There is no state or federal law requiring you to have By-Laws. But without By-Laws, your church [or fellowship] would not be tax exempt by either the state or the IRS. And in the event of an audit, if it is discovered there are no By-Laws, any and all income would likely be ascribed to the leader [pastor], or the leadership, and taxed as a “Sole Proprietor.” A “Business.”
One of the “Key” elements evaluated, in order to be deemed tax exempt, the church is required to have some form of organization – eg:
- a Non-Profit Corporation;
- a Trust;
- Or – an Un-Incorporated Association.
In all three cases, By-Laws are required. If the carefully considered choice is made to allow the church to remain un-incorporated, but By-Laws, containing the four IRS required phrases, normally found in the Articles of Incorporation are still required, and should be written in the By-Laws. By-Laws are the “Rule Book,” of the organization.
The By-Laws describes how the organization is run – eg:
- Directors – How many are required; How they are elected/appointed; Their power, or authority; The term of office; Process for removal.
- Pastor – How is he called or appointed; His term of office; What are his duties; His responsibilities; Authority; To whom is he accountable; And how his successor would be chosen.
- Good By-Laws: It is imperative to protect your church and Pastor with Biblical, New Testament By-Laws. A church government that would allow the pastor to be removed by a congregational vote is totally un-biblical. God intends the Pastor to have authority, yet balanced with Biblical Accountability. Excellent By-Laws will have the specific means of handling an accusation against the pastor or an elder; Developing levels of accountability structure to prevent; A “Korah/Absolam/Jezebel spirit-led type of uprisings within the church; Provisions carefully designed to protect the flock of God from a pastor should he become errant in teaching the true Word of God; Or if he would develop a medical imbalance that would lead to a change of his/her personality, eg: Bi-Polar disorder, aka “Manic Depressive.” Who will judge the pastors ‘fitness’ to lead? Who is qualified to hear a charge made against the pastor; Who will render judgement with recommendation of penalties – if any? It should never be left to the sheep to judge the Shepherd; This is a role that must be reserved for a panel of Ordained Ministers, agreed upon by all parties earlier on, and whose names are recorded in the official Minutes of the meetings of the Board of Directors. For more information on By-Laws with these provisions See: By-Laws, Discipline, and Structuring for Lawsuits
- Membership – Their qualifications; Rights; Responsibilities.
- Purposes for which the organization was created are more specifically identified;
- And IF incorporated, that the organization should indemnify the Officers and Directors. [This simply means that the organization’s assets will be used to defend them in any lawsuit.]
- Tenants of Faith – What does the Church believe; This section is where we must ‘load’ the By-Laws with all the relevant portions of the Word of God, so that if the church were ever sued, we can use the Word and the Name of our Lord Jesus Christ in the courtroom. The By-Laws should be a reflection of the churches theology of government. Therefore, it is imperative to consider and identify Biblical patterns of Church Government, and write By-Laws that will allow God’s appointed and anointed leaders to lead, guard, guide, disciple, discipline, love and equip the people on a Biblical basis – yet having accountability to other approved ministers.
- Ministry Credentials: Qualifications; The process; Types of credentials eg: Ordained, Commissioned, or Licensed; Defining the precise authority granted to each; Accountability of those credentialed, with reports being required to be given the ‘covering’ church; All these things would be defined in the By-Laws
- Discipline: The means and process of discipline would be defined for both members and non-church members; and for church.Leadership as well.
In the event of a lawsuit, if you are incorporated, your By-Laws would be examined by the Judge to determine just where liability [if any] would apply. By-the-way, in the hundreds of churches we have worked with, we have found that about 80% of them never had an “Organizational Meeting,” where the corporate By-Laws were adopted. In the event of a lawsuit, this would be the first thing a judge would look for. If there are no corporate Minutes of such a meeting, he would likely rule that the church [corporation] was never properly formed, and is thereby invalid. The claimant could automatically win his case. See the On-Line Article – A Sin Of Omission, where this subject is more clearly discussed.
If you recognize this to be your problem as well, it is easily resolved. We have written a manual that specifically addresses this situation; How the current Board of Directors can meet, review all past actions relating to the church’s organizational activities, write a well written Minute and “Ratify” those actions.
NOTE – it is never acceptable to write a backdated Minute! That is not only fraudulent, it is a serious illegal act. There is a legal way to ‘catch up’ our Minute Book. – See – More Sample Minutes
May I share a little at this point about the “Democratic” form of government, where the ‘congregation’ has a vote and the power over the pastor? We can find no Biblical basis, in either the Old or New Testament, for this form of government. For that matter, whenever the people in the Old Testament attempted to institute a “Democratic” form of government [when the people of God, attempted to over-rule the man of God], God intervened with harsh judgment, and people died,
To read two On-Line articles I have written about church By-Laws – See – Church By-Laws and Structuring for Lawsuits, and another called By-Laws.
To reiterate what I said at the outset of this article, to be tax exempt, the basic, and minimal, requirement [by the IRS] is to have By-Laws, and Minutes of the meetings of the Board of Directors in the corporate Minute Book. These Minutes will document [are the evidence] of the fact that all money spending decisions were made by only those authorized by the By-Laws. These two things are the most important of all, in making the organization 501(c)(3) tax exempt. See the On-Line Article I wrote about this subject at – What is 501(c)(3)?
In order to be tax exempt, there are several other points to be aware of as well. I have written many other On-Line Articles, answering many of the questions church leaders have. These articles will give you more insight into IRS issues, and the liability side of church administration, than if you were to spend 8 hours at a day long seminar.
Take a look at our SAMPLES Manual, where we have published more than 100 sample Church Policies and Minutes of Board Meetings, and our Samples – Addendum Manual, More Sample Minutes, where we have addressed not only the Ratification of the church organizational activities, but have included several more Sample Minutes.
If this discourse is of interest to you, or if you would like more information about similar issues, please consider purchasing our Church Administration “How To” Manual. This Manual, endorsed by three CPA’s, an EA and two attorneys, was updated again in January, 2011, for the 12th time, since its original publication in 1991.
The above information is provided as a service to the Body of Christ by ADMINISTRATIVE ASSISTANCE.