Before you enter into any contract or host any event as a new church, you need to make sure your new church is incorporated; otherwise, you can be found personally liable for any obligations, accidents, or mishaps.
Risks of Being Unincorporated
Potential Personal Liability for Church Leaders
Without incorporation, officers, directors, and leaders could be found to be personally liable for negligent actions performed on behalf of the church. Examples of such claims include, but are not limited to: Negligent Selection of Church Workers; Negligent Retention of Church Workers; and Negligent Supervision of Church Workers.
Government Interference with Property Issues
In some states, unincorporated churches must hold and maintain title to property through trustees. Most transactions involved in acquiring, selling, or encumbering such property require that a petition be filed with the Circuit Court in which the property is located. This requires that a judge approve the transaction. In addition, whenever a church desires to change its trustees, a petition must be filed and the change approved by a Circuit Court judge.
Lack of Financing Options for Future Acquisitions
Most lenders require churches be incorporated before entering into financial transactions. Lenders are becoming more and more opposed to having to deal with several trustees and wait for court approval as part of a financial transaction involving church property.
Benefits of Incorporation
There are many benefits to churches becoming incorporated entities and some of those benefits include:
Limiting the Potential Liability for Leaders and Members
It should be noted that individuals always remain liable for their own personal actions. However, incorporation substantially limits the liability of church leaders and members provided that the church leaders are not grossly negligent in the performance of their duties. There is a reason businesses incorporate!
Ease of Property Acquisition and Transfer
As mentioned in the disadvantages outlined above, incorporation greatly eases the acquisition and transfer of property and incorporated churches no longer have to petition a court for approval of such transactions.
Many banks and other financial institutions prefer and require a church to be incorporated before dealing with them.
The incorporated structure of the church creates better organizational stability as the members, directors, and leaders change over the course of time. Incorporated churches no longer have to petition the Circuit Court to have trustees removed or added and are better able to integrate their leadership structure into the entity.
There is no one-size fits all requirement for church governance in order to be incorporated. The corporate organizational structure may be set up to accommodate elder-led churches, congregational churches, and board-led churches.
As part of its Church Launch program, Reynolds Law Group, PLLC can help churches across the nation incorporate. For more information, email me at firstname.lastname@example.org.