6 Things to Know About Opening Non-Profits in Texas
One question that I often get in the course of representing a business is whether, how, and how closely, a for-profit business can coordinate with a nonprofit business. Sometimes the question is borne of an intent to evade taxes (which is illegal, and which we never condone) while more often it is borne of an intent to both profit and do good for the world. This guest post addresses some of those concerns. For any questions, you can contact us here.
The following is a guest post written by Pamela Edward:
6 Things to Know About Opening Non-Profits in Texas
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The United States has the most nonprofits in the world, at about 1.5 million. In the state of Texas alone, nonprofits are estimated to number at more than 130,000. If you’re somebody with a passion for helping others, you may want to join these ranks, too. However, when starting a nonprofit there are more things to consider than just how you want to help. If you’re thinking of opening your nonprofit in Texas, here are some important things to keep in mind:
1. You’re not exempted from all taxes
As a nonprofit your organization will be exempted from taxes, assuming you’ve already filed for federal and Texas State tax exemptions. However, this doesn’t mean that you or anyone else connected with the work of the nonprofit is similarly exempted from taxes. According to the IRS, only employees who earn less than $100 per calendar year are not required to pay income tax. This is something you’ll want to keep in mind for yourself and your team.
2. Reports must be updated yearly
In Texas, nonprofits are required to file either annual or periodic reports. These typically require details of the organization, the registered agent, the board members, and some financial records. The financial records are usually comprised of IRS Form 990, state reports, and statements of activities that are best filed by a financial team. These reports serve the purpose of showing transparency for the public and for donors. As such, although some reports are only required to be filed every four years, it’s best practice to publish them yearly. This ingratiates you with decision-makers who want to review updated information regularly.
3. You’re better off upskilling too
Even if you’ve got a passion for helping others, nonprofits are just as technical as ordinary businesses. Thus, in order to protect the well-being of your projects, you should also consider learning the tools of the trade. One way to do so is by upskilling your abilities as an operations manager. This will mean learning how to allocate tasks, oversee departments, and make budgets. As explained by the Bureau of Labor and Statistics (BLS), operations managers are essential in every organization to ensure that day-to-day activities are as effective and strategic as possible. You could also onboard a general manager for this task, but as the founder of a nonprofit, it’s best if you’re also capable of handling these responsibilities.
4. You can contest power of attorney
One of the primary requirements of starting a nonprofit is to have a registered agent. These individuals will be responsible for receiving all of your organization’s legal notices. In Texas, this may either be an accountant or, most commonly, an attorney who has a physical office and practice in the state. These agents are integral to any nonprofit’s legal compliance. That said, you should know that you do have the option to contest the decisions and actions of these agents if, for instance, you suspect that they’re not acting in your best interest. In Texas, this means getting the aid of other attorneys to seek a settlement or mediation. Hopefully, your nonprofit won’t experience such a trial. But it’s important to be prepared for it, just in case.
5. Your board members actually need credentials
In Texas, a nonprofit’s organizational structure must include at least three non-related directors, a president, and a secretary. These individuals oversee the nonprofit’s operations. Despite this responsibility however, nonprofits sometimes select officers who are not very well versed in the demands of the organization. While these officers may mean well, board members who aren’t experienced won’t add much to your cause. Thus, when looking for board members, try to find those with relevant credentials. Some of the best places to look are among your experienced volunteers, your donor base, and even the community you serve. By looking in these areas, you’re more likely to find diverse candidates with valuable insights and talents.
6. Non-profits don’t survive on goodwill alone
Lastly, the harsh but undeniable truth is that many nonprofits struggle with finances even if their causes are supported. In fact, since the pandemic began in 2020, more than one third of all U.S. nonprofits have faced financial jeopardy. Recent studies have also concluded that 38% of nonprofits may close within just two years. Therefore, before you even start your nonprofit you should have a solid financial game plan. This means crystallizing a donor base, an income generator, and a crisis plan in case things go south. This way, your organization won’t be as vulnerable to sudden economic shifts.
It’s not easy to open, let alone sustain, a nonprofit. But this hard work does pay off when you can positively impact your community. With the proper preparation, you can ensure that your efforts are effective and long-lasting.
For more on legal advice and nonprofits in Texas, please visit our blog again.
Written by Pamela Edwardfor ryanreiffert.com