The Word of God makes it clear that the destiny of every believer and local assembly is firmly in the Lord’s almighty hand. Yet, the Lord expects His people to take precautions against the attacks of our enemies (Satan, the world, the flesh) and trust Him wholly for the matters outside our control. We are admonished to be as wise as serpents and as harmless as doves (Matt 10:16).
The purpose of this article is to set out the criteria believers can use to make a wise decision about incorporating a local assembly.
What is incorporation?
Incorporation is the formation of a legal “person” which has its own separate identity and existence. A corporation has nearly the same bundle of rights that human individuals have. It can transact business, buy, sell, and own all sorts of property, sue and be sued. Plus, a corporation can have “perpetual” existence that outlasts its incorporators.
What benefit is there to incorporation?
The primary benefit to incorporating is to limit the potential liability of the shareholders (members) to the value of the property that is actually owned by the corporation. Without this protection, every individual who is linked to an entity, potentially has personal liability for judgments against the entity. Certain non-exempt property they own may be sold to pay the judgment against them.
As a simple example, suppose a Sunday school visitor claims his teacher committed assault and battery against him. This allegation is considered intentional, and is not covered by insurance (even if it is completely untrue). If the Sunday school teacher were found to be liable in a court, the leadership of the assembly, and in some instances, each individual “member” could be personally responsible to pay a portion of the judgment from their own possessions. Incorporation would limit liability to the property “owned” by that local assembly.
What are the disadvantages of incorporation?
A corporation must go through the process of incorporating, which means that certain documents need to be filed with the Secretary of State in the state of incorporation, fees must be paid which vary by state. After incorporation, there need to be annual meetings, elections of the leadership (of the corporation, not the overseers), a bank account opened, and records kept. This is not an overwhelming burden, but it takes a conscientious effort to fulfill. Next, the corporation needs to request tax-exempt status with the IRS (federal) and state taxing entity for the state of incorporation. Without obtaining tax exemption, the corporation will be forced to pay taxes on income it generates (excluding gifts) and offerings are not tax-deductible to givers. Gaining tax-exempt status does require considerable effort, but once approved, requires little to be maintained. The use of an attorney and/or accountant is helpful, but certainly not required.
What are the alternatives to incorporation?
A local assembly does not need to incorporate to have tax-exempt status; indeed most are not incorporated. This type of entity is known as an unincorporated tax-exempt entity or association. It may be known by a different name in some states, but this is the term used to describe it by the IRS. This entity can and should become tax-exempt by either meeting the requirements called out at the IRS website, or formally obtain tax-exempt status with the IRS and state taxing authority. If a local assembly does not have state and federal tax-exempt status or meet the requirements of exemption, offerings are not tax-deductible by givers, and the assembly is legally liable to pay income taxes on money it generates (excluding gifts), as well as property, state, and local taxes. It behooves those in leadership to verify records confirming tax-exempt status or compliance with the current requirements. The IRS issues exemption letters to confirm approval of tax-exempt status. One can also verify tax-exempt status by checking with the IRS at www.irs.gov/charities, and selecting “Search for Charities.” Verification with the state taxing authority varies by state. Contact the taxing authority for your state.
Should we incorporate?
In my experience, most local assemblies do not have the exposure to liability to warrant the time and expense of incorporating. Although, it is a question each assembly must answer after prayerful consideration. If one or more of the following conditions apply to an assembly, incorporation should be seriously considered:
1. The assembly has a significant number of visitors and guests from outside the assembly. This especially includes a large Sunday school work in the community.
2. The assembly owns vehicles that are used to transport outside visitors.
3. The assembly takes excursions and field trips, especially those open to guests outside the assembly.
4. There are small group meetings or Sunday school classes with only one teacher in an enclosed area, especially where there are visitors from outside the assembly.
5. The hall is unattended throughout the week in an area with criminal activity.
6. The assembly owns off-site properties used for activities approved by the assembly such as summer camp facilities, lakefront property, and visitor accommodations.
7. Large conferences where guests are given overnight accommodation in private homes and/or hotels and meals are prepared on-site (at the hall), as opposed to catered.
8. An assembly has wealthy believers in fellowship, especially those in leadership.
Isn’t insurance enough?
An excellent insurance policy covering the hall, its contents, vehicles and other property is indispensable, whether incorporation is chosen or not. An umbrella supplement to cover additional liability of $500,000 to $1M is usually not very expensive, yet affords coverage in a greater variety of situations. Practically speaking, insurance should always be the first line of defense for an assembly. Most insurance coverage includes the cost of hiring attorneys to defend the assembly against lawsuits, which is extremely important. It is important to realize insurance does not cover many of the types of liability an assembly may encounter. Intentional conduct matters such as assault, battery, and inappropriate conduct are not covered. Liability for activities that occur on the premises at the hall may not be covered on a field trip, camp, or other off-site activity. Remember that the mere allegation of wrongdoing means that costs will be incurred in defense of an assembly. The fact that wrongdoing never occurred does not mean the assembly won’t be sued. This is a sad truth and, indeed, a sign of the times in which we live.
How should local assemblies hold title to real property?
If an assembly chooses to incorporate, then title to the assembly’s real property should be transferred to the corporation. The officers of the corporation will execute the documents needed to buy, sell, or borrow against property. If an assembly is an unincorporated tax-exempt entity, real property is ordinarily held in trust for the entity. The trustees have the power to buy, sell, and obtain loans on the property. As some trustees move or pass away, others may be added by recording an amendment substituting the trustees to be removed with the trustees to be added. The exact terminology and method of holding the property in trust varies from state to state, so it is wise to consult an attorney or real estate professional before doing so.
Questions can be directed to Mr. Singleton at email@example.com.