ESSENTIAL STEPS FOR EFFECTIVE INCORPORATION
- Reserve a name with Secretary of State.
- Select individuals to serve on the Board of Directors.
- Appoint or elect officers.
- Develop a short mission statement – 1-3 sentence purpose statement and 1-2 page description of program activities.
- Retain necessary consultants: an attorney or nonprofit expert to incorporate, create bylaws and to obtain tax exempt status.
- Hire or retain an accountant for annual audit and mandatory government filings before the organization starts collecting offerings, tithes and other donations.
- Prepare or have prepared Articles of Incorporation to protect incorporators, leadership and officers from personal liability.
- Have first meeting of the Board of Directors to finalize organizational decisions.
- Prepare or have prepared a Code of By-laws and have them adopted by the Board of Directors and church membership.
- Apply to IRS for an employer identification number (E.I.N.).
- Establish a bank account and check signing procedures.
- Designate which officer(s) or person(s) have the authority to sign checks.
- Prepare or have prepared and file Form 1023 with IRS to get tax exemption.
- File for state and local sales tax exemptions.
- Purchase or acquire the necessary insurance coverage: general liability, property and casualty (fire, theft, flood, vandalism, etc.), clergy and ministerial counseling, sexual abuse and non-owned auto liability, etc.
- Also, purchase Directors & Officers (D&O) liability insurance coverage.
- Establish a calendar system to make sure the church or para-church organization complies with the following (and in most cases mandatory) reporting requirements: (1) Annual Information Return to the Internal Revenue Service: (IRS Form 990); and (2) others federal, state and local reporting requirements.
- Establish a system for receipting gifts of over $250 to comply with IRS substantiation requirements.
- Rent or Purchase Office Space.
- Purchase or lease a postage meter and apply for a nonprofit permit number with the United States Postal Service in order to mail items at the reduced nonprofit bulk rate.
BENEFITS OF CHURCH INCORPORATION
It is important for churches to incorporate because:
1) The name of the church is formally protected and no other organization may use it without the church’s authorization.
2) Incorporation provides stability to the ongoing church structure.
3) Incorporation lends credibility to the church.
4) Banks and other business entities with which the church does business prefer to transact business with a formally recognized legal entity.
5) Individual donors/members can claim a federal income tax deduction of up to 50% of their adjusted gross income from donations made to the church.
6) Incorporated churches have exemption from “some” federal and state taxes (e.g., income, property, and sales taxes).
7) Generally, the church—and not its individual members—are liable for the debts and obligations of the