The Ultimate Guide to Starting a 501(c)(3)
By Chaston Asbury
Starting a brand new ministry can be an incredibly exciting time. What could be more rewarding than pairing up with the Lord to see his work done here on earth as it is in heaven? Among all of the excitement of figuring out exactly what type of ministry God is calling you to launch, something that you must keep in mind is establishing a solid legal foundation for your 501(c)(3) organization.
Ennsuring your ministry is functioning in compliance creates room for your organization to grow. Because of the freedom and security compliance gives, it's one of the top priorities for starting a church or ministry.
To learn more about the differences between running a church organization and a ministry organization, please review our blog, Am I Running a Church or Ministry?
Whether you are starting a church or a ministry, there are several steps you must take to successfully establish a strong legal foundation for your nonprofit organization.
1. Get incorporated with your county or state
A corporation is an artificial entity completely separate and distinct from its founders and members, offering protection for said individuals from personal liability. This protection is what is commonly known as the "corporate veil." The corporate veil helps protect founders and board members when acting responsibly on behalf of the ministry.
The first step in incorporating your nonprofit organization is choosing a name. Check the secretary of state's office (for the state in which your organization resides) to ensure no other organization exists with the same name. After securing a unique name, draft and file the articles of incorporation with the secretary of state.
Your articles of incorporation should include a purpose statement, a dissolution statement, and other state and IRS provisional language.
2. Obtain a Federal Employer Identification Number (FEIN)
Next, you will need to obtain a Federal Employer Identification Number (FEIN) from the IRS. You can think of the FEIN as the social security number for your ministry.
With this number, along with your articles of incorporation, you can open a bank account in the organization's name.
3. Create and adopt Bylaws, Policies, and Procedures for your organization
Bylaws outline the governing structure and set the rules for decision making in the ministry. Apart from the Word of God, the bylaws will be the most important document to your ministry. Having bylaws that clearly define your ministry's structure, culture, and principles allows for consistency and helps cast vision for the future.
When properly structured, your organization's bylaws will:
- Clarify the purpose of the organization
- Provide protection by distinguishing the theocratic government of the ministry
- Give guidelines for how the board can and cannot make decisions
- Guide the board in how to establish policies and procedures for the ministry, including succession, finances, and ordination
- Give guidelines to help ensure that the board is operating according to IRS regulations for tax-exempt organizations
Policies are the documents that help govern day-to-day activities, and they help the church remain in compliance with both state and IRS regulations. While bylaws outline the governing structure and set the rules for decision making in the ministry, policies, and procedures guide daily operations. Policies you will want to implement include:
- Accountable reimbursement policy
- Conflict of interest policy
- Benevolence policy
- Indemnification policy
- Ant-Terrorism policy
Crafting policies and prodecures can get confusing, but you don't have to do it alone! Our team at StartCHURCH will work with you to craft governing documents that protect your organization and relfect your mission and vision. We created the Policies Suite to help pastors and ministers adopt the right structure to fit their vision. If we can serve you in any way or if you have any questions, give us a call today at 877-494-4655 or click the link below to schedule a call!
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4. Apply for the 501(c)(3) tax-exempt status
501(c)(3) tax-exempt status is a privilege given to organizations that are organized exclusively for public benefit. This status relieves those organizations from paying federal income tax on their net earnings and allows donors to receive a tax deduction for making such contributions.
To apply for the 501(c)(3) status, most organizations will file Form 1023. This is the most time-consuming and labor-intensive process of legally establishing your ministry. The IRS estimates it takes anywhere from 100 to 150 hours to complete Form 1023.
Notable Mentions:
Ordination
When establishing the legal foundation for your ministry, you will need to determine early on if your ministry will legally license and ordain ministers of the gospel. Legal ordination allows ordained ministers to receive tax benefits, such as housing allowance and self-employment tax exemption, that are afforded to ordained ministers.
In order for your ministry to legally ordain ministers, there should be language clearly indicated in your articles of incorporation and bylaws that the ministry will do so.
Form 990
Any nonprofit organization, except churches, are required to file Form 990 annually. The IRS uses Form 990 to ensure that tax-exempt organizations remain compliant with the tax code and nonprofit laws to stay a tax-exempt entity.
The form you should file is dependent upon your ministry's amount of income and assets. The three forms are Form 990-N, Form 990-EZ, and Form 990-Long. If your ministry fails to file the appropriate Form 990 for three consecutive years, then the IRS will revoke the organization's tax-exempt status!
27-Month Timeframe
Nonprofit organizations that are not churches must apply for the 501(c)(3) status within 27 months of incorporating to receive approval retroactive to the date of incorporation. Churches do not have a specified timeframe to file for the 501(c)(3) status.
Retroactive Nature
The 501(c)(3) status is retroactive back to the organization's date of incorporation, as long as the application is applied for within the allotted window of time.
This means that after your ministry gets incorporated and obtains its FEIN, you can open up a bank account and begin receiving donations. These donations will be considered charitable contributions, both from the donor and the organization, because of the retroactive nature of the 501(c)(3) status.
Labor with the Lord, and be compliant with the government
"Then Jesus came to them and said, "All authority in heaven and on earth has been given to me. Therefore go and make disciples of all nations, baptizing them in the name of the Father and of the Son and of the Holy Spirit, and teaching them to obey everything I have commanded you. And surely I am with you always, to the very end of the age." - Mathew 28:18-20
While all of this information may seem a bit overwhelming, Jesus has promised that he will be with you as you embark upon this endeavor of starting a ministry. At StartCHURCH, we promise to partner with you to help establish and maintain your ministry as a compliant organization so that you can focus on God's call for you. Through our StartRIGHT Service, we will guide you through the process of legally establishing your organization and protecting what God has called you to lead.
Call us today at 877-494-4655 to learn how our StartRIGHT Service can help you!
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