Chapter 22 of the Texas Business Organizations Code is the state statute that governs every nonprofit corporation formed in Texas. It defines what makes an entity a nonprofit, controls how directors and members run it, sets the vote needed to change or close it, and shields officers from personal liability when they act in good faith. State incorporation is only one layer, though. Federal tax-exempt status, annual IRS filings, and conflict-of-interest rules sit on top of Chapter 22 and shape how a Texas nonprofit actually operates.
What Chapter 22 Covers
Section 22.001 defines a nonprofit corporation as one in which no part of the income is distributed to members, directors, or officers.1State of Texas. Texas Business Organizations Code 22.001 – Definitions That single restriction is the line between a nonprofit and a for-profit business. The organization can earn revenue, pay salaries, and build reserves. It just cannot pass profits to insiders.
The chapter reaches a wide range of organizations: charitable, religious, educational, and social groups among them. Any Texas corporation organized for a lawful purpose other than private profit falls under these rules. Violating the no-distribution rule puts the corporation’s status at risk with both the Secretary of State and the IRS.
Forming a Texas Nonprofit Corporation
A Texas nonprofit starts with a certificate of formation (Form 202) filed with the Secretary of State. The filing fee is $25.2Office of the Texas Secretary of State. Business Filings and Trademarks Fee Schedule The certificate names the corporation, states its purpose, lists each organizer, and identifies the initial registered agent and office.
If the plan is to seek 501(c)(3) status from the IRS, two clauses belong in the certificate from day one. First, a purpose clause limiting activities to IRS-recognized exempt purposes such as charitable, educational, scientific, religious, or literary work. Second, a dissolution clause directing that any remaining assets go to another tax-exempt organization when the corporation winds up. Adding these later means a formal amendment and another fee.
Who Runs the Corporation
Section 22.201 vests management of a nonprofit corporation in the board of directors.3State of Texas. Texas Business Organizations Code 22.201 – Management by Board of Directors The board can be called a board of trustees, a governing council, or any other name that fits the organization’s traditions. Its legal function is the same: setting policy, protecting assets, and keeping the corporation within its stated purpose.
The certificate of formation and bylaws set the number of directors, their term length, and how vacancies are filled. Officers handle daily operations, and the bylaws define which offices exist and what each one does. A director who fails to act in good faith or in the corporation’s best interest can face personal liability for the harm that follows.
A Texas nonprofit is not required to have members. Many run on a board-only governance model. When members with voting rights do exist, the chapter sets specific procedural rules for how they meet and decide.
Meeting and Voting Rules
Written notice of any member meeting must go out no earlier than 60 days and no later than 10 days before the meeting.4State of Texas. Texas Business Organizations Code 22.156 – Notice of Meeting For a special meeting, the notice must state the purpose. Special meetings can be called by the president, the board, or members holding at least one-tenth of the votes entitled to be cast.5State of Texas. Texas Business Organizations Code 22.155 – Special Meetings of Members
A quorum defaults to members holding one-tenth of the total votes, present in person or by proxy, unless the certificate of formation or bylaws set a different number.6State of Texas. Texas Business Organizations Code 22.159 – Quorum of Members Once a quorum exists, a majority of the votes cast decides the question unless something higher is required by statute or the corporate documents. Proxies are allowed; a proxy expires after 11 months unless it specifies a shorter period.7State of Texas. Texas Business Organizations Code 22.160 – Voting Rights of Members
Remote Meetings
Video and phone meetings are common now, but for remote participants to count toward a quorum, the bylaws must authorize remote attendance. If the bylaws are silent, votes taken at a remote meeting can be challenged later. The standard is simultaneous communication: every participant must be able to hear and respond to every other participant in real time. Email threads and chat messages do not qualify.
Action Without a Meeting
Both directors and members can act by written consent instead of holding a meeting. The consent must be in writing and kept with the corporate records.
Compensation and Conflicts of Interest
Paying directors and officers a reasonable salary is legal. Paying them more than the work is worth is not. Under federal tax law, no part of a 501(c)(3) organization’s net earnings may benefit any private individual with a personal interest in its activities.8Internal Revenue Service. Inurement/Private Benefit – Charitable Organizations This private inurement rule covers founders, directors, officers, and their families.
When compensation crosses into an excess benefit transaction, the IRS imposes a 25 percent excise tax on the person who received the excess benefit. If the overpayment is not corrected within the applicable taxable period, the penalty rises to 200 percent of the excess amount.9Office of the Law Revision Counsel. 26 U.S. Code 4958 – Taxes on Excess Benefit Transactions The tax hits the individual, not the organization alone.
A written conflict of interest policy is the standard safeguard. Form 990 asks whether the organization has one, and the answer is public. At minimum, the policy should require anyone with a potential conflict to disclose it and bar that person from voting on the matter. Recording how the board handles each disclosed conflict in the minutes builds a record that holds up during an audit.
Making Fundamental Changes
Amending the certificate of formation, merging with another entity, converting to a different legal form, or voluntarily winding up are classified as “fundamental actions” under Section 22.164 and require heightened approval.
For a corporation with voting members, a fundamental action needs at least two-thirds of the votes that members present in person or by proxy are entitled to cast at the meeting. If the corporation has separate classes of members, each class must independently clear the two-thirds threshold. For nonprofits without voting members, the board can authorize the change by a majority vote of the directors in office.10State of Texas. Texas Business Organizations Code 22.164 – Vote Required to Approve Fundamental Action
Once the vote passes, the corporation files a certificate of amendment (Form 424) with the Secretary of State.11Office of the Texas Secretary of State. Form 424 – Instructions for Certificate of Amendment The certificate of formation or bylaws may set a higher threshold than the statute, so check the corporate documents before scheduling the vote.
Reporting Requirements That Keep the Corporation Alive
Texas Periodic Report
Every Texas nonprofit must file a periodic report listing current directors and officers whenever the Secretary of State requests one. The Secretary can request it up to once every four years, and the filing fee is $5. Missing the deadline carries real consequences. If the report is not filed within 30 days of the first notice, the corporation forfeits its right to conduct business and starts accruing a late fee of $1 per month, with a $5 minimum and $25 maximum. If the report is still not filed 120 days after a second notice, the Secretary of State involuntarily terminates the corporation.12Office of the Texas Secretary of State. Form 802 – Instructions for Periodic Report – Nonprofit Corporation Reinstatement is possible but requires paying $25 and filing the overdue report.
Federal Form 990
Nearly all tax-exempt nonprofits must file an annual return with the IRS. The specific form depends on size:
- Gross receipts normally $50,000 or less: Form 990-N, the electronic e-Postcard.
- Gross receipts under $200,000 and total assets under $500,000: Form 990-EZ or the full Form 990.
- Gross receipts of $200,000 or more, or total assets of $500,000 or more: the full Form 990.13Internal Revenue Service. Form 990 Series – Which Forms Do Exempt Organizations File
Failing to file for three consecutive years results in automatic revocation of tax-exempt status, with no warning and no appeal. Getting it back means reapplying and paying the user fee again.
Winding Up and Dissolving
Closing a Texas nonprofit follows a strict sequence under Chapter 22. Internal authorization comes first: a two-thirds vote of members or a majority vote of the board, depending on the governance structure.10State of Texas. Texas Business Organizations Code 22.164 – Vote Required to Approve Fundamental Action
After authorization, the corporation pays its debts and obligations, then distributes what remains. Section 22.304 requires that any assets not subject to a return condition be distributed only to organizations that qualify as tax-exempt under Section 501(c)(3).14State of Texas. Texas Business Organizations Code 22.304 – Application and Distribution of Property If the corporation’s own plan of distribution does not account for all remaining property, a district court in the county where the principal office sits will direct the distribution in a way that best serves the original purposes.15Texas Statutes. Texas Business Organizations Code 22.304 – Application and Distribution of Property
Exempt organizations do not file the standard corporate dissolution form (Form 966) with the IRS. The final Form 990 serves as federal notification, with the “terminated” box checked.16Internal Revenue Service. Form 966 – Corporate Dissolution or Liquidation On the state side, a certificate of termination must be filed with the Secretary of State to end the corporation’s legal existence.
Liability Protection for Directors and Officers
Section 22.235 shields nonprofit officers from personal liability for actions taken in that capacity, as long as the officer acted in good faith, exercised ordinary care, and reasonably believed the action was in the corporation’s best interest.17State of Texas. Texas Business Organizations Code 22.235 – Officer Liability Comparable protection applies to directors through the code’s general fiduciary duty framework. The protection falls away if the director or officer acts in bad faith, is grossly negligent, or personally profits from an unauthorized transaction.
The statutory shield has limits. It does not cover IRS claims for excess benefit transactions, and it does not stop lawsuits from employees, vendors, or beneficiaries alleging fraud or misuse of funds. Many nonprofits add directors and officers (D&O) liability insurance to cover defense costs and settlements for claims that fall outside the statutory safe harbor. For volunteer board members, that insurance policy is often what makes serving possible.