You need to incorporate your church, and you should do it today. It is often pointed out that the church should not be subject to the government, and I could not agree more, so why should a church incorporate? One word can explain everything – liability. This is why I recommend that every church becomes incorporated as a Non-Profit Corporation.
I help churches at all stages of their church life. There are some that have been around more than a hundred years and others that are just launching. One question I often get from churches that are just beginning is about formation, and whether or not they should incorporate their church. This is a question many pastors have, so if you wonder the same thing, you are not alone. Let me state for the record that, as a church, you do not have to incorporate. You can be an unincorporated associate and still provide tax deductions for gifts you receive, you can operate under a separate EIN (or Tax ID Number), and you can have your own bank account.
So why incorporate? For me, as a practicing attorney, the answer is that the liability of your actions as a church would fall on you as the pastor, and your members personally, for acts of the unincorporated association.
If you do not understand what kind of liability we are talking about, check out my two part post on Liability (here for Part 1) and (here for Part 2).
If you choose to incorporate your church, that liability is transferred to the corporation, so the pastor, the leaders of the church, and the members are not personally liable for things done “by the church.” They can thereby take comfort that they are protected individually, so the only thing “at risk” are the assets of the church.
Obviously with my passion being to protect the church and its pastors, the main reason to incorporate is because of liability, but there are also other reasons.
1. When you become a Corporation, there are certain business-like functions you must carry out such as annual meetings, election of officers, and having a board of directors or trustees. This framework helps keep the church on track and moving in a strategic manner. This framework can be written to reduce the time it takes to operate the church, but having it means that your church is on a forward path.
2. Incorporation allows you access to certain benefits. For example, retirement plans, like a 401k or 403b, are only for corporations, not for associations.
3. As a practical matter, others the church does business with understand how to handle you when you are a corporation, and not an association. You fit the business world’s box, and they know how to set up accounts for your church.
4. If you decide you want to be a 501(c)(3) organization, you must first be incorporated. Becoming a nonprofit corporation is the first step and must be completed prior to filing your application for 501(c)(3) status with the IRS.
I have just touched on some of the main reasons to incorporate your church. There are others, and I would love to speak with you regarding this type of setup for your church. If you are a new church just forming, or if you are currently an unincorporated association, now is the time to incorporate.