3 Top Questions Pastors Ask Us the Most
By Laura Archambault
Read time: 5 min
For twenty years, StartCHURCH has helped pastors navigate the "paperwork side" of starting a church. It can be daunting to figure out what you need to do to be a "legit" church. So how can we help?
StartCHURCH can help you understand what's required for churches - what the state requires, what the federal government requires, and what the IRS requires; and we have resources that make it easy for you to get through these requirements.
Because these basics can be so confusing when you first get started, we get asked many questions about incorporation, 501(c)(3), and the IRS. In today's post, I will explain a few of these terms as we share the answers to the 3 questions we get asked the most.
1. "Should I incorporate my church?"
More than ever, establishing your church or ministry as an ecclesiastical corporation is of absolute importance. Many lawyers and companies will tell you that starting a church is just like starting a business. While the process may be similar, there are many nuanced differences between starting a for-profit corporation and a church.
One major difference between a business corporation (such as an LLC or an S-Corporation) is that a nonprofit isn't owned by one person or a group of individuals. So, how does that work? In order for a church to be able to transact business, it must become a legal entity to transact business.
Each state has its own requirements for what needs to be detailed in the document. Most often, this document contains information like the name that is intended for the corporation, the purpose of the corporation, the name and address of a registered agent, and information about the nature of the nonprofit. (A registered agent is a person who resides in the state in which the organization is incorporated. This person must have a physical address in the state and acts as a contact person to receive notifications about the nonprofit from the state.)
The document containing all this information filed with the secretary of state is called articles of incorporation, sometimes referred to as articles of formation.
Once the state has approved this document, the church or ministry can, in essence, function for itself. Receiving approved articles of incorporation back from the state is like receiving a birth certificate for the corporation. Once the articles of incorporation have been approved, your church, ministry, or nonprofit is in official existence.
Another major benefit of being incorporated is that once incorporated, under state law, the church is afforded limited personal liability protection, known as indemnification. However, to keep the indemnification, the church has to show that the pastor and board of directors do not act for themselves when church decisions are made, but rather as directors of the church and on behalf of the church. This is commonly known among legal circles as having a "corporate veil of protection." This is also true for any nonprofit or business that chooses to get incorporated.
If you need expert help to incorporate your church, please give us a call to speak to a specialist at 877-494-4655.
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2. "What about the IRS?"
The process of "getting started" is, in a way, two-fold. When starting an organization, whether a business or a type of nonprofit, there are at least two levels to register: state and federal (with the IRS).
Typically, after getting incorporated at the state level, churches and ministries obtain a federal employer identification number from the IRS. A federal employee identification number, more commonly referred to as a FEIN or a tax ID number, identifies a business entity.
Basically, the tax ID number of the corporation acts as a social security number. In any situation where a social security number is required, the federal employer identification number is used instead of using a person's social security number. One of the primary purposes is so that a church can function independently without a person or member of the corporation needing to act on behalf of the organization.
Obtaining a federal employer identification number is relatively quick and can most often be obtained online. Keep in mind, though: having a federal employer identification number does not mean a corporation has 501(c)(3) approval from the IRS. Obtaining 501(c)(3) approval from the IRS requires an application process.
Keep in mind; there is a myth that churches don't have to apply for 501(c)(3) approval from the IRS. While applying for 501(c)(3) status is optional for churches (and only churches), the decision not to receive approval can be costly. In court cases, such as Jack Lane Taylor v. Commissioner, we see that the burden of proof is placed on donors of churches without 501(c)(3) status. This means that if a donor is audited, they must establish or prove that the church to which they give meets the requirements and qualifications of a section 501(c)(3) organization.
What a burden for an individual to carry! For this reason, many donors may choose not to give or donate to organizations without a 501(c)(3) approval. In addition, the presumption of tax-exempt status does not exist unless the IRS has officially recognized the church to meet the requirements of section 501(c)(3).
3. "Do I need to have bylaws?"
Bylaws are defined as a set of general rules and regulations that guide and direct the daily affairs of the members of an organization. Bylaws are crucial for churches and ministries because, when properly structured, they do the following:
- Clarify the purpose of the church;
- Provide protection by distinguishing the theocratic government of the church;
- Give guidelines for how the board can and cannot make decisions;
- Guide the board in how to establish policies and procedures for the church, including succession, finances, ordination, membership, etc.; and
- Give guidelines to help ensure that the board is operating according to IRS regulations for tax-exempt organizations.
In essence, bylaws are the driving force that helps a church run smoothly. When bylaws are well-written, tailored to your church's beliefs and governing structure, and utilized correctly, they can effectively streamline the focus of your church.
Furthermore, your church's bylaws can provide invaluable guidance and protection for your church. However, when your church's bylaws are not structured well and are incompatible with your church's values and mission, then you may find that you have a document that works against you, not one that is for you.
You can find out more about how well-written bylaws can be a great help to churches in need by reading this blog, "Bylaws Save Florida Church from Lawsuit."
A partner you can trust
If you are thinking about starting a church or ministry, you probably have questions - and a lot of them. After all, starting a church involves so many different areas of leadership, operations, compliance, and ministry. But the good news is that we've been there before with over 19,000 others whom we've helped! And we're here to ease the burden for you to make sure you're equipped to succeed.
So whether you need support with incorporation and 501(c)(3) status or other church-planting logistics, we have resources for you.
Still have questions? Great! Our specialists are ready to answer them. You can call us at 877-494-4655 or pick a time for us to call you by clicking the button below.
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