Church incorporation can be a confusing process. It can be hard to know what to do if you’re unfamiliar with how the bureaucracy works. This post will help explain the basics of church incorporation and answer some common questions. So, what are the advantages of church incorporation? Let’s find out!
How Does Church Incorporate?
Churches have generally operated as unincorporated organizations. On the other hand, employees working under the church’s supervision expose churches and their personnel to a legal obligation in the event of debt, accidents, or other harmful behaviors. Because of the numerous advantages and safeguards offered by a corporate legal structure, many churches have chosen to incorporate.
Even though many standards apply to church incorporations, the techniques needed to incorporate your church differ from state to state. Most states have provisions allowing churches to form nonprofit organizations under corporate laws for nonprofits.
1. Obtain The Consent Of Church Members
Approval from church members is necessary to incorporate the church. This means that the people with authority within the church must meet and vote on the decision. In some cases, after leadership approves incorporating, a general vote is open to the entire congregation to ratify the decision.
2. Appoint An Incorporator
The incorporator is responsible for filling out and filing the papers required to establish a church. The incorporator can be anyone prepared to do so and doesn’t have to be an elder of the church. Churches can also hire someone with expertise in business or law or use a service specializing in incorporation.
3. Designate A Registrar Agent
Choose someone to be your registered representative. This can be either a person or a legal business inside the state with a physical presence authorized to accept official mail on behalf of the church. In some jurisdictions, churches are permitted to serve as their registered agents and may do so by utilizing their physical locations. In various countries, acting as a registered agent necessitates using a third party, generally an individual or a company service.
4. Prepare Articles Of Incorporation
Prepare nonprofit incorporation articles for your church that comply with the laws regulating the incorporation of nonprofit organizations in the state where it is located. Most states provide a ready-made template, which may be found on their websites, usually through the office responsible for company registrations.
5. File Nonprofit Articles Of Incorporation
Complete and sign the paperwork for your nonprofit church’s incorporation into the state. Most states accept articles of incorporation via mail or fax, but a few have recently switched to entirely electronic filing systems that can be accessed online. The article must include the state filing fee to be processed. After your papers are approved, your church will officially become incorporated into the state.
Advantages Of Church Incorporation
To appreciate the advantages of incorporating your church or charity, you must first understand how an unincorporated group of individuals functions. Although you may see your unincorporated church or charity as a distinct legal entity in and of itself, the law does not consider an unincorporated organization of people as having legal existence independent from its members.
Unincorporated churches and charities are “looked through” by the law, meaning their members are considered to operate the church or charity. Incorporated churches and charities become legal “persons,” separate from their members.
The law sees the activities of an incorporated church or charity as being carried out by the corporation instead of any specific individual. This has huge consequences for a church or charity’s potential legal responsibility and gives advantages that unincorporated churches and charities don’t have.
1. Members’ Limited Liability
The main benefit of incorporating your church or charity is that it provides its members with limited liability. Churches and other nonprofit organizations are increasingly being sued. Church and charity members who wish to continue supporting their operations are concerned about keeping their funds safe from litigation risks.
Incorporated churches and charities have members who cannot be held legally accountable for the organization’s acts, defaults, obligations, or liabilities. In contrast, unincorporated churches and charities lack this protection from liability, meaning that personal assets can be used to pay off debts or judgments if a member is successfully sued.
2. Director And Officer Indemnification
If you’re active in your church’s or charity’s leadership, incorporation can protect you against third-party lawsuits. A church or charity may create bylaws indemnifying its officials and directors from third-party legal actions under the statutes. If a director or officer of the incorporated church or charity were successfully sued, the court could order the incorporation to reimburse the director or officer for litigation costs.
No church or charity wants to be involved in a lawsuit, as anyone who has been through the process can attest to how stressful it is. If a church or charity is incorporated, it has a separate legal personality and can initiate litigation itself. However, its members must be named as parties to any action if it’s unincorporated.
4. Real And Personal Property Ownership
A church or charity may incorporate to acquire real and personal property. Unincorporated churches and charities are unable to own property and are more susceptible. Under the Religious Organizations’ Lands Act, an unorganized church is not allowed to own real estate. Churches must engage trustees to purchase, sell, or finance property for their operations if they are unincorporated.
The Religious Organizations Land Act only permits a religious organization to buy, sell, lease or possess real estate under trustees for particular reasons that may not encompass all the charity’s undertakings.
When you incorporate your church or charity, common law fiduciary obligations and liability no longer apply to trustees. This simplifies ownership and property concerns by eliminating the need to designate trustees to hold title to real and personal property for an unincorporated church or charity.
So, there you have it. Church incorporation is a process that provides your church with certain legal protections and allows you to operate as its entity. You can make the best decisions for your congregation by understanding how it works. If you have any questions about the process or want help incorporating your church, please don’t hesitate to contact us. We’re here to help!
Frequently Asked Questions
What Dangers Do Churches Run When They Choose Not To Incorporate?
According to Church Law & Tax Report author Richard R. Hammar: “Members of an unincorporated association are individually accountable for [wrongful] conduct by agents or employees of the association if the [act] is committed within the scope of their authority.” Thus, in any potential accidents or crimes involving members of an unincorporated church, everyone in that congregation would share responsibility.
What Do Ministries That Are Already Incorporated Need To Know?
Many states demand periodic filings to keep your church’s or ministry’s incorporation status valid. As part of this obligation, you must submit a short annual report to the Secretary of State’s department. It’s a good idea to phone the Secretary of State’s office to double-check, even if you’re certain your church is incorporated.