Basics of nonprofit incorporation and administration

1. Non-Profit
Administration
STARTING YOUR OWN NONPROFIT
AGENCY

2. Learning
Objectives
 3 Questions to Ask Yourself Before Starting a
Nonprofit Organization
Forming a Corporation in Texas
 Articles of Incorporation
Filing for 501 (c)(3) status
 Filing for Franchise and Sales Tax Exemption
Bylaws
Basic management: Board of Directors, CEO,
etc.
Coming up with the Mission Statement
Human Resources

3. 3 Questions to Ask Before
Starting a Non-profit
Will your nonprofit fill an unmet need in your community?
 Gathering support and funding, winning grants, and getting donations
will be a lot easier if you have strong numbers to show that your non-profit
meets a need in the community.
 For example, if you want to open a domestic violence shelter for men,
you should be able to show that there is no other viable place for male
victims to go

4. 3 Questions to Ask Before
Starting a Non-profit
Are there any other organizations already serving the same need?
Even if your nonprofit is targeting a very niche need, there may be another
organization already servicing that need.
If so, then you must decide whether the need is great enough to warrant
multiplying services and/or whether services offered by you will be so different
that there is a market for them.
Educate yourself about other non-profits in your area and the services they
provide
This is helpful research that in the future can be used to share resources, expertise and clientele

5. 3 Questions to Ask Before
Starting a Non-profit
What sort of people will join or support your organization?
To run a successful nonprofit, you will need the support of your
community.
You should define the services you will provide, targeted demographic
for services and your mission early on to help find supporters financially
and otherwise.
You must research your area to see if you have a viable idea that will be
supported. Include local government sources in your research.

6. Steps to
Creating a
Non-profit in
Texas
STEP ONE:
FORM A CORPORATION. Although you do not have
to, there are some strong benefits to incorporating your
501(c)3. There are also disadvantages.
ADVANTAGES:
• Exempted from corporate income taxes and other
taxes, like local taxes from county, including property
tax
• Protection from personal liability – Board members,
officers, and employees do not have to personally
answer for the debts or lawsuits against the non-
profit corporation.
• Creditors can only go after corporate assets
• Employee benefits – as a corporation, the nonprofit
now qualifies for group health insurance, life
insurance and pension plans
• Adds corporate structure – through bylaws and
articles of incorporation, nonprofits add clarity to the
mission and values of the organizations, as well as
how business will be conducted

7. Steps to
Creating a
Non-profit in
Texas
STEP ONE:
FORM A CORPORATION. Although you do not have
to, there are some strong benefits to incorporating your
501(c)(3). There are also disadvantages.
DISADVANTAGES:
• A lot more paperwork to fill out for incorporation
• Additional expenses if you need an attorney to help
you with that paperwork
• Time and energy compiling bylaws and regulations
and to grow the organization
• Restrictions including no pay for those sitting in the
board of directors
• Limits on political campaigning and lobbying
• When organization closes, assets must be
transferred to another non-profit organization

8. Steps to
Creating a
Non-profit in
Texas
STEP ONE:
FORM A CORPORATION. Although you do not have,
there are some strong benefits to incorporating your
501(c)(3). There are also disadvantages.
HOW TO INCORPORATE IN TEXAS
STATE:
1.Fill out a Certificate of Formation - Nonprofit
Corporation (a.k.a. Articles of Incorporation)
2.Send it to Secretary of State in Austin, TX
3.Pay the filing fee of $25
4.For more information, go to the website:
sos.state.tx.us/corp/nonprofit_org.shtml or call: (512)
463-5555

9. What are Articles of
Incorporation?
• Articles of incorporation establish a corporation as a separate business entity. When completed and
filed, they become a public record and provide important information about the corporation, like its
name, contact information, and information about its shares of stock (if applicable).
• Known in Texas as the “Certificate of Formation – Nonprofit Corporation”

10. What are Articles of
Incorporation?
•Usually include:
• The name and principal office address of the corporation.
• The purpose of the corporation. Most states allow you to state a broad, general business purpose for your
corporation – you do not need to be specific.
• The name and address of your registered agent and registered office.
• The registered agent is someone who has agreed to accept service of lawsuits and other official documents on behalf of the
corporation. In some states, the agent must sign a document agreeing to act as agent.

11. What are Articles of
Incorporation?
•Usually include:
• List the names and addresses of the members of the corporation’s initial board of directors.
• The names and addresses of the organizer. An “organizer” is a person who signs the articles of incorporation and
ensures that they get filed. The organizer can be anyone – he or she doesn’t have to be an officer, director or
shareholder of the corporation.
• The organizer’s signatures.

