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Court Rulings Widen the Path For Church Owned Businesses
By Raul Rivera
The trend of church ownership in for-profit businesses is on an upward trajectory. Church leaders are increasingly leveraging the acquisition and creation of for-profit entities to enhance their outreach capabilities. While separate legal entities, these enterprises remain under the church's ownership. With proper structuring, for-profit entities can provide essential revenue streams to the church without compromising its 501(c)(3) tax-exempt status.
Consequently, churches must establish independent for-profit corporations and hold shares in them. After taxation, these corporations' profits are then allocated to the church as dividends. According to Internal Revenue Code 512(b)(1), these dividends are not subject to taxation when received by a 501(c)(3) organization.
At StartCHURCH, we specialize in guiding churches through the intricacies of establishing for-profit businesses. We understand the importance of proper structuring, as it plays a pivotal role in enabling these ventures to thrive and generate substantial revenue. Our tailored approach ensures that the intricate details are addressed, allowing your church to engage in entrepreneurial endeavors without jeopardizing its tax-exempt status.
Concerns in Hiring Practices of Church-Owned Businesses
Amidst the advantages of churches owning for-profit businesses, some have expressed concerns that the current legal landscape would require their for-profit businesses to employ individuals whose lifestyles and convictions may not align with their doctrinal beliefs. Shortly after the 2020 Supreme Court ruling that employment discrimination based on sexual orientation or gender identity violates Title VII of the Civil Rights Act, the Equal Employment Opportunity Commission updated its guidance to begin enforcement (Bostock v. Clayton County).
However, in its ruling, the Supreme Court recognized the inherent conflict between anti-discrimination mandates and exercising religious freedoms. The ruling deliberately preserved the potential for future adjudication on how religious liberty and First Amendment rights might intersect with and, in certain instances, supersede Title VII as per the Religious Freedom Restoration Act (RFRA). This acknowledgment indicates that RFRA could override Title VII's provisions under specific circumstances.
A For-Profit Company and a Church Sue in Court to Have Hiring Rights According to Their Faith
In June 2023, the Fifth Circuit Court of Appeals delivered a first impressions verdict influenced by the precedent set in the Bostock case. The plaintiffs, Braidwood Management, Inc., a for-profit organization, alongside Bear Creek Bible Church, both adhering to Christian doctrines, initiated legal action against the EEOC. Their lawsuit contended that the EEOC's guidelines failed to accommodate employers who, on religious grounds, object to certain conduct.
Braidwood Management, a firm operating health-related entities, along with Bear Creek Bible Church, which observes traditional Christian teachings on marriage and gender, enforce employment protocols that preclude hiring individuals whose actions conflict with their religious tenets. This encompasses a refusal to recognize same-sex unions and requires restroom use according to one's biological sex. Steven Hotze, Braidwood’s proprietor, maintains that diverging from these principles would violate his Christian values and personally implicate him in actions he deems sinful.
Braidwood and Bear Creek contended that the EEOC’s current application of Title VII threatens their religious beliefs. They assert that compliance with the EEOC's guidelines would compel them to behave in ways that are fundamentally at odds with their faith.
The Fifth Circuit held that Bear Creek, as a church, was statutorily exempt from Title VII, lacking standing in the case. However, it observed the difficult situation of Braidwood Management as a for-profit entity, akin to navigating the narrow strait beset by the monsters Scylla and Charybdis from Greek mythology. On one side lay the danger of violating Title VII and EEOC guidance; on the other, compromising their sincere religious beliefs. In acknowledging Braidwood’s legal standing, the court highlighted the immediacy of the conflict and the untenable burden, effectively forcing Braidwood to choose between two equally perilous outcomes—a classic catch-22 scenario.
The court’s ruling granted summary judgment in favor of Braidwood, highlighting the statutory protection afforded under the Religious Freedom Restoration Act (RFRA) and the First Amendment. In this context, the court determined that the enforcement of Title VII imposed a substantial burden on religious exercise and affirmed that the RFRA compels exemptions to Title VII. Furthermore, as a matter of judicial economy, the court upheld the Free Exercise claim and the right of expressive association, reinforcing the notion that the First Amendment's guarantees necessitate exemptions to Title VII's application in scenarios where it conflicts with religious beliefs and practices (Braidwood Mgmt. v. Equal Emp't Opportunity Comm'n, 70 F.4th 914 (5th Cir. 2023)).
Conclusion
Traditionally, churches and ministries have thrived on the generosity of their congregations through tithes and offerings. Yet, exploring additional revenue avenues is a biblical principle that can secure their enduring impact across generations. Drawing inspiration from Nehemiah 13:10-13, where the Levites faced challenges due to neglected tithes, we see the importance of diversifying resources. Much like the Levitical priests who sustained themselves through traditional tithes while also engaging in agriculture and livestock for added support, modern ministries can follow suit by developing innovative financial channels.
This harmonious blend of conventional support and creative income sources creates a more resilient and sustainable model for growth and service.
If you're interested in learning more about sustaining your ministry, reach out to us at
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