How to Legally Operate Your Ministry in Another State
It had been nearly 8 years since Pastor Michael started his church in Memphis, Tennessee. The years had gone fairly smooth for him and the church (not to say that they did not experience any bumps in the road). The church had experienced growth, and lives were changed in the process.
Pastor Michael was now looking to expand and open a second location in nearby Olive Branch, Mississippi. He and a board member had found a location that was affordable and provided room for expansion.
The problem was that Pastor Michael’s church was incorporated in Tennessee and not in Mississippi. Pastor Michael knew that there was a way to handle the situation properly, but he was not sure of what needed to be done.
What to do when your church expands to another state
When your ministry’s activities require that you establish a second location in another state, you must consider the legal steps to be taken. In most instances, it will be necessary to establish a foreign entity in the new state in which you will operate.
A foreign entity is when an existing corporation that is incorporated in one state registers to also “do business” in another state.
Creating a foreign entity gives a corporation the legal right to conduct ongoing business in another state. A foreign entity is not needed when you do short-term work, like hosting a week-long conference in another state or doing speaking engagements in various cities around the country. However, applying for a foreign entity status in another state is necessary when your ministry will have a continued corporate presence in another state.
Creating a foreign entity gives a corporation the legal right to conduct ongoing business in another state.
When applying for a foreign entity is necessary
Although applying for a foreign entity status in another state is not always necessary, you should know when it is important to do so.
Let us look at 2 common examples.
1. Establishing a church location in another state
Take, for instance, a church incorporated in Washington, D.C. Perhaps at some point in time, this church wants to establish a satellite location in nearby Laurel, Maryland. If that were to happen, the D.C. corporation would need to create a foreign entity in Maryland for its second location.
2. An outreach ministry expands to other states
Consider the following scenario. An urban mission ministry in Atlanta, GA decides to expand its reach to nearby states. It creates branches of its ministry in Charlotte, NC and Orlando, FL. Since the ministry is incorporated in Georgia, it will need to establish a foreign entity in North Carolina and one in Florida so that it can properly operate the business of the corporation in both of the new states.
Protection afforded by a foreign entity
Establishing a foreign entity is key to protecting the work that your organization does in another state. Forming a corporation creates an artificial entity that is separate and distinct from its members. This is called a corporate veil.
One of the key strategies we teach at our conferences is that, in the case of litigation, this corporate veil helps protect the assets of your board of directors and members because a lawsuit would be filed against the corporation itself, not the individuals who operate or participate in the activities of the corporation.
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If you choose to host your activities in another state on a continuing basis, you forfeit the protection of the corporate veil, unless you create a foreign entity in the new state to protect your operations.
This may not seem important at the moment, but it can have serious legal ramifications in the future. Let me give an example using the church in Washington D.C. that establishes a satellite location in Maryland.
The D.C. church does not establish a foreign entity in Maryland. At the church’s first worship service in the satellite location, there is an anointed time of worship where many are moved by God’s presence.
During the altar call, a few participants get jostled and one person sprains his ankle. This person then decides later to sue the church in Maryland for dangerous practices and an unsafe environment. In this instance, the satellite location would be treated as a group of independent, unassociated individuals who are held liable for the lawsuit.
Each of their individual assets could be in jeopardy. However, had the church in this instance established a foreign entity, the corporate veil of the church corporation in D.C. would also protect the members at the second location from liability.
Responsibilities of the foreign entity
If your church or ministry is incorporated with your state, then you are most likely aware that your state requires your corporation to maintain certain filings. Those filings may include an annual report, biennial report, charity registration, or a combination of the three.
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In the same manner, your foreign entity must maintain all filing requirements with the state in which it operates. Each state treats a foreign entity just like any other nonprofit corporation in that state. Failure to file the required state reports for the foreign entity can result in losing the corporate presence in that state, as well as the benefits that come with a corporate presence.
The next move for your organization
The benefits of establishing a foreign entity reach beyond the corporate veil of protection. When a foreign entity is created, you can also take advantage of any tax exemptions available in other states where you hold offices, such as the sales tax exemption.
A foreign entity is just one strategy that you can use to enhance the growth and impact of your ministry. I invite you to join us at one of our upcoming conferences where you will learn about other game changing strategies to implement in your ministry.
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The evidence shows that creating a foreign entity is a strategic and necessary plan when you will be operating your activities on a continuing basis in other states. If you think that your church or ministry is in need of a foreign entity filing in another state, do not delay.
Give us a call today at 877-494-4655! We are here to help you file the necessary paperwork to expand your church’s reach and impact in this nation.
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