3 Things to Know About Church Incorporation

By: 
Jaclyn Tarman

Many churches aren’t incorporated or might assume that they are. Church incorporation is important to think about but can feel like a complex subject to learn. To break it down, here are three things to know based on the article "The Personal Liability of Members of Unincorporated Churches" by Richard Hammar: 

  1. There is reduced risk by having your church incorporated. As Hammar wrote, "Churches can simply and easily protect their members from personal liability for the actions of other members by incorporating the church. While incorporation will not protect a member from liability for his or her own actions, it will protect other members who did not participate in those actions" (p. 4). If churches aren't incorporated, individual members could be faced with charges from actions of other members or the church itself.

  2. If you think your church is incorporated, you should double check. Hammar wrote that a church’s corporate status can ‘lapse’ due to:

    •  “…failure to file annual reports with the state. In many states, church corporations must file relatively simple annual reports with the state. In a surprisingly large number of cases, churches do not file these reports. In some states, the failure to file these reports will cause the church's corporate status to lapse" (p. 4). Hammar recommends that it's wise for churches to check each year with the office of the secretary of state to confirm their corporate status.

    • A church’s incorporation expiration. Often churches incorporate for a limited timeframe, such as 25 years. Once the time limit is up the incorporation expires without anyone's knowledge. Hammer suggests churches check with the office of the secretary of state to make sure their incorporation isn’t expired. If your church was incorporated for a limited term, he also recommends amending their incorporation to be indefinite or, in legal terms, "perpetual." 

  3. It's harder for a church to operate without incorporation. Opening a bank account, managing church taxes or payroll, signing a lease and borrowing funds for a church building can be difficult and risky for churches without incorporation. Plus, church members can be held personally responsible for all contracts with the church if not incorporated. With incorporation, churches can avoid these pitfalls in their operations. 

 

CIF only lends to incorporated churches because of the risks detailed above. If your church is incorporated and would like to know more about church borrowing, contact us today. If you have specific questions on church incorporation, talk to your legal counsel.

 

Hammar, R. R. (1995). The personal liability of members of unincorporated churches. Church Law & Tax Report, 1-6.

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