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 What is a nonprofit corporation?  Forming an organization to serve an unmet need  Benefits and limitations of a nonprofit corporation 2.

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Presentation on theme: " What is a nonprofit corporation?  Forming an organization to serve an unmet need  Benefits and limitations of a nonprofit corporation 2."— Presentation transcript:


2  What is a nonprofit corporation?  Forming an organization to serve an unmet need  Benefits and limitations of a nonprofit corporation 2

3  A corporation in which no part of its income is distributed to a member, director or officer of the corporation  A nonprofit must qualify for federal Tax-Exemption under section 501(c)(3) of the Internal Revenue Code  It must be organized and operated exclusively for one or more of the following purposes: religious, charitable, scientific, testing for public safety, literary, educational, or prevention of cruelty to children or animals 3

4  What is the primary purpose of the nonprofit?  Does the community have an unmet need?  What target audience will be served?  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? 4

5  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 5

6  Charitable purposes are broadly defined as services that are beneficial to the public’s interest  The organization must serve an open class of people and not limit its activities to specific individuals  Examples: Providing food for homeless, relief of the poor, distressed, or underprivileged, advancement of education, formation or maintenance of public buildings, promoting the development of arts 6

7  Educational purposes include instruction of the public on subjects useful to individuals for the benefit of the community and for self-development  Examples: Publishing public interest educational materials that do not conflict with certain rules and regulations with the Internal Revenue Service; conducting public discussion groups, forums, panels, lectures, or workshops; serving educational institutions, such as a college bookstore, alumni association, or athletic organizations 7

8  Publishing groups can obtain nonprofit status if they do not target their activities to commercial markets and sell the publications  Examples: Publishing material on environmental preservation, highway safety, or drug and alcohol abuse information 8

9  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 9

10  For-profit Corporation: Profits are controlled and distributed to shareholders  Unincorporated Association: Lacks the strict organizational, reporting, and registration requirements imposed on nonprofit corporations  Fiscal Sponsorship: Occurs when a group partners with an existing organization to conduct a certain activity or program 10

11  Step 1: Check availability of name with the Texas Secretary of State in Austin at 11

12  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 - Defines the charitable purpose of the corporation o IRS Language - Special clauses relating to the dissolution of the nonprofit, “inurement”, and a general statement that the corporation will follow nonprofit requirements o Initial Directors – Names the directors constituting the initial board, with a minimum of 3 directors 12

13  Step 2: Prepare Certificate of Formation in the document filed with the Secretary of State to form the nonprofit corporation 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 13

14  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. This is mailed to P.O. Box 13697, Austin, TX 78711-3697. o The incorporator needs to order a “certified copy” of the certificate of formation to submit with the federal tax- exemption paperwork 14

15  Step 4: Prepare Bylaws o Meetings o Leadership o Provisions for Membership o Quorum o Controls o Committees o Fiscal Year o Bylaw Amendments 15

16  Step 5: Meeting of initial directors to adopt bylaws and transact business o Adopt Bylaws o Elect Officers o 501(c)(3) Application 16

17  Step 6: Apply for a federal employer identification number 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 The organization should complete an IRS form SS-4, available on the IRS website at and place the completed form in the organization’s minute book o When the information is completed the EIN is obtainable easily online at 17

18  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 o The following must be included in the Form 1023:  Certified copy of the certificate of formation  Copy of bylaws  Financial statements including: Revenue and Expense Statement for current year, and three preceding fiscal years; proposed budgets for the next two fiscal years with anticipated financial support  Narrative description of past, present and future planned activities with an emphasis on broad public benefit of the organization’s activities  Annual accounting period (fiscal year)  Employer Identification Number (EIN)  Statement as to whether the organization is claiming status as a private foundation or public charity 18

19  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 ◦ Include a copy of the exemption determination letter issued by the IRS, including any addenda ◦ The organization name on the IRS letter must match the organization’s legal name as listed in the certificate of formation 19

20  Step 9: Apply for property tax-exemptions from the local tax appraisal district ◦ To receive the exemption, an organization should submit Form 50-299 at form06.html ◦ Also include a copy of the comptroller determination to their local appraisal district 20

21  A nonprofit corporation must: o Hold an annual meeting o Prepare alphabetical list of names of all voting members 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 21

22  A nonprofit corporation must also: 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 22

23  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 23

24  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 24

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26  The University of Texas Pan American o 1201 W University Dr, ITT 1.404R o Edinburg TX, 78539  (956) 292-7566   Hours of Operation: o Mon – Fri o 8 am to 5 pm   Join us on Facebook 26

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