directed to:
Exempt Organizations Section
To learn more about the rules and procedures for obtaining state tax-exempt status, read the FAQs published by the Texas Comptroller of Public Accounts. Exemption from Texas state taxes is determined by the Texas Comptroller of Public Accounts. Questions about state tax-exempt status can be directed to:
The designation “501(c)(3)” refers to a specific federal tax provision only. If you need information regarding a federal tax provision or a tax provision impacts your certificate of formation, you should contact your own tax counsel, attorney, or the IRS. The secretary of state’s Form 202 meets minimum state law requirements but does not include any additional statements that the IRS might require for tax-exempt status.
I’m filing a certificate of formation for a nonprofit corporation, and I have to decide whether the corporation will have members. What is a member?
Many nonprofits use the term “member” synonymously with “supporter” or “donor.” Separate from this fundraising use, however, the Texas Business Organizations Code provides for a nonprofit corporation with a formal membership structure. Pursuant to section 1.002(53) of the Texas Business Organizations Code, a “member” of a nonprofit corporation is “a person who has membership rights in the nonprofit corporation under its governing documents.” Members of a nonprofit corporation are similar to shareholders of a for-profit corporation in that both members and shareholders may have significant rights with respect to internal corporate governance. Unlike shareholders, however, members of a nonprofit corporation are typically not owners and are not issued stock. When forming a nonprofit corporation, you must determine whether the corporation will have members, and if so, who will govern the corporation—the members, a board of directors, or both.
A nonprofit corporation is presumed to have members. If you are forming a nonprofit corporation without members, the certificate of formation must include a statement to that effect.
No. The Texas Business Organizations Code 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. Officers and directors must be natural persons, but may be known by other titles.
Yes. Any corporation may pay reasonable compensation for services rendered to the corporation.
There are restrictions on political contributions by nonprofit corporations. For information, on this topic, you may wish to contact your private attorney, the Texas Ethics Commission, (512) 463-5800, the Federal Election Commission, and the IRS. You may also wish to review Title 15 of the Texas Election Code.
The Texas Attorney General has statutory authority to (1) investigate charities that operate as nonprofit corporations, and (2) inspect the books and records of all corporations, including nonprofit corporations. The secretary of state has no such authority. Additionally, the IRS can revoke a nonprofit corporation’s tax exemption for violations of federal tax laws.
Section 22.351 of the Texas Business Organizations Code gives a member of a nonprofit corporation, on written demand, the right to examine and copy the corporation’s books and records. The member, or the member’s agent, accountant, or attorney, may examine and copy these records at any reasonable time and for a proper purpose. Section 22.352 also requires a nonprofit corporation to maintain financial records in accordance with generally accepted accounting principles; the board of directors is required to prepare or approve an annual financial report for the preceding year.
Additionally, section 22.353 requires certain nonprofit corporations to make all records, books, and annual reports of financial activity available to the general public for inspection and copying. However, section 22.353 does not apply to (1) corporations that solicit funds only from their members; (2) corporations that do not intend to solicit and do not actually receive contributions in excess of $10,000 during a fiscal year from sources other than their members; (3) proprietary schools; (4) religious institutions; (5) trade associations or professional associations whose principal income is from dues and member sales and services; (6) insurers; or (7) alumni associations of public or private institutions of higher education.
Under certain circumstances, a nonprofit corporation’s books and records are also available to the public under the Texas Public Information Act (chapter 552 of the Government Code). Section 552.003(1)(A) of the Public Information Act defines “governmental body” to include the “part, section, or portion of an organization, corporation, commission, committee, institution, or agency that spends or that is supported in whole or in part by public funds.” For more information on the Public Information Act, please contact the Attorney General; the secretary of state cannot provide advice regarding the application of the Public Information Act to a particular nonprofit corporation.
No. Although organizations filing Form 990-PF must submit a copy to certain state attorneys general, nonprofit corporations are generally not required to file Form 990 with the Texas attorney general or the secretary of state. The IRS provides information about how to obtain copies of Forms 990, exemption applications, and related tax filings on its Form 990 Resources and Tools for Researchers page. For more information about registrations and filings with the Texas attorney general, please visit the Charities and Nonprofits section of the attorney general’s website.
Does a foreign nonprofit corporation have to register to transact business in Texas if its only contact with the state is solicitation of funds or donations?
A nonprofit corporation that actively solicits funds in Texas may be “transacting business” in Texas and should file an Application for Registration (See Form 302 (Word 182kb, Acrobat 137kb); however, if the corporation’s contacts with Texas are only through interstate commerce (for example, by mail or by telephone) or independent contractors, then the corporation is probably not “transacting business” in Texas.
However, regardless of the manner of solicitation, an out-of-state nonprofit corporation may be required to register with the secretary of state in order to participate in a state employee charitable campaign under subchapter I, chapter 659 of the Government Code.
How can I obtain a copy of the bylaws, tax exempt filings or other documents for a nonprofit organization?
If the entity is organized as a Texas nonprofit corporation, you may obtain a copy of the certificate of formation or other filing documents maintained by the secretary of state by contacting our records team at firstname.lastname@example.org or 512-463-5578. The documents may also be viewed and copies ordered through SOSDirect.
The secretary of state does not maintain the bylaws or tax exempt filings of any nonprofit organization. Some organizations that have obtained tax-exempt status from the Internal Revenue Service are required to make certain documents available to the public. Bylaws may be available if included as part of the organization’s application for exemption. For more information, please visit the IRS website. The secretary of state’s office cannot assist you in obtaining these documents.