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					Why New Churches Should
 Consider Incorporation
     Dr. Tom Cheyney
     Why Consider Incorporation?
Note: All information in this presentation is
 provided on the basis that while it is
 generally believed to be correct, the
 Church Planting Group of the North
 American Mission Board, assumes no
 liability for its use and does not guarantee
 that it is correct. As in all legal and tax
 matters, if there are any questions,
 professional advice should be sought.
 Two states do not require articles of
 incorporation for churches. They are
 Virginia and West Virginia.
   Why Consider Incorporation?

• There are a great number of specific
  areas where church planters will
  want to seek legal advisory. As one
  has wisely stated: “This is not where
  you ought to put your head in the
  sand and pretend that something will
  go away, especially if you pray hard
  enough!” Bill Caldwell Church
  Administration Handbook, pg. 208
         Why Consider Incorporation?
Why incorporate a church?
 There are a number of excellent reasons to
 establish your new church as a legal entity:
       –Protects creditors
       –Able to hold property in its own name
       –Obtaining loans
       –Members and Trustees protection
       –Tax Filing
       –Tax Savings
       –Cost Savings
       –Obtaining Insurance coverage
         Is it Required?
• A new church or any other church for that
  matter is not required to become
  incorporated as a nonprofit religious
  entity. Each state has its own regulations
  regarding this issue. The process usually
  involves assembling of members for the
  specific purpose of approving the
  documents relating to incorporation.
  Some but not limited to will include a
  Charter, set of Bylaws, and minutes which
  detail the conduct of the meeting that
  approved the incorporation.
        Is it Required?
• A new church should look at the
  advantages of incorporation. The
  advantages seem to outweigh the
  possible problems of remaining a
  society in the eyes of the state. The
  advice of an attorney will be helpful
  in determining the proper procedure
  to follow for the new church.
     Why Consider Incorporation?
The good and bad news is that there is
 a lot of information available on state
 Web sites dealing with non-profit
 organizations. There is not really a
 direct method to obtain the exact
 information needed for a non-profit
 church organization
   Why Consider Incorporation?
Three things to consider before you start:

Before you embark on reserving, buying
or legalizing anything, you should
consider three things that may influence
your decisions:
– Church vision and therefore your church
– Church name
– Church Web site and e-mail
– Include the church theme in the name or not?
   Why Consider Incorporation?
Before you start anything, you should
revisit your church vision about what your
church is going to become, and consider
if this is represented in the general theme
you plan to follow.

What's the difference between a name and
a theme?
   Why Consider Incorporation?
Your chosen church name may or
may not reflect your theme. The
closer your name matches your
theme, the more marketing clout you
have; however, you may want to
consider a church name that
conveys WHAT you want to be as a
church (vision) and a theme that
conveys HOW you get there
     Why Consider Incorporation?
What's in a name?

 You may need to consider your intended
 target people group. For example, church
 names including
 Connection, Gathering, Bridge, Communit
 y, Fellowship, etc. are more seeker-
 orientated than
 Baptist, Tabernacle, Worship, etc., which
 may appeal more to people that are
 comfortable with church.
    Why Consider Incorporation?
Should a name be unique?

 The State of Georgia, similar to other
 states, uses the first two significant words
 in the name as the unique legal identifier
 for an entity. In the Cumming Connection
 case, “Cumming" and “Connection".

 If you were Mountain Lake Community
 Church your unique identifier would be
 “Mountain” and “Lake”.
     Why Consider Incorporation?
Should a name be unique?

• In most states, from this point on, you will
  start interacting with the Secretary of
  State's office at: www.sos.state.INSERT
   Why Consider Incorporation?
Guides, forms, contact information, FAQs
and even the start of an online filing
system are available on the Web sites.
Most states have similar Web sites and
resources. To read and print Adobe
Acrobat *.pdf files, you may need to
download and install the latest version of
Adobe Acrobat - FREE of charge at
      Why Consider Incorporation?
How do I check to see if a name is available?

In Texas for instance, you can call the
Secretary of State office at 512-463-5555. They
can tell you over the phone whether a name is
available or not. You can reserve the name for
120 days at a cost of $40, but this is generally
not worth it as you can submit your Articles of
Incorporation and secure your name with your
articles. See
Reserving for details on reserving names and
use this form to reserve a name:
    Why Consider Incorporation?
What about a Web site and e-mail?

This should be considered an essential.
Most people have Web and e-mail access
at home or at work. A Web site is yet
another means of breaking down the
barrier to unchurched people - a safe
glimpse into a church without the brave
step of actually attending a service.
    Why Consider Incorporation?
What about a Web site and e-mail?

Web site names or domains are cheap -
$8.95 per year or less for more than one
year at Hosting can
also be obtained at special pricing for
      Why Consider Incorporation?
There are three main documents you need to
file - one with the state and two with the IRS.
Two are needed to open a bank account, as
   1. Articles of Incorporation
   2. Application for an Employer Identification Number (EIN) (or
     Federal Tax ID) - IRS Form SS-4
    (Open a bank account)
   3. Application for Recognition of Exemption Under Section
     501(c)(3) of the Internal Revenue Code - IRS Form 1023
       Why Consider Incorporation?
 Article of Incorporation

These are very important for a number of
• Legally defines a non-profit church
  organization, for liability limitation, business
  dealings, and tax exemption
• Needed to open a bank account in the church's
  name - the account is designated as a non-
  profit organization account
• Specifies what the church does (to a certain
  extent) and who the founding principals
  are, including the Incorporator
        Why Consider Incorporation?
Article of Incorporation

In most states, Articles of Incorporation can be
simple and broad in scope. There are some key
articles that must be phrased a certain way to
assure tax exempt status. You must also have a
minimum of three (3) US residents as Directors to
incorporate. See the following form for the basic
requirements: www.sos.state.INSERT STATE It is better
to say just enough and no more.
         Why Consider Incorporation?
4. An additional document: By-Laws can be used
  later to flesh out your church's purpose, rules
  and procedures.

