Many will try to tell you that starting a church is just like starting a business. While the process might be similar, there are many nuanced differences between creating a for-profit corporation and a church.
One major difference between a nonprofit organization and business corporation, such as an LLC or an S-corporation, is the nonprofit is not owned by one person or even a group of individuals.
So how does that work? For a church to be able to transact business, it must become a legal entity.
In today's blog, we will talk about why establishing your church or ministry as an ecclesiastical corporation is of absolute importance, as well as the benefits of incorporating and how to complete the process. Let's get started!
What Is Indemnification?
A significant benefit of being incorporated is that once a church becomes incorporated under state law, they are afforded limited personal liability protection known as indemnification.
First, the church has to show that the pastor and the board of directors do not act solely by themselves when making decisions for the church. Instead, they serve as directors of the church and on behalf of the church.
This concept is known as a "corporate veil of protection," like an umbrella. If you use your umbrella, and you will be protected from getting wet. Indemnification is the same concept. The pastors and board of directors are protected as individuals when making decisions on the church's behalf.
The same is true for any business or non-profit that chooses to get incorporated.
How Does One Incorporate?
The process for incorporating is twofold.
When you start the organization, whether it is a business or nonprofit, there are at least two levels to register. Typically you will have a state-level registration and then a federal-level registration with the IRS.
Each state has its requirements for what needs to be detailed in the articles of incorporation. Most often, this document contains information such as:
—The name intended for the corporation.
—The purpose of the corporation.
—The name and address of the registered agent (meaning the person that is going to be speaking on behalf of the organization.
—And the information about the nature of the nonprofit or the business itself.
Therefore, if someone is looking to get incorporated, they must first look at the state's requirements.
Every state is different. Some may require a charity registration, while others may require a business registration. There are many facets, so it's important to reach out to your state's Secretary of State office to make sure you know your obligations.
What Is a Registered Agent?
As I mentioned before, a registered agent is a person who resides in the state in which the organization is going to be incorporated.
This person must have a physical address in that state and act as a contact person to receive notifications about the non-profit from the state.
For example, if I wanted to start a soup kitchen in California, I would need someone physically there to act as a registered agent for my organization.
Are There Any IRS Requirements for the Articles of Incorporation?
Yes, the IRS requires specific language to get the articles of incorporation approved. That aspect is going to fall on your purpose statement and dissolution statement. This language is referred to as the organizational test requirements.
The IRS requires the purpose and dissolution statements because it proves that the church meets the exemption requirements of section 501(c)(3).
Since the state does not usually require the same language as the IRS, the church has to file the articles of amendment and then add the organizational test language, causing delays and a lot of extra time and money. That's why it's wise to go ahead and take care of the language at this early point.
The IRS will not allow a church to apply until that language is included. At a minimum, the language should contain:
For the rest of the article, visit startchurch.com.
Stevonne German is a director of operations at StartCHURCH. She helps pastors learn what they need to create a firm foundation they can build on while making sure they are compliant in the process. Stevonne enjoys hearing the success stories of pastors and ministry leaders who have established or re-established their organization.
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