In order to have a clear understanding of whether you would like to start a nonprofit, it is necessary to understand what a nonprofit is, as well as other similar terms that are often used interchangeably. However, in the context of a legal understanding they refer to different aspects of a business’ structure, function and, or mission.
Unincorporated Nonprofit Association– an organization of 3 or more members joined by a mutual nonprofit purpose. It is subject to provisions of the Uniform Unincorporated Nonprofit Association Act. They are not tax-exempt but can file for federal tax exemption. They are generally more effective smaller operations that have limited numbers of transactions or donations such as a local booster club.
Nonprofit corporation– many, but not all nonprofit organizations choose to incorporate. A nonprofit corporation is created by filing with the Secretary of State in accordance with Business Organizations Code. No part of the income of a nonprofit corporation is distributed to members, directors or officers. It can be created for any lawful purpose, and not all nonprofit corporations are entitled to exemption from state or federal taxes.
A helpful resource for more information about Texas nonprofits is the Texas Association of Nonprofit Organizations, TANO, website. With direct links to the Texas Business Organization Code, policy updates, and startup toolkits, it can be easier to navigate than the Texas Secretary of State website that encompasses much more than nonprofit information.
There are also other business structures that are for-profit business with special designations to distinguish their contributions to specific causes. One notable example in Texas is the recently enacted public benefit corporation (September 1, 2017).
Public Benefit Corporation– in Texas, is a for-profit corporation that is intended to produce a public benefit or benefits and to operate in a responsible and sustainable manner. It is managed in a way that balances the shareholders’ interests, the best interests of those whom are materially affected by the corporation’s conduct and the public benefit or benefits specified in the corporation’s certificate of formation. For more details visit the “an act relating to authorizing the formation of public benefit corporations.”
This is by no means an exhaustive list and prior to deciding on the type of business you will run, you should consult a professional. Our Resource Navigator includes organizations who have entrepreneurship specialists, mentors, and advisors willing to assist you for little to no cost.