In this Business Law Breakdown, Richards Rodriguez & Skeith Partner Daniel Riegel will discuss the elements necessary for the successful launch and ongoing management of a nonprofit organization.
Here are several elements necessary for the successful launch of a nonprofit:
First, you need to identify the community need you’re trying to meet. In our case, we believed that the sport of triathlon was an intimidating sport, and we wanted to make it accessible and fun for newcomers—especially adults who weren’t comfortable swimming, biking, or running.
Second, you need to make sure that a nonprofit is the right business entity for you. Texas law defines a nonprofit as a corporation where no income is distributed to its members, directors, or officers. A nonprofit may be created for any lawful purpose, however, not all nonprofits are entitled to exemption from state or federal taxes.
Board Of Directors
Third, you need to recruit a board of directors. Texas law requires that a nonprofit have at least three directors.
Come Up With a Unique Name
Fourth, you will need to come up with a name. I recommend that you search the Texas Secretary of State website, and make sure that the name you want is not being used by anyone else.
Appoint a Registered Agent
Fifth, you will need to appoint a registered agent who can receive notices from the State of Texas. The address for a registered agent cannot be a P.O. box.
Certificate of Formation
Sixth, you will need to prepare a certificate of formation and file it with the Secretary of State’s office. The filing fee is only $25.
Establish Initial Governing Documents
Seventh, you need to establish initial governing documents and policies such as bylaws or conflict of interest policies. These documents should be formally approved by the board of directors.
Eighth, you need to create a record-keeping system. Texas law requires that a nonprofit maintain records, books, and financial reports for at least three years.
Federal Tax-Exempt Status
Ninth, you should investigate whether your nonprofit qualifies for federal tax-exempt status. The IRS allows some small nonprofits to apply for tax-exempt status through an expedited process with less paperwork.
State Tax-Exempt Status
Tenth and finally, if you qualify for federal tax-exempt status, you may also qualify for state tax-exempt status. You can find the application for state tax exemption at the state comptroller’s website.
Good luck in building your nonprofit!