Guidelines for Church Incorporation
Many churches are considering the advantages of incorporation. It is a means of protecting church members from any liability beyond the liability insurance coverage of the church. An incorporated church becomes a legal entity and is separated from the members who formed and make up the membership of the church. When the church is incorporated, lawsuits filed against the church are filed against the church itself which has become a legal entity. Incorporation is another financial protection that is both desired and appreciated by many church members.
An unincorporated church is known as an “association”. An association church means that the members are “associated” together in being and doing church. This means every member is a significant part of the church. As the church body, the members are collectively responsible for the liabilities and obligations of the church. Dr. Lynn Buzzard, Campbell University School of Law, stated that an association church “does not have its own independent rights. Rather the association’s rights and obligations are simply the cumulative rights and obligations of members.” Therefore, the major difference between an “association” church and an incorporated church is simply this: every member is responsible for the liabilities and obligations of an “association” church. In an incorporated church, the church itself is a legal entity, and is responsible (not the members) for any liabilities or obligations.
- The church becomes a legal entity and the church members are protected and insulated from the financial liabilities of the church. This means that only the church’s assets, such as bank accounts, property, financial assets, etc. will be used to satisfy the claims of a creditor or legal lawsuits brought against the church that is beyond the liability insurance coverage. The personal resources of the church members will not be used to satisfy claims and liabilities against the church. This is the major advantage of church incorporation.
- Some banks and lending institutions prefer a church to be incorporated as this provides assurance concerning the organization, purpose and function of the church.
- Incorporation can provide name protection for the church.
- Incorporation can affirm perpetual existence. This means that the church is legally established to be in existence over a long period of time.
- The incorporation can be dissolved at any time by vote of the congregation.
- Incorporation will enable the church to look seriously at the Constitution and By-Laws of the church. This is the document that states the name, location, mission and purpose statement, doctrinal statement and the rules of conduct for the church. The By-Laws state the rights and privileges of the members, the responsibilities and powers of the church officers and the rules to be followed in the meetings and activities of the church. This is an important document of the church. It is to be examined and thoroughly and regularly as it is a significant part of the incorporating process.
- Costs – It can involve employing a Baptist attorney to assist with the incorporation preparation and filing as well as assisting in reviewing the Constitution and By-Laws. The cost of filing the incorporation papers with the office of the Secretary of State is $65.00.
- Time – It will take time to study the Constitution and By-Laws and make sure that this document covers all the areas of the purpose of the church, doctrines and the working relationships and policies on how the church will function. Adequate time must be spent on the Constitution and By-Laws as this is the document that gives direction to the nature and function of the church.
- Changing of Documents – All legal documents such as deeds, titles, bank accounts, loans, etc. must be changed to reflect the new incorporation status. However, the word “Incorporation” does not need to appear on stationary, checks, church signs, etc.
- Church and State Issue – Some church members will consider incorporation a violation of the doctrine of separation of church and state.
- Make sure that the church has adequate liability insurance coverage. The Annuity Board of the SBC has stated that most church are underinsured.
- Have the Building and Grounds Committee or another appropriate committee check the church property (cemetery, parsonage, etc.) on a regular basis for hazardous conditions. This committee should make recommendations for immediate corrections and/or repairs.
- Provide adequate time for the congregation to study, understand and pray about the decision to incorporate or to remain an unincorporated (association) church.
- The church should select a committee to study the matter of incorporation and make a recommendation to the church. There should be ample time for the committee to make their presentation to the church, sufficient time for discussion and to vote on the recommendation. If the church votes to remain unincorporated, consideration must be given to adequate liability insurance coverage and regular checks must be made of all properties for hazardous conditions. If the church should vote to proceed with incorporation, they should consider employing a Baptist attorney to give leadership in the study of the Constitution and By-Laws and in filing the proper document with the office of the Secretary of State. It is not required that an attorney be employed. Once the decision is made for the church to be incorporated, a resolution should be adopted by the church to authorize four or five incorporators to formally file the Articles of Incorporation (with the assistance of the Baptist attorney if one is secured). The resolution could read: “The First Baptist Church of Centerville hereby authorizes (names of the incoporators) to form, on behalf of the current members of this church, a nonprofit corporation, First Baptist Church of Centerville, Inc. as successor corporation to this church, and to file the Articles of Incorporation.” The incorporators are four or five persons appointed to complete the form and file the Articles of Incorporation with the office of the Secretary of State. Upon the return of the “filed” copy of the Articles of Incorporation, the incorporators will ask for an organization meeting to be called for incorporating the church.
- The incorporators will prepare the Articles of Incorporation using the suggested format provided in the booklet, BAPTIST CHURCH INCORPORATION IN NC by Dr. Lynn Buzzard, and then file them with the office of the Secretary of State. They will send two copies of the Articles of Incorporation plus the fee of $65.00. The Secretary of State will endorse the copies and return a “filed” copy to the incorporators.
- To activate the corporation, the church MUST have an organizational meeting. This meeting is essential to the process. The incorporators who filed the Articles of Incorporation will share with the congregation that they have received a “filed” copy of the Articles from the office of the Secretary of State. The incorporators will ask the church to call an organization meeting. A temporary moderator must be elected to serve until the church moderator can be elected for the new incorporated church. A secretary must be appointed to keep minutes of the meeting until the church clerk is elected. It is imperative that complete minutes be written concerning the procedures of this organizational meeting. The report of the incorporators concerning their filing and receipt of the “filed” copy of the Articles of Incorporation must be presented and adopted. Next, the directors of the incorporated church are then to be elected. These can be the deacons (in most churches), the trustees, the church council members or whomever the church would select. The church must then approve the Constitution and By-Laws, received the members from the association church, elect all the officers, teachers, committees, etc. of the church. Then vote to authorize the treasurer to close the bank accounts of the association church and open new bank account(s) in the name of the new incorporated church. Then vote to authorize the trustees to change all the deeds, titles, loans and any other legal documents into the name of the newly incorporated church. Then the church can transact any other business. ONCE THE ORGANIZATION OF THE NEWLY INCORPORATED CHURCH IS COMPLETED, AND ALL THE ASSETS, RIGHTS, AND LIABILITIES OF THE UNINCORPORATED CHURCH ARE TRANSFERRED TO THE INCORPORATED CHURCH, THEN A MOTION MUST BE MADE TO DISSOLVE THE UNINCORPORATED ASSOCIATION CHURCH. This motion and these actions are essential to complete the process. The church is now legally an incorporated church.