Texas is one of the most popular states in the union to start new businesses. This is largely due to the extremely favorable tax laws that provide a fertile ground for businesses and non-profit entities alike to flourish. Due to all of this commercial and non-profit activity in Texas, there are many businesses that choose to merge with others for a variety of purposes. While a for-profit entity does not often merge with a non-profit entity, sometimes situations necessitate this. If you are thinking about merging a non-profit entity with a for-profit entity, it is important to understand the rules in Texas. According to the state of Texas, it is possible for a for-profit entity to merge with a non-profit corporation but there are some restrictions.
The biggest restriction is that in such a merger, Texas requires that the non-profit corporation is the surviving entity rather than a profitable business. Additionally, a non-profit corporation in Texas may not merge with a profitable entity if it would cause the non-profit corporation to lose its charitable status. So the important thing to remember is that if a non-profit entity merges with a for-profit entity, the resulting entity must continue to be non-profit.
Unfortunately, the Texas Secretary of State does not do individual analyses on whether or not a merger would cause a non-profit organization to lose its non-profit status. The law behind this can be confusing, so getting professional advice on the matter is the best way to go to ensure that a merger does not turn into an illegal entity under Texas law.
This post is intended to educate you about merging a non-profit entity with a profitable one. It is not meant to be legal advice.