Church Incorporation



In the last Forward Brother David K. Bernard wrote an outstanding article regarding church government. (See ‘Church Organization and Liability: A Legal Perspective.’) In the article Brother Bernard encouraged the incorporation of the local church in order to protect individual members from potential liability, to protect the trustee and church boards from liability, and to keep the pastors from being exposed to liability and lawsuit. These benefits are nearly universally recognized as worth the effort for churches to incorporate.

Additionally, as Brother Bernard stated: “Incorporation is a benefit bestowed by the government, not a control.” Therefore, except in those few states that do not allow for churches to incorporate, incorporating
of the local church body should be done as soon as possible after startup.


The Articles of Incorporation

The incorporation process, however, appears deceptively simple. One merely has to type up documents called “Articles of Incorporation,” pay a small fee when the documents are filed with the state, and the church is incorporated. Some states even supply a form to fill in the blanks.

Unfortunately, these easy methods often do not comply with the requirements of the state code (even the forms supplied by the state may be deficient), and further, they do not comply with Internal Revenue Code provisions. For instance, provisions relating to nonprofit activities, nonpolitical activities, propaganda activities, influencing of legislation, payment of reasonable salaries and wages, disposal of property in the event of dissolution, issues regarding the fiscal year, nondiscrimination, term of the corporation, and other
matters may be left completely out or improperly dealt with. The IRS recommended provisions are never in state-supplied forms and are rarely included in articles of incorporation unless they are prepared by
professionals who are knowledgeable in the field of corporations and churches.

Before a local pastor copies another pastor’s articles of incorporation or uses a form supplied by the state he should consult a professional who is well-versed in issues concerning nonprofit corporations, churches, and IRS regulations. Relative to the protections involved and the potential problems saved, the cost should be very reasonable. Conceptually, the finished articles of incorporation might be thought of as the constitution of the church, spelling out the purpose and objectives of the church.


Local Church Bylaws

Unfortunately, after incorporating and thereby creating a “constitution,” some church fail to create a set of bylaws to carry out the concepts, purposes, and direction of the “constitution.” The church should adopt bylaws with care and foresight. They should seek to eliminate ambiguous language. The bylaws should deal with annual meetings, notices, agenda, quorums, membership, members’ rights, discipline, dispute resolution, voting, officer selection, the church board and its authority, the trustee board, and its authority, the pastor and his relationship with the church (employment agreements can fill this role effectively), and other related matters. The United Pentecostal Church Manual provides a local church government, but a
church should add to it needed provisions that apply to the local church.

Numerous courts have observed that the articles of incorporation and bylaws of a church constitute a “contract” between the congregation and its members. Therefore a pastor should give care to this important set of documents.

At the annual members meeting, after the regular business issues are discussed (finances, elections, etc.) corporate resolutions may be entertained. Resolution are not bylaws; they are informal and temporary enactment’s for disposing of a particular item of business. Bylaws are rules of general applicability. A minister’s housing allowance is generally decided by an annual resolution, usually by the church board or trustee board. The same is true for an expense reimbursement policy, insurance policies, remodeling, church purchases, and other such matters. A secretary records the minutes of meetings, and these are retained in church records.

If a conflict occurs between the articles, bylaws, and resolutions, the law is well settled that the articles take precedence over bylaws, and bylaws take precedence over resolutions. The articles, therefore, are the highest legal authority in the local church.


The Church Records

Each church should maintain in a safe lace several important records: (1) complete and correct financial books and records of notes, deeds, savings and checking accounts; (2) minutes of the business meetings
both of congregation and boards;-(3) resolutions of congregation and boards; (4) a current list of voting members; (5) a set of the articles of incorporation, bylaws, and certificate of incorporation; and (6) all
business correspondence.

Since a corporation has no physical being, its records constitute its legal existence and therefore they should be so clear that they will need no further explanation for a correct interpretation.


The Exemption

The Internal Revenue Service, by law, recognizes a legitimate church as being tax-exempt. Nothing is required of the local church to attain this status except to conduct itself in accordance with the laws
concerning tax-exempt organizations.

Many times, however, a local church is asked to supply its federal tax-exempt number. This number is not to be confused with a number that may be given the church by the state, or the Employer Identification
Number (EIN), or even a sales tax number. None of these is a federal tax-exempt number. In order to secure a federal tax-exempt number, a local church has to fill out, submit, and follow through with IRS Form 1023. The IRS will send a letter of recognition with the number.

However, a local church can be tax-exempt without a number. The United Pentecostal Church International has filed and obtained a group tax-exempt status for every local church under the umbrella of the organization. The UPCI’s Group Exemption Number (GEN) is 1411.

Affiliated churches might have a preferred status in this regard because the IRS Code section detailing exemption refers to “affiliated” subordinate churches. If a local church desires to have its own number, it must file Form 1023 and seek separate recognition from the IRS. The procedure is not easy, requires a substantial amount of detailing regarding the church’s activities, and can take up to a year to complete.