12. Steps to
Creating a
Non-profit in
Texas
STEP TWO:
REGISTER AS A 501(c)(3).
• 501(c) of the U.S. Internal Revenue Code lists the type
of organizations that may receive exemption from federal
income tax
• 501(c)(3) are not for profit organizations usually referred
to as “charitable nonprofits”, “public nonprofits”, or simply
a “charity”
• To qualify for this status, the organization must serve
one or more of these purposes:
• Charitable purpose
• Religious
• Educational
• Scientific
• Literary
• Testing for public safety
• Fostering amateur sports competition
• Preventing cruelty to children or animals

13. Steps to
Creating a
Non-profit in
Texas
STEP TWO:
REGISTER AS A 501(c)(3).
• The organization must explain how it plans to further
public good
• Requirement for 501(c)(3) tax-exempt status:
• Must be organized and operated for the exempt
purpose ONLY
• Must no serve any private interest. It cannot benefit
any shareholders or individuals
• The organization is allowed to make a profit, but
that profit must support the charitable purpose
• It may not engage in political or lobbying activities.
TO OBTAIN 501(c) (3) TAX-EXEMPT STATUS:
• Form 1023 must be submitted to: Internal Revenue Service P.O.
Box 12192 Covington, KY 41012-0192
• For further information go to:
www.irs.gov/charities or call: (800) 829–3676 (Form related
questions) (800) 829–1040 (general information)

14. Steps to
Creating a
Non-profit in
Texas
STEP THREE:
REGISTER FOR FRANCHISE & SALES TAX
EXEMPTION
• Being a 501(c)(3) does not automatically exempt your
organization from sales tax
• You must file the appropriate form with the Texas
Comptroller
• File a proper exemption application Form AP 205, together
with a copy of the Articles of Incorporation and the IRS
Determination Letter
• Paperwork must be mailed to: Texas Comptroller of Public
Accounts Exempt Organizations Section at P.O. Box 13528
Austin, TX 78711-3528
• There is no filing fee
• For more information, call: (800) 252-5555

15. What are Bylaws?
• Bylaws describe the way the organization will be governed. Establish the parameters within which the
nonprofit will function, including the rights and responsibilities of the officers, directors and stakeholders.
•Although no set requirements, the Bylaws usually include:
◦ Name of the organization
◦ The purpose or mission of the nonprofit
◦ The titles and responsibilities of nonprofit corporate officers and directors.
◦ The size of the board of directors and their term of office and election procedures.
◦ How and when board meetings will be held, and who may call meetings.
◦ How to amend the bylaws.
◦ How grant monies will be distributed (some donors require that the bylaws contain a provision barring any person
who exercises supervisory powers to individually benefit from grant funds)

16. Organizational Chart

17. Non-Profit Governance
BOARD OF DIRECTORS
• Responsible to the Stakeholders. In non-profit world, the staff, funders, benefit recipients,
the community and government regulators
• The Board makes sure the nonprofit is well-managed and provides strategic leadership,
including setting direction for the future, making policies, overseeing and monitoring
performance, and overall accountability
• Members of the board normally are members of the community who have standing and
interest in the non-profit. Ex. Attorneys, business owners, high ranking members of for-profit
companies, office holders, etc.
• Board members are not compensated and perform their duties by donating their time

18. Non-Profit Governance
CHIEF EXECUTIVE OFFICER (CEO) or EXECUTIVE
DIRECTOR
According to McNamara, there are six major functions of the CEO/Executive Director, these are:
1. Board Administration and Support. CEO/ED makes sure the board is well-informed and up-
to-date on all organization functions and programs (through reports and meetings.
2. Programs, service and product delivery. CEO/ED oversees the creation and
implementation of all programs and services to ensure the client’s needs are met, as well
as those who fund and regulate the nonprofit.
3. Financial, tax, risk and facilities management. The CEO/ED puts together an annual
budget, then ensures the organization stays within that approved budget. He/She also
provides oversight over all financial matters and all government regulations requirements
are met.

19. Non-Profit Governance
CHIEF EXECUTIVE OFFICER (CEO) or EXECUTIVE
DIRECTOR
4. Human Resource Management. CEO/Ed is responsible for overseeing staffing, training and
supervision of all personnel.
5. Community and Public Relations. CEO/ED ensures that the community is informed about
the work the organization is performing and to make sure the community has a positive
image of the organization. Also that the organization is building positive relationships with
donors, volunteers, business and professional community as well as government entities.
6. Fundraising. CEO/ED is involved in setting fundraising goals, researching and targeting
funding sources and making the appeal.

20. Non-Profit Governance
OTHER VITAL POSITIONS WITHIN A NON-PROFIT
• Director of Development – This individual oversees all of the fundraising aspects of the nonprofit, from
the marketing strategy, to determining annual campaigns, annual events, to building relationships with
loyal donors and making the ask (See Fundraising modules).
• Business Office – this office will oversee financial aspects from bookkeeping to payroll; human resources
will often be located in the business office and will keep track of employee records and handle hiring and
firing, and disciplinary actions.
• Volunteer Coordinator – volunteers are key to keeping overhead down and the proper functioning of
your nonprofit. The volunteer coordinator is key in keeping your volunteers present, organized and
coming back.
• Programs Director – the PD runs the goods and services provided by your organization; they will
supervise the staff and ensure that proper “customer service” is being provided.
• Facilities Manager – runs the maintenance aspect of your facility.

