1. 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 152kb, PDF 142kb). A nonprofit corporation may be created for any lawful purpose, which purpose must be stated in its certificate of formation.
2. Is a nonprofit corporation a tax-exempt entity? If not, how do I become tax-exempt?
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.
3. 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?
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.
4. Can one person be the sole director and officer of a nonprofit corporation?
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.
5 .Can a nonprofit corporation pays a salary to its officers, directors and/or employees?
Yes. Any corporation may pay reasonable compensation for services rendered to the corporation. Note that the Secretary of State does not determine what is considered reasonable compensation. A paper presented in 1993 at the IRS Continuing Education Program for Exempt Organization Specialists discusses reasonable compensation. This paper is available on the IRS web site (PDF, 116kb).
6. Can a nonprofit corporation give political contributions?
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.
7. Who has authority to investigate the activities of a nonprofit corporation?
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.
8 .Are the books and records of a nonprofit corporation available for inspection?
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. 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.
9 .Can I obtain a copy of a nonprofit corporation’s IRS Form 990 from the secretary of state?
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.
10. 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; 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.
11 . 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. The documents may also be viewed and copies ordered.
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.