Why Does The Church Incorporate?

Beginning in 1988, I [and my wife initially] have ministered (consulted) in more than 3,000 churches and ministries in four nations, and we find a re-occurring anxiety everywhere we go. In nearly all cases we find leaders striving to be accurate in their accounting practices, they truly desire to “render unto Caesar,” and yet there is an ‘awareness,’ a measure of ‘fear,’ that they are not doing all they should be doing.  I believe we have discovered what that unknown element is.

When future leaders and ministers attend a Bible School or Seminary, they expect to be trained in the skills of pastoring and the various aspects of leadership.  Unfortunately, precious little is taught in these institutions, that will prepare them for being the CEO of a legal entity, the Non Profit Corporation.  And almost always the church has utilized the non-profit corporation (the legal vehicle) as the means to organize.

Just why does the church incorporate, anyway?

First, let me clarify the issue of tax exemption. The church is not required, by any state or Federal governmental agency, to incorporate. Further – incorporation has nothing to do with tax exemption. The church is tax exempt, providing they maintain certain structure, and conduct business according to their By-Laws. The IRS has a criteria they use to examine a church to determine if they are a legitimate non profit organization. It is also worth noting, that it is not only the Church that is tax exempt – but the Synagogue, Wicca (organized witchcraft), and all the other “Religious Organizations,” who deny Jesus as the Christ, are also exempt. So you see, it is not at all a “church” issue, it is a “religious” issue. The church isautomatically tax exempt.

Returning to the question of “Why Does The Church Incorporate?” Now that you understand that the church tax exempt status is a separate issue, perhaps you are interested in learning about what is not taught in the Seminary or, for that matter, in most seminars put on for church leaders. By legally forming a corporation, we are creating a legal “entity.” A “person.” And this “persons” purpose is to provide liability protection for the leaders, and for those church attendees who relate to the organization. An “Umbrella” of limited liability protection is created to protect everyone against lawsuits.

If the church is not incorporated, then each person that is relationally involved, is liable for the actions of every other person. You could say it is much like a General Partnership, where if one of the partners were involved in an accident, the other partners would be equally liable with him. Any legal judgment against one would come against the others as well. And in such an event, we are not only talking about the current assets of the partners, but all future earnings as well. That’s what a “Judgement” is.  It’s a ‘Lien’ on one’s future earnings.

Whereas if the church is incorporated, the lawsuit would be stopped at the “Veil” [The umbrella] of the corporation. The attacking attorney would do all that he could to persuade the judge to “Rend” the “Vail,” in order to be able to get ‘at’ the personal assets, or “Deep Pockets” of the members of the church Board of Directors or Trustees, and even the members.  In some states church leaders are immune from lawsuit. In California, if the Board member is not receiving financial remuneration, he is immune. In any case, the church member is protected by the corporation’s veil.

When a Church is sued – who, or “what,” [constituting the church] is sitting on the witness chair? Oh – it may be that an individual leader will also be sued, and he is a co-defendant, and have to provide his defense, or he may be called upon as a witness. But when the church is being sued, the following legal foundational documents and records of the church will be subpoenaed by the adversary.

  1. The Articles of Incorporation will be examined, – especially the “Specific Purposes” clause;
  2. The church By-Laws will be scrutinized, – to determine the form of government designed for the church;
  3. The Minutes of the meetings of the Board of Directors will be carefully examined, to determine if all business decisions have been made according to the church By-Laws, and if those who were given authority, did in fact make all business decisions;
  4. Church Policies adopted by action of the Board are secondary to the By-Laws,  but will also be reviewed;
  5. The Financial Records – The Church’s Books will be examined to determine the assets and liabilities

In other words, the legality of the organization is judged by its’ records. Of the five items listed above, it has been our experience, that the Minutes are probably the most neglected, by the church. And that is very dangerous, because the Minutes are the “Memory” of the legal entity. If there are no Minutes, there is no memory. No memory equals no defense.  If the Minutes are incomplete, shabby or are missing crucial details, the church will absolutely lose in the courtroom.  We have written a Manual called SAMPLES, which has more than 100 sample Policies, Minutes and Resolutions, to help church leaders in writing this very important Minute Book.

Especially important, in the event of a lawsuit, are the Minutes of the first or “Organizational Meeting.” Please see the article we wrote about this important Minute – “A Sin of Omission.”.

We have often been asked to help the church to reconstruct the Organizational Meeting Minute, and other minutes; And there is an easy means to do so – legally. Any missing, or incomplete Minutes can be reconstructed by writing Resolutions  This is done by “Ratifying” past actions, and when adopted by the Board Members, the Minutes are legally reconstructed, and brought “Up to date.”

If you discover your Minute Book is missing this very important “Organizational Meeting” Minute, please take a look at our Samples – Addendum Manual.  This Manual was written to give you several samples on how to do just that.  If you need further help in this regard, please give us a call, and we will show you how easily this can be accomplished.

If this discourse is of interest to you, please see “The Church Administration ‘How To’ Manual” for more detailed information on all aspects of church administration. There are many Worksheets and Forms at the end of the chapters, to enable you to accomplish your goals.  A CD-Rom is included with the purchase of the manual, with all the Worksheets, Forms and Policies.  This Manual, endorsed by three CPA’s, an EA and two attorneys, was updated 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

Copyright © 2004 by Administrative Assistance

Related posts:

  1. Simple Steps To Start A Church
  2. Some Say Don’t Incorporate! WHY?