21. Elements of an Effectively-Managed
Organization
~(Kaye and Allison, 2005)
1. Mission: Clearly stated purpose: agreed on values and beliefs, clear understanding of what businesses
the organization is in; quality programs that support the mission.
2. Planning: Long range plans based on priorities; annual planning for program, administrative and
funding goals and objectives; program evaluation; agreement on major strategies; purpose is being
accomplished.
3. Structure: Well defined organizational structure that ensures that work gets accomplished; clear lines
of authority and responsibility including reporting relationships; a decision making structure that
support the implementation of decisions; personnel policies and procedures are in place and adhered
adhered to.

22. Elements of an Effectively-Managed
Organization
~(Kaye and Allison, 2005)
4. People: Competent staff; clear roles with written job descriptions and evaluations for Board and staff;
ongoing training and leadership development; Board and paid/volunteer staff are appropriately rewarded
rewarded or compensated and recognized.
5. Systems: Fund development, planning and implementation that secures adequate resources; accurate
and timely financial records, reporting and management; effective use of appropriate technology,
computers and other management information systems.
6. Results and Quality: In-depth program evaluations are conducted; an established feedback mechanism
to assess client needs and satisfaction; programs are effective and efficiently run and support the
organization’s mission.

23. Mission Statement & Purpose
“If mission accomplishment is as important [to
nonprofits] as profit attainment [is to for-profits], why
do most nonprofits not spend equivalent time in
mission creation and monitoring?”
~Harvard Business Review

24. What is a Mission Statement?
• A mission statement describes an organization’s fundamental, unique purpose.
• It communicates the value the nonprofit delivers, and what groups it serves and how.
• Therefore, the best nonprofit mission statements are a succinct encapsulation of:
- Why your nonprofit exists
- Whom it serves
- How it serves them
• Some nonprofits struggle to differentiate between a mission statement and a vision
statement.
• What is the difference between a mission statement and a vision statement?
• Both mission and vision statements capture the essence of your organization’s beliefs and
values,
• But, a vision statement explains the overall goal of your organization looking into the future,
while the mission statement outlines the present plan to realize the vision.

25. Why is a Mission Statement
Important?
1. Give purpose and give direction to you agency. The mission statement provides clarity in a succinct way
about the agency’s mission and purpose for existing.
2. The great motivator. Your staff, volunteers, board members and managers will look to your mission
statement to guide them as they accomplish what the nonprofit was created to do.
3. Mission statements can be used to send a powerful message to your community. Its clarity will let your
community and those who support your cause what you stand for and what you are working towards.
4. Mission statements can be used to focus energy and attention in your decision making. If used to narrow
what your agency is there to do, a good mission statement can help make clear courses of action.

26. Mission Statement
We are a Comprehensive Homeless Program that Helps Willing People gain
Dignity and Independence

27. Human Resources in Nonprofit
• HR issues facing nonprofits can be very similar to those facing for-profits companies
• According to Small Business Administration, HR representatives must concern themselves
with:
 Assessing personnel needs
 Recruiting personnel
 Screening personnel
 Selecting and hiring personnel
 Orienting new employees to the organization
 Deciding compensation issues
 Handling disciplinary issues

28. Nonprofit Checklist
 Does the organization have a code of ethics?
 Does the organization have a conflict-of-interest policy?
 Does the organization have a whistleblower policy?
 Does the organization have a document retention and destruction policy?
 Does the organization have a process for determining executive compensation?
 Does the organization have a policy concerning participation in a joint venture?
 Does the organization have a policy concerning documentation of meetings?
 Does the organization have a policy concerning the activities of its affiliates (if any)?
 Does the organization have a process for review of annual information returns?
 Does the organization have a gift acceptance policy? Does the organization have a policy as to debt
collections?
 Does the organization have an investment policy?
 Does the organization have a fundraising policy?
 Does the organization have an expense reimbursement policy?

29. References
•Starting and managing a nonprofit organization: a legal guide. Author: Bruce Hopkins. Publisher: Wiley
Nonprofit Authority
•Initial filing requirements to become a Texas nonprofit. Retrieved from
https://www.nonprofitlegalcenter.com/texas/
•What to put in the bylaws. Retrieved from https://www.legalzoom.com/articles/what-information-
must-be-put-into-corporate-bylaws
•How to write an awesome nonprofit mission statement? Retrieved from
https://donorbox.org/nonprofit-blog/nonprofit-mission-statement/

30. References
• Kaye J., Allison M., Support Center for Nonprofit Management (2005) Strategic planning for nonprofit
organizations, 2nd edition, San Francisco, CA: John Wiley and Sons
•McNamara, C. (2008). Field guide to developing, operating and restoring your nonprofit board,
Authenticity Consulting LLC, Minneapolis, MN

31. Nonprofit Marketing
Marketing helps your nonprofit:
• Spread your message and mission statement
• Alert the public to important events and news
• Bring in new donors which in turns brings in new revenue
• Showcase your success to current donors
• Reach more people with the work you do
• Create strong relationships with other organizations in the community
• Reach out to government agencies and get referrals and support
• Gain exposure in the community/media