 Special Note: Please do not be confused by the
 reference to members. The reference „members
 of a corporation‟ (non-profit or otherwise) is not
 synonymous to church members or members of
 an organization. Think of it like SAM's Club, for
 example. You can become a member of SAM's
 Club, but that does not mean you are a member
 of the SAM's Club Corporation, with all the legal
 implications thereof.
          Why Consider Incorporation?
• In MOST STATES, it costs $25 to file Articles of
  Incorporation. As mentioned above, for
  Texas, filing fees are available at
  www.sos.state.insert state

• For most states, two originals of the Articles of
  Incorporation need to be filed; one will be
  returned with the approval.
         Why Consider Incorporation?
• Application for an Employer Identification
  Number (EIN) (or Federal Tax ID) - IRS Form SS-4

 Once your Articles of Incorporation have been
 approved, you will need to apply for an Employer
 Identification Number (EIN). This is absolutely
 essential to open a bank account, file tax
 returns, etc. If the church eventually employs
 staff, then the EIN is needed to put them on
 payroll. The EIN Application form - IRS Form SS-
 4 - is available at
 pdf/iss4.pdf. The SS-4 form contains all the help
 needed to file.
       Why Consider Incorporation?
Open a bank account

With your Articles of Incorporation and EIN in
hand, you can now open a bank account for your
new legalized church entity.
        Why Consider Incorporation?
Application for Recognition of Exemption Under
IRS Form 1023

This is a tricky one, so please take careful note:
Strictly speaking, as a church or "integrated
auxiliaries of churches, and conventions or
associations of churches", you are exempt from
filing IRS Form 1023; however, for other
reasons, you may want to file:
         Why Consider Incorporation?
 Application for Recognition of Exemption Under
 IRS Form 1023

• States, generally, recognize an IRS-approved
  Form 1023 as a basis for state tax-exemption,
  including franchise and income tax
• It helps considerably with state tax exemption
  (like franchise tax)
• It helps considerably with sales tax exemption in
  many stores
• It allows the church to obtain special pricing on
  many products, including computer software and
         Why Consider Incorporation?
 Application for Recognition of Exemption Under
 IRS Form 1023

• It settles any discussion with authorities on
  whether your church enjoys tax exemption or not
• Guidelines and instructions for filing IRS Form
  1023 are available at:
       Why Consider Incorporation?
What if we don't file an IRS Form 1023?

Regardless of whether you file an IRS Form
1023, the State of Texas, for example, may send
you a separate one-page report for you to
file, confirming your non-profit organization
information. This form is sent on a seemingly ad
hoc basis to the Registered Agent with a 30-day
deadline and costs $5 to file. This form may be
sent by the state every four (4) years or so.
         Why Consider Incorporation?
What if we don't file an IRS Form 1023?

If staff are truly "employed" by the church, you need to
 set up payroll. You can either do this yourself with one of
 the many church management software applications out
 there, or you can outsource this task to a specialized
 third-party firm that may provide discount to churches.
 An alternative, particularly in the early stages of a church
 where most people involved are either
 bivocational, receiving offerings, or are considered self-
 employed, is to treat any income as supplemental and file
 IRS Form 1096, enclosing individual 1099-MISC forms.
 IRS Form 1096 can only be obtained form the IRS in the
 mail. An example can be obtained from the IRS Web site:, but cannot be used
 to file.
       Why Consider Incorporation?
Whether you have filled in IRS Form 1023 or
not, you should be exempt from state taxes. You
may or may not be exempt from local taxes. To
obtain a ruling on exemption status, you need to
  Exempt Organizations
  1100 Commerce
  Dallas, Texas 75242
  (214) 767-6023 [Customer Service]
  (214) 767-0040
          Why Consider Incorporation?
  For more information, please visit

• www.sos.state.IONSERT STATE

• If you have filed an IRS Form 1023 and obtained
  an IRS approval of your tax exemption status, it
  makes dealing with the state, local
  authorities, stores, etc. on tax issues a whole lot
  Why Consider Incorporation?

If the church does not have a clear ruling on
its tax exemption status and has a gross
income of less than $150,000 a year, in
some states, it does not need to pay state
franchise tax, but DOES need to file a state
franchise tax form. States may vary.
        Why Consider Incorporation?
Tax exemption number?

In some states, there is no such thing as a "tax
exemption number", which you will hear all the
time when dealing with the outside world. The
church's EIN (a.k.a. Federal Tax ID) is the only
tax-related identification number the IRS or state
will assign you.
       Why Consider Incorporation?
Keep excellent accounts

This may be over-motherly, but it is very
important that the church maintains excellent
accounts. As a non-profit church organization,
the church will come under increasing scrutiny in
the years to follow- not only from the IRS, state
and local authorities, but also from the media
and the community at large. To avoid any
question about status and integrity, it is highly
recommended that the church keep its books in
as good a shape as any established business.
This will ensure that the church's official
dealings at least are beyond reproach.
           Why Consider Incorporation?
•     If church management software is not used to
    keep accounts, Intuit's QuickBooks is highly
    recommended. Other accounting systems are
    also available. QuickBooks Pro is probably the
    most widely used and flexible package available.
    QuickBooks can also be used for payroll if it is
    not available with the church management
    software or is not outsourced. Intuit's less
    expensive Quicken can be used as a lower level
    alternative to QuickBooks. You can get a free 90
    day trial by searching the web for
         Why Consider Incorporation?
• Conclusion

• It is hoped that this presentation provides
  sufficient information for you to at least consider
  the issues involved in incorporating your church.

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