By Dr. Franklin Dumond
Churches in the United States originally mirrored the state-church structures of England. In fact, the state of Massachusetts maintained a state sponsored church until 1833. In those original structures the church was an extension of the state. This remains essentially the case in many European countries where a government operated church exists.
Part of the incentive for early pioneers to migrate to America was the incentive for religious freedom. They did not at first, however, set out to establish a free-church tradition. Instead, they simply established their preferred version of a state sponsored church.
With the Great Awakenings on the western frontiers of the United States, churches were brought into existence rapidly. There was little attention given to organizational life in those days since many of the churches were congregational in polity. Thus the group organized to meet their needs for religious affiliation. Today if investigations are done into the background or origin of many churches that carry some form of “Union” in their name, one will discover that once upon a time one church location served several different denominations. The congregation might be the same but on some Sundays they gathered as a Baptist church and on others they gathered as a Methodist or Presbyterian church depending on which pastor could travel the particular circuit on a given meeting day.
As denominations developed and as churches began to hold property, they also began to engage in collective business activity. For example, a church budget I saw from some of those early days indicated a set amount to be spent for “kindling” so the newly installed coal fired furnace could operate.
The developing business life of churches meant that in the 20th century a need existed to identify the church as a formal entity in the community. To recognize that existence and to extend preferential treatment toward its operations, churches were encouraged to incorporate under the laws in their state.
Three overarching reasons exist for churches to incorporate.
Legal Identity. Incorporation establishes legal identity. The world of banking, insurance and utility deposits requires that entities that do business must have some formal identity by which that business is done. Incorporation provides that formal, legal identity for a church. Thus when officers sign official documents such as deeds, loans, etc. they are signing as officers of the corporation not as individuals.
Limited Liability. Forming a nonprofit corporation normally protects the directors, officers, and members of the nonprofit from personal liability for the corporation’s debts and other obligations. Called limited liability, this shield ensures that anyone who obtains a judgment against the nonprofit can reach only the assets of the corporation, not the bank accounts, houses, or other property owned by the people who manage, work for, or participate in the business. Limited liability also means that business loans and mortgages are guaranteed by the corporation’s assets not those officers who co-sign.
Tax-Exempt Status. Many nonprofit groups seek nonprofit corporate status to gain exemptions from federal and state income taxes. The most common federal tax exemption for nonprofits comes from Section 501(c)(3) of the Internal Revenue Code, which is why nonprofits are sometimes called “501(c)(3)s.” This status is granted to General Baptist churches under a blanket ruling by the IRS. A letter of recognition is issued to any General Baptist church that meets the criteria. For more information contact General Baptist Ministries.
When a church obtains tax-exempt status, not only is it free from paying taxes on all income from activities related to its nonprofit purpose but people and organizations that donate to the nonprofit can take a tax deduction for their contributions.
Incorporating a church as a nonprofit corporation usually involves these steps:
- Choose a business name that is legally available in your state.
- Prepare articles of incorporation that define your purpose and meet the legal requirements of the state. Sample copies are generally available from the Secretary of State’s office. While it is not necessary to use an attorney, it may be helpful to have an attorney review or even prepare the articles of incorporation.
- Create bylaws that will guide the corporation’s operation.
- Select an initial board of directors and officers for the corporation.
- File your “articles of incorporation” with your state’s corporate filing office, and pay a filing fee.
Your state’s corporate filing division is usually part of the secretary of state’s office. You can request a packet of nonprofit materials from that office which will include sample articles of incorporation, the state’s laws on nonprofit corporations, and instructions on how to find an available business name.