Many nonprofits do not consider themselves to be businesses. In Texas, a nonprofit is a corporation, similar to any other for-profit corporation registered in Texas. The main difference is that nonprofits do not make distributions or divided payments to shareholders, therefore shareholders are usually referred to as “members.” Just like with any other corporation, corporate formalities must be followed to maintain the legal entity.
The Texas Business Organizations Code requires all corporations to have annual meetings of shareholders, or in the case of a nonprofit corporation, “members.” These meetings do not have to be formal, and they can be held remotely through video and teleconferencing. Advance notice must be provided in accordance with the bylaws of the corporation. Minutes of the meetings have to be taken by the corporate secretary and stored in the corporate records book.
Speaking of bylaws, does your organization have them? Bylaws are an important governing document for a nonprofit corporation. They dictate membership requirements, board member eligibility, positions, terms, and elections. In the absence of bylaws, the default provisions of the Texas Business Organizations Code prevail. Most business owners would rather customize their own infrastructure instead of relying on standard provisions in the law.
Corporate Records Book
The corporate records book should contain the documents that created the business entity with the secretary of state of the state of Texas as well as all minutes of meetings. The corporate records book has to be stored in the “principal office” of the business and must be made available to any member of the public who requests to view it.
Minutes of Meetings
The corporate secretary takes minutes of meetings. Minutes do not have to be long and detailed, they not notes of the discussion that occur in a meeting. They are simply a record of the important decisions that were made at any particular meeting. Minutes must be signed by the secretary and must contain a verification that the secretary gave proper advance notice of the meeting to the membership (if a member meeting) or the board members (if a board meeting). The notice requirement can be waived if all members are present at a particular meeting and consent, in writing to the waiver of notice.
There are several formalities that must be followed in order for your nonprofit to continue to exist in the state of Texas. Failure to follow these formalities could result in “piercing the corporate veil” – or having individual owners or members be held personally liable for debts of the business. If you need any help with the corporate formalities of your nonprofit, please contact Bailey & Galyen by phone at 800-208-3104 or email.