S OUTHWEST B ORDER N ONPROFIT R ESOURCE C ENTER THE UNIVERSITY OF TEXAS-PAN AMERICAN Starting a Nonprofit

What We Do Capacity Building Opportunities Online Directory Assist with Start-up Nonprofits Online Library Foundation Center Online Educate Students as Resource for Nonprofits community.utpa.edu/sbnrc

Nonprofits Stats Texas ,622 Nonprofit Organizations ,933 Nonprofit Organizations Rio Grande Valley Cameron- 733 Hidalgo- 1,000 Starr- 34 Willacy- 44 National Center for Charitable Statistics

 What is a nonprofit corporation?  Forming an organization to serve an unmet need  Benefits and limitations of a nonprofit corporation Forming a Nonprofit Tax-Exempt Corporation in Texas 4

 A corporation in which income is NOT distributed to a members  Tax-Exemption under section 501(c)(3)  Purposes: religious, charitable, scientific, testing for public safety, literary, educational, or prevention of cruelty to children or animals 5 What is a Nonprofit Corporation?

 MISSION:  What is the primary purpose of the nonprofit?  Does the community have an unmet need?  VISION:  What target audience will be served?  RESEARCH:  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? 6 Forming an Organization to Serve an Unmet Need

 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 7 Benefits and Limitations of Nonprofits

 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 tax- exemption 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 8 What is a Community Development Organization?

 Step 1: Check availability of name with the Texas Secretary of State in Austin at 9 Steps Needed To Form a Nonprofit Corporation

 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 – Mission/Vision o Initial Directors – Directors constituting the initial board (minimum of 3) 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 10 Steps Needed To Form a Nonprofit Corporation

 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. o This is mailed to: P.O. Box 13697, Austin, TX Steps Needed To Form a Nonprofit Corporation

 Step 4: Prepare Bylaws o Meetings o Leadership o Provisions for Membership o Quorum o Controls o Committees o Fiscal Year o Bylaw Amendments 12 Steps Needed To Form a Nonprofit Corporation

 Step 5: Meeting of initial directors to adopt bylaws and transact business o Adopt Bylaws o Elect Officers o 501(c)(3) Application 13 Steps Needed To Form a Nonprofit Corporation

 Step 6: Apply for a federal Employer Identification Number (EIN) 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 Complete an IRS form SS-4, available on the IRS website at o EIN is obtainable easily online at 14 Steps Needed To Form a Nonprofit Corporation

 Step 7: Prepare federal tax-exemption application o Must file a Form 1023 with the IRS at The site contains step by step directions of what a Form 1023 entitles 15 Steps Needed To Form a Nonprofit Corporation

 Step 8: Apply for sales, franchise and hotel tax- exemption from Texas comptroller ◦ To apply for state exemption based on the federal exempt status, complete Form AP-204 located at 16 Steps Needed To Form a Nonprofit Corporation

 Step 9: Apply for property tax-exemptions from the local tax appraisal district ◦ To receive the exemption, an organization should submit Form at 17 Steps Needed To Form a Nonprofit Corporation

 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 18 Should an Organization Use a Lawyer to Help Gain Tax-Exempt Status?

 A nonprofit corporation must: o Hold an annual meeting 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 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 19 What are the Legal Obligations of a Tax- Exempt Nonprofit?

 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 20 How is a Nonprofit Organization Monitored?

21 Questions?

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