Court Tells Pastor, You Are No Longer In Charge

Written by Founder Raul Rivera on Mar 17, 2009 in IRS Compliance

A Washington court ruled that a church's board members were not board members because the church did not follow state law in selecting them. Moreover, because the church never officially adopted bylaws in their organizational board meeting (or at any other board meeting), the procedures followed in what they thought were the church's bylaws were trumped by state law. Though the church had filed its annual report and listed its "board members," the court further ruled that even if the church filed its annual report stating its board members, they were not officially board members because the church never had an official board meeting to select its board. This meant that even the board that the church thought it had was ruled invalid. The pastor and his entire board lost their positions and the judge ordered a court supervised election of the board by the members. This happened because of two reasons.

  1. The church never listed its initial board of directors in the articles of incorporation. Many states do not require that they be listed, but also do not prohibit it. Regardless of what your state requires, we always recommend that you include them.
  2. The church never had the organizational board meeting. It is imperative that the church, upon incorporating, write bylaws and have them ratified in the organizational board meeting. This is so important that at all of our conferences we spend a substantial amount of time teaching how to conduct a board meeting correctly, as well as how to take and format minutes.

There is a big lesson to learn from this!

Please be diligent in dotting your i's and crossing your t's when it comes to the following:

  • The procedural requirements of state nonprofit corporation law and a church's own bylaws cannot be ignored. Doing so can lead to a complete loss of the church you started.
  • You must conduct the organizational board meeting during which time the new board of directors (including the pastor, as president) are elected.
  • You must give sufficient notice to the board of directors according to state law, no matter how much you trust them. It is for your and their protection.

Long Distance Board Members!

One of the most difficult things that pastors of young churches have to do in the early stages of the church is to select board members. Most start a church with just a few family members and close confidants who feel led to help establish the church. At the same time, when the church incorporates and establishes itself on a legal foundation a board of directors has to be selected. What should the pastor of a young church do when he or she feels there is no one to choose from his or her church due to the fact that they are either too young in the faith or the pastor has not known them long enough to entrust them with such a great responsibility? The answer is to appoint long distance board members. When selecting board members they do not have to be official members of the church, neither do they have to live in the same state. The only current requirement is that the board needs to be balanced according to the following IRS regulation.

  • The majority of the board must be made up of unrelated individuals.
  • The majority of the board must be made up of uncompensated individuals.

The IRS does at times ask why the board is made up of people who do not live in the local community. The answer is simple. In selecting board members, you picked individuals who can best help further the purposes of the church, Their location is irrelevant to their ability to serve the best interests of the church. Additionally, when the church reaches a stage of maturity and growth then individuals from the local congregation may be valid options for the pastor to select.

When selecting board members, be sure to follow state law and the rules of your own bylaws. In our conference we will teach how to to balance the board and how to use the IRS definition of relationship to ensure each member qualifies to serve on the board. We will also teach you how to know what a disqualified individual is and how to avoid a conflict of interest situation as defined by IRS regulation.

 

Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Blessings,
Raul Rivera


And receive Book 1 of our Grow Trilogy FREE today! This series gives you the strategies you need to get started growing your church plant today!