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25 Sep 2016

How to Start a Church the Right Way

Raul Rivera

Pastor John and his wife Leslie felt a strong calling from God to start a church in their community. With much prayer, and the love and support of family and friends, they decided to take a step of faith and trust the Lord.

They began taking all of the necessary steps and doing all of the necessary research to determine when and where they would beign their church and how to get others to buy into their vision.

But during this process they came across an important aspect of church planting that they had not previously considered: the importance of churches having a solid legal foundation.

After reading an article on the topic of starting a church, they researched the steps involved in setting up their church’s legal foundation, but felt it was a little too much work, especially since they would be the ones tackling the brunt of the work.

Like so many other church planters, Pastor John and his wife decided to pause the legal process because they felt any extra time they had available would be best spent serving the community and growing the church. After all, they could revisit the legal set-up at the 6-month mark, once they saw if the church was going to actually “make it”.

It only takes one accident

By the end of their first month, the church had grown to about 15 people. A few of the members who were determined to see more growth decided to hold an outreach at a local park to let the community know about their new church.

Shortly after the outreach began, a 4-on-4 touch football game started, and everyone was having a great time watching the game. Then a toddler of one of the dads who was playing in the pickup game wandered onto the field and was trampled by one of the men who was in a full sprint.

It was an unfortunate accident. The child was rushed to the emergency room to receive medical attention for his injuries. Fortunately, the child did not suffer any broken bones, but he did require a few stitches and a brace for a severely sprained ankle.

Pastor John and his wife felt horrible about the accident and sincerely apologized to the family. They even organized a team to take dinner to the family at least two nights per week for the next few weeks.

They thought everything was okay and that everything had been smoothed out between them and the family of the toddler, but several weeks later they were surprised at what they received in the mail.

The parents of the toddler decided to sue the church for medical expenses and negligence.

Initially there was great relief because the church did not “legally exist” and therefore, it could not be sued. The relief, however, was short lived as all 15 members of the “non existent” church found themselves on the court docket, being sued for $300,000.00.

The right approach to starting a church

Although the above story is fictional, it is one that is all too common amongst new church plants.

What should this church have done differently? Is there anything they could have done to prevent this from happening?

Let me introduce you to the corporate veil.

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When a church incorporates, it creates a legal shield that protects the individual members from being personally liable for the actions of the church.

In the situation with the toddler getting injured at a church outreach event, if the church was incorporated, the church would have absorbed any legal penalties and while it would be a hard hit to the success of a young church, the members would not be at risk of losing their personal assets.

That said, let us now take a look at how to legally establish your church or ministry.

Why you should establish your church's legal foundation now

Most church planting organizations will counsel their members to incorporate one to two years before they ever hold their first service.

There are a couple of strategies in taking this approach:

  1. Legal protection: Establishing your church or ministry on a solid legal foundation  removes liability from you and your church members.
  2. Donations: Once incorporated, the church can receive tithes and offerings and issue a tax-deductible receipt to the donors in a provisional non-profit status. This will help the church have the necessary capital to put together a successful launch.

Below are 5 steps every church and ministry should take when establishing its legal foundation.

5 steps to legally start your church

1. Incorporation

The first step in legally establishing your church is reserving the name of your church or ministry and drafting and filing the articles of incorporation with the Secretary of State.

Your articles of incorporation should include a purpose statement, a dissolution statement, and other state and IRS provisional language.

If your church plans to ordain ministers of the gospel, make sure that the purpose statement declares that it has the intent to license, ordain, and oversee ministers of the gospel.

2. Federal Employer Identification Number (FEIN)

The second step is obtaining a Federal Employer Identification Number (FEIN).

In essence, this number acts as your organization’s Social Security number. Furthermore, this number, in addition to your articles of incorporation, allows you to open a bank account in the name of the organization, and thus begin receiving donations.

This is one of the most simple steps of the process, but it can be a severe problem if the FEIN is obtained incorrectly.

For example, if your church obtains an FEIN that has a “ministry designation” then it will be expected to submit Form 990 to the IRS. Most likely your church will be unaware of this responsibility and after 3 years of not filing, your church will have its 501(c)(3) status automatically revoked.

This is one reason why it is important to correctly obtain your FEIN.

3. Bylaws

The creation of the bylaws is step three. The bylaws, aka your internal governing documents, will be the most important document to your church (outside of the Bible, of course).

This document helps protect your church from the aggressive public accommodation laws that violate the church’s First Amendment Rights. (For example, same-sex marriage laws, transgender laws, etc.)

(Related Article: “Same-Sex Marriage, Now Transgender Bathrooms; What Churches Should Know”)

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Keep in mind that your bylaws are a living document.

What I mean by this is that as legislation changes, so too do your bylaws. The document will need to be updated periodically to reflect the current laws that may negatively impact the church.

4. Policies

Step four is creating a clear set of policies.

Think of the bylaws as the fundamental and foundational piece of the ministry and the policies as the document that governs day-to-day activities. Churches and ministries that go through our StartRIGHT® Program receive policies such as:

  • Accountable Reimbursement Policy
  • Conflict of Interest Policy
  • Benevolence Policy
  • Indemnification Policy
  • Anti-Terrorism Policy

Policies help protect the integrity and the vision of the ministry and help to satisfy state and federal requirements.

(If you are interested in a resource that contains more than 40 policies, check out our Documents Suite, or give us a call today at 877-494-4655.)

5. Obtain 501(c)(3) approval

The fifth step is securing 501(c)(3) approval with the IRS. Of the 5 steps mentioned, this is the most time consuming and labor intensive step of the entire process.

IRS Form 1023 is twenty-six pages long and when it is properly filled out, it is anywhere between 80 to 100 pages of content for churches, and 60 to 70 pages of content for ministries.

It is estimated that the completion of Form 1023, from beginning to end, takes anywhere between 100 to 150 hours to complete. I do not know of many pastors who have that type of spare time available.

But this is where we can help.

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When you submit Form 1023 to the IRS, the IRS sends you an acknowledgement letter within 4 to 6 weeks. Once you receive the acknowledgment letter, you can expect to receive your approval, Federal Determination Letter (FDL), within 3 to 6 months.

One more step to not overlook

In addition to the 5 steps mentioned above, there is an additional step that pertains to state-level exemptions. Oftentimes, these state-level exemptions can save your church or ministry thousands of dollars over the course of a year.

For example, 31 of the 50 states offer sales tax exemption for churches and ministries, but in the majority of the states, you have to do additional filing with the Secretary of State in order to obtain the exemption.

In addition, states such as California, Texas, and Utah require corporations in their state to pay a franchise tax each year. In short, franchise tax is a corporate tax levied upon a corporation for the privilege of doing business in a particular state. These states do, however, allow churches and ministries to apply for exemption from this tax.

There are several other exemptions at the state level that may apply to your church or ministry. Give us a call today at 877-494-4655 to find out what exemptions pertain to you.

What are you waiting on?

God never promised that following Him and starting a church would be easy, but He did promise that He “will never leave you nor forsake you.”

I believe one of the ways God supports us and reminds us of His presence is by placing certain people in our lives at specific times. I do not believe it was just an accident or coincidence that we have crossed paths.

Our purpose here at StartCHURCH is to empower pastors and church leaders with the knowledge to confidently lead their churches in today’s world.

It is our desire to serve you well and to be a part of your team, even if it is just for a season, in order to help you establish a solid legal foundation that will take you and your church to the next level.

Whether you are a new church plant or an existing church, I encourage you to check out our StartRIGHT® Program to see how we can help you and your ministry. Lastly, we would love to meet you. Check out our conference schedule by clicking here to see when we will be in a city near you. We hope you will join us soon!

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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.

Raul Rivera

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About the Author

Church Planter. Speaker. Author. CEO. Raul Rivera has had ample experience in the church planting world. His current venture, StartCHURCH, has helped 1000's of churches to start right. Raul has compiled an array of manuals and software tools that help churches stay compliant with the IRS. He also hosts over 35 national conferences per year, training pastors on how to launch their churches. Raul is married to his wife Genel, and they and their five children live in Atlanta, GA.