Academic journal article Southern Journal of Business and Ethics

Nonprofit Formation in Texas: Organization

Academic journal article Southern Journal of Business and Ethics

Nonprofit Formation in Texas: Organization

Article excerpt

INTRODUCTION

One limitation I have encountered related to the organization process for a nonprofit corporation is that while attorneys can assist a client in filing the certificate of formation, they often do not understand the totality of what is needed in the organizational process. Or, they do understand and the scope of work is limited to forming the nonprofit corporation, which primarily includes filing the certificate of formation. Additional work included in the scope of service may include preparing a draft of the bylaws, the organizational minutes, and the application for the employer identification number ("EIN") with the Internal Revenue Service ("IRS"). However, clients generally need guidance not only through the organizational process and the assurance it is completed correctly, but also assistance with the application for exemption, business development, and setting up the operations side of running the nonprofit to assure sustainability of the organization as a viable operation in the future.

Another limitation I have encountered throughout my practice with small business startups is the distinction between what a client wants and what they need. What a client wants is generally the lowest cost and fee possible to form an entity so they can begin making money right away (e.g., for a corporation or limited liability company). What clients do not understand, nor do they generally want, are the services that will assist with their long-term success. What they need to be successful are the big picture analysis, an understanding of the organizational process, and having a foundation in the operations side of a business to be sustainable (e.g., business development, strategic planning, management, marketing, and sales/fundraising). one example that is often neglected is the need to protect intellectual property owned by the organization. The response I generally receive from business start-ups is they do not want to spend the money right now because their primary focus is on making money, and that they will address this and other issues later once they have money in the bank. Unfortunately, that later date often never comes, and these business start-ups end up being a one-off scenario. However, individuals wanting to form a nonprofit organization have a different perspective, and that is they have an idea that they need assistance with the organizational process, business development, and operations - their focus in on the mission or purpose of the organization and its success, and not solely focused on making money - but, they have no idea where to begin.

In this paper I will review the organization process for a Texas nonprofit corporation, to include (1) the standard forms needed, (2) the certificate of formation requirements per Texas law and IRS regulations, (3) selecting a name, (4) drafting the purpose statement, (5) understanding the management structure of the nonprofit, (6) review additional provisions for the certificate of formation, and (7) the filing options.

GENERAL FORMS NEEDED FOR A TEXAS NONPROFIT CORPORATION

The standard forms needed to form a Texas nonprofit corporation are:

* Certificate of Formation

* Bylaws

* organizational Minutes

* Application for EIN

* Assumed Name Certificate

* Board Resolution

* Annual Minutes

This paper will focus primarily on the certificate of formation requirements for a Texas nonprofit corporation.

CERTIFICATE OF FORMATION REQUIREMENTS

A Texas nonprofit is required to file a certificate of formation to formally organize the legal entity under Texas law.

Chapter 3 of the Texas Business Organizations Code ("TBOC") outlines the general requirements for entity formation in the State of Texas. Section 3.005 provides that the certificate of formation (the document that is filed with the Secretary of State to legally form the entity) must contain:

* "the name of the organization;"1

* "the type of entity being formed;"2

* the purpose of the entity;3

* "the period of duration;"4

* "the registered agent's name/street address;5

* the organizer's name and address;6

* a statement whether the entity will have members or no members;7

* a statement whether the management will be vested in the members or the directors;8

* "[t]he number of directors constituting the initial board of directors, and their names and addresses;"9

* a dissolution statement that follows the text of Section 22. …

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