Church incorporation

Is incorporation required for a church?

No. A church can worship and carry on its work without incorporating. Even so, incorporating can bring legal protection and other practical benefits.

Protection for members and leaders

The traditional rule says people belonging to a church that isn't incorporated can be personally liable for things other members do while carrying out church work. Once incorporated, members are generally protected from liability when someone else in the corporation acts. Anyone can still face a suit for their own wrongdoing.

State laws often also shield unpaid nonprofit directors and officers from liability over negligence in carrying out their duties. That shield stops short of willful misconduct.

Owning property and signing contracts

Once incorporated, a church can borrow money, own or transfer property and sign contracts in its own name, so its leaders don't have to guarantee them personally. Incorporation also brings perpetual existence, meaning the church carries on regardless of which particular people stay involved.

Steps to incorporate a church

This work is handled state by state; usually the paperwork goes to the Secretary of State's office. Your state sets the exact form and fee.

1. Choose your initial board. Many states require at least three directors, and the people who sign the incorporation paperwork can usually also serve as directors.
2. Draft your articles of incorporation, the founding document you submit to the state. It usually covers basics like the church's name and purpose, who receives legal mail, where the main office is, whether the church covers leaders for claims made against them (indemnification), what activities are off-limits, how assets are handled at closure, and who signs the filing.
3. Designate a registered agent, the person or office that accepts official legal mail on the church's behalf. Texas requires an initial registered agent and a registered office address in Texas.
4. Send your filing to the state. Texas churches submit a certificate of formation, Form 202, to the Secretary of State; the fee is $25.
5. Hold the board's first meeting. The church comes into legal being when the state issues its certificate, and at that meeting the board adopts the initial bylaws.
6. Apply for an EIN, which is the federal identifying number the IRS assigns to the church. On the application, mark church or church-controlled organization for your entity type.
7. Send in the yearly state report. Most incorporated churches must file one each year to keep corporate status.

Wording the IRS looks for

To qualify for tax exemption, the IRS asks that your founding document confine the church's aims to 501(c)(3) purposes. One acceptable clause states that the organization exists solely for charitable, religious, educational and scientific purposes.

A dissolution clause is also needed, spelling out where the church's assets go if it ever shuts down. The IRS says those assets must be permanently dedicated to 501(c)(3) uses, or handed to a government for public use. Texas notes that both the purpose clause and the dissolution provision belong in the certificate of formation when seeking federal charitable tax-exempt status.

Using a church bylaws template

Bylaws serve as the rules a church follows internally. They're for internal use only and don't go to the Secretary of State alongside your articles. A template can give you somewhere to start, though each section ought to reflect how your church truly decides things.

A typical set of bylaws touches on:

• What the church believes
• Who belongs
• How leaders govern and meet
• Choices needing more than a simple majority
• Real estate and other assets
• Handling conflicts of interest
• Money matters
• Closing down
• Later changes

The money part spells out the process for receiving, budgeting, spending, reporting and auditing funds.