State Shuts Down Daycare

By Christine Bove

Greater Purpose Church* established their church-owned business in 2018. They established God’s Children Daycare* in eager hopes of providing their staff and community with exceptional childcare. They had a vision of it transforming their community and caring for families by caring for their children. 

The church was established at both the state and federal levels through StartCHUCH. After having a pleasant experience through the StartRIGHT Service process, the church set its hopes on establishing a daycare as its for-profit arm with help from StartCHURCH. 

After incorporating and getting the documents they needed to start running, God’s Children Daycare opened its doors to the public. However, after one year of business, the state in which the daycare was incorporated forced God’s Children Daycare to close its doors.

They were doing so well! What happened?

Lack of proper licensing

The state shut down the daycare because they did not have the proper licensing. The state reviewed the registered daycares within the state. They filtered those who have their incorporation process completed and proper licensing done. Those who were not in compliance with the state’s standards were shut down, including God’s Children Daycare.

God’s Children Daycare was incorporated; however, the owners of the company did not follow through the licensing process, hence why the state shut them down. If God’s Children Daycare were to reopen, charges would be pressed against them because of not having a license.

We learn a valuable lesson from this unfortunate event. When establishing a church-owned business, it’s not enough to simply incorporate. Do your research before you start operating your company, or better yet, before you incorporate. Some states require further licensure depending on the type of business you are conducting. 

What are the next steps?

Let’s say that you, your board of directors, and other church leadership are all in agreement and you’re ready to establish a for-profit arm. Now what?

The first step in the process is to incorporate. You can read more about this process in a previously written blog here. At StartCHURCH, our team of specialists is ready to help you make sure the incorporation process goes smoothly. 

After your business is incorporated, make sure you seek out the proper licenses. Again, licensing depends on the type of business you are operating, and each state has different requirements. 

Here’s a list of different types of businesses that may need licensing:

• Elderly care centers
• Daycares
• Restaurants
• Coffee shops
• Bookstores
• Educational institutions
• Halfway houses

Care centers

All care centers need a particular license per the state in which it is located. Each state will have its own requirements and regulations.

For example, if you wanted to establish a halfway house in Las Vegas, Nevada, you would need to go through a multiple step process. First, a business license must be applied for, and then you will need to acquire a building code. Afterwards is planning and zoning. Picking your zoning classifications is part of the process to determine what kind of halfway house you would establish. Then, you will need to obtain a conditional use permit and a special use permit. You can look at the full requirements here to get a general idea of what to look for in your state. The example included is specific for Nevada-run group homes.

Food industries

Restaurants, food services, and coffee shops need to meet a few extra qualifications. These include food service permits, inspections, and more from the Department of Health. 

For example, if you wanted to open a coffee shop in Austin, Texas, there are several licenses and permits you would need to obtain. Along with the standard tax registration and incorporation, you would also need to file for Texas tax registration. 

Texas’s tax registration includes income tax withholding, seller’s permits, and unemployment insurance tax. You would also need a business license, local permits, health permits, signage permit, and more. You can read an example of what is required in Texas here. Again, this is just an example. You’ll want to check with your state relating to the specific business activity you plan to run.  

Retail

If your business is retail-based, such as a bookstore or clothing store, your business will need to apply for sales tax, business licenses within the state, and file taxes with the Department of Revenue.

For example, if you wanted to start a bookstore in the District of Columbia, all businesses must be licensed. Per the DCRA, you would go through the incorporation process, then apply for your tax registration on a federal level and local level. You would then determine which occupation permit your business requires. Your bookstore would then need a business license, occupational license, and professional license. For further information, you can refer here to see what D.C. requires for businesses.

How do we know if we did the process correctly?

One of the best ways to know how to license your business is to reach out to your state, county, and the city’s licensing and permitting offices. Not only will they instruct you on how to establish your business locally, but also any other licensure needed. If you are already established, you can still reach out and confirm the required licensure.

If you have established your business through StartCHURCH, your business is a legal corporation. If you established your church-owned business on your own, it should be legal as long as you have followed the state, county, and city’s regulations. If you are still unsure, feel free to reach out to us and speak with one of our specialists at 877-494-4655.

In addition to our for-profit arm service, we have an online-based software called Launch Suite. This software guides you through the establishing process. You can learn more information here.

But what if we had to close our doors?

We want to encourage churches and ministries, you do not have to worry about indemnification. Even though the church or ministry is set up as the majority shareholder, you and your board members are not responsible for the faults of the business. Because of how a for-profit arm is established, the faults fall on the business, not the church or ministry. 

There are many other ministries in a similar situation as Greater Purpose Church. So what do you do if your church-owned business had to close its doors due to not having the proper licensure?

We would recommend starting with an internal audit. Here are suggested questions to walk through for your internal audit:

• What portion of the requirements have you completed? 
• Are you incorporated but are missing your licenses and permits? 
• Were your documents filed correctly? 
• What happens to the shares the church or ministry purchased? 
• What do you do with the belongings of the business? 
• Have you filed final tax forms and reports and closed your books?
• What happens to the employees? 
• What happens with the bank account? Where does the money go? 
• Have you closed your credit cards?

After your internal audit, we would then recommend you work from that information on where to go next. We would highly recommend receiving advice from an attorney about how to legally progress from there. 

The StartCHURCH Attorney Network is now available in more than 25 states! So if you find yourself in a similar situation like God’s Children Daycare and have questions about how to move forward with your business, call us at 877-494-4655 to speak to a specialist. You can also click here to gain access to our attorney network.

For closing your books and working through the financial side of your business, talk to one of our CPAs. They will help alongside you in making sure the closure of your business is in compliance. 

At StartCHURCH, we want to make sure your church, ministry, and business are well taken care of. We want to encourage you; know that when things don’t go as planned or when things fall apart, God is still in control and has you covered by His grace. He will provide for His plan. 

“And we know that in all things God works for the good of those who love him, who have been called according to his purpose.” Romans 8:28, NIV.

A lot of information was covered in this blog. If you have any further questions or concerns, call us at 877-494-4655.

*Names have been changed in this blog for confidentiality purposes.

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