The ABC's of Starting a Church - Incorporation
Updated: Apr 7, 2021
Written by Richard C. Baker
What kind of planning goes into the start of the church? Of course, the starting of a church begins with discerning God’s call. However, with the call, there are a lot of logistics that go into forming the church. These logistics, while having a spiritual element, and while certainly requiring God’s wisdom, are referred to as the temporal aspects of the church. Although temporal, these aspects should not be discounted since they are essential not only to the formation of the structure of the church, but to the healthy functioning of its community.
Here are several questions to ask when considering the temporal aspects of the formation of a church?
Do we incorporate? If so, under which statute in Illinois?
What considerations do we need to think about in choosing a place to meet?
How will we finance the new church?
What tax considerations should we be concerned with? Do we need to apply for 501(c)(3) exemption? What other tax considerations do I need to think about?
How do discrimination laws affect our church and its practices?
We will address these questions in a series of articles, beginning today with the first question, do we incorporate? Underlying this question is one of the governing structures of the church and underneath that is the question of what kind of community do we want to establish or, put another way, what will be the culture of our community?
While a church need not incorporate to act as a church, there are many advantages to incorporation. A church that is not incorporated is called an unincorporated association. One of the biggest problems with an unincorporated association is the lack of structure and the corresponding exposure of the members of the congregation with regard to liability for injuries or violations of the law committed by the church. All members of the unincorporated association may be liable. On the other hand, if incorporated, and the church is careful to follow its bylaws in governing the church, its members, and generally the church’s staff will be shielded from liability.
A further benefit of incorporation is that the entity is recognizable in a form that everyone understands. This has become more and more important in the ever increasing bureaucratic world we live in.
In this world, a church in the form of an unincorporated association may well be likened to a square peg in a world of round holes.
The association doesn’t neatly fit into the categories that government agencies, banks and other organizations have developed and, as such, will be either denied service or will have a lot of extra hoops to jump through.
In Illinois there are two types of corporations that a church may choose in its formation. The first is the well-known corporation formed under the Illinois Not For Profit Corporation Act (NFPCA), 805 ILCS 110/0.01, et seq. The second, far lesser known form, is a corporation formed under the Illinois Religious Corporation Act (RCA), 805 ILCS 110/0.01, et seq. Both have their benefits and drawbacks that are associated with the degree of regulation each requires.
In short, the RCA provides that “[a]ny church, congregation or society formed for the purpose of religious worship, may become incorporated” in the manner specified in that Act. The RCA calls for the simple filing of a Religious Incorporation Affidavit in the County in which the church is located. The affidavit is a simple prescribed form set out in the RCA and once filed no further action need be taken such as annual filings with the Secretary of State, etc. In addition to its simplicity, the lack of regulation under the RCA gives religious corporations a wide discretion as to issues of governance and operations. The lack of regulation of the RCA allows the governing body ‘to fly under the government’s radar’ with regard to its regulation and control of its participating members without concern for corporation laws of operation set out in the NFPCA. However, this lack of regulation can be very troublesome if there is disagreement among the leadership or members and a dispute arises.
On the other hand, most government organizations, banks and other institutions are more familiar with the NFPCA. I have seen instances where banks, due to ignorance, have required churches that have organized under the RCA to reincorporate under the NFPCA in order to get a loan or open an account. Having two parallel corporations can create real problems for the church down the road. I have also seen the IRS question the exemption of a church because it did not recognize its formation under the RCA. While the church was able to resolve the issue with the IRS, it took the intervention of an attorney and the untangling of a lot of bureaucratic red tape to clear up the problem.
Because of this, and because of the detailed legal structure and organizational guidelines that the NFPCA lays out, many attorneys, including the author of this article, generally prefer to incorporate under the NFPCA. The NFPCA provides the essential elements of governance and structure so that, if matters are overlooked in the bylaws, the statute itself will often fill in the blanks thereby giving guidance as to what must be done. The regulations of the NFPCA also require the leadership of a church to formalize and follow their own governance and to report to the Secretary of State annually as to who is in leadership. This can act as a check and balance on the leadership of the church. Moreover, Illinois courts are reluctant to get involved in the organizational conflicts between religious organizations and their members. Here again, structure can be a friend in resolving such conflicts.
In the end, careful consideration as to the degree of structure and regulation of the church in its formation is essential to the establishment of the culture of its community and therefore must be factored in with the basic decision, to incorporate or not.