While the process of incorporation is not required for a church to function, there are situations where it may be a good idea for both the leaders and congregation of a place of worship to do so. Here are a few things to keep in mind when considering whether your church needs to take the next legal steps to incorporate and what it requires.
What Is Incorporation?
Incorporation is the creation of a corporate entity that exists separately from its owners and directors. As a separate entity, a corporation has the power to own property, to sue, to incur liabilities, and to be held accountable for its debts. Anyone may incorporate an entity by filing Articles of Incorporation with the appropriate state authority. In Virginia, the Articles must be filed with the State Corporation Commission, but other states generally require that the Articles be submitted to the Secretary of State. Once the state authority accepts the filing, the corporate entity comes into existence and is considered a fictitious person in the eyes of the law.
Do Churches Have to Incorporate?
Churches do not have to incorporate to become operative. People may associate as an unincorporated church and carry out religious functions. An unincorporated church will still automatically qualify for tax-exemption.
Does Incorporation Subject Churches to Government Authority?
Some people oppose church incorporation because they are concerned that incorporation will subject the church to government authority. However, even without incorporating, a church is subject to federal and state law. For example, a church must follow zoning statutes that limit the ways it may use property, and it must comply with laws designed to protect children. A church already is, and always will be, subject to government control whether incorporated or not.
Furthermore, incorporation does not limit the rights of a church to carry out its mission. The First Amendment protects churches’ rights to free exercise of religion and free speech regardless of incorporation status. That said, there are some major benefits to incorporating.
What Are the Benefits of Incorporation?
The first major benefit of incorporation is that a church may own, manage, and dispose of property without seeking permission from a court. In Virginia, an unincorporated church may not own property because the law does not recognize it as a fictitious person. Therefore, a trustee must hold the property for the benefit of the unincorporated church. A local court must appoint the trustee, and only the court has authority to change who serves as trustee.
The trustee must seek and receive permission from the court to sell, improve, or encumber the property. Although churches generally accomplish their goals as they relate to the property, they must petition the court for every change in trustee and every potential change to the property. This is a substantial imposition of government authority over a church’s operations. An incorporated church, on the other hand, may hold property in its own name and do whatever it wishes with the property without needing to secure permission from the government.
A second major benefit to incorporation is the limitation of personal liability due to the creation of a separate legal entity that is responsible for its own debts. It is a general legal principle that individuals are responsible for their own debts. Therefore, if there is no separate corporate entity, which the law recognizes as a fictitious person, the members of the group will be responsible for any liability arising from the group’s activities. Fortunately, Virginia has statutorily limited the personal liability of church members for the church’s debts, but Virginia has not extended that same protection to church leaders of unincorporated churches.
Incorporation, however, will provide liability protection to both church members and church leaders. The church becomes a separate legal person that is responsible for its own debts; therefore, injured parties cannot seek compensation from the people that make up or operate the church.
Another benefit of incorporation is that it can be undone. A church may decide to incorporate but can always dissolve the corporate entity and return to operating as an unincorporated group. This provides a church with great flexibility to decide what is best for its congregants and leaders.
Davis Law Group Can Help
Incorporation also offers other benefits to a church. Do you think incorporation might be right for your church? Would you like to know more? Make an appointment with one of our experienced attorneys who specialize in nonprofit and church law. At Davis Law Group it’s all about peace of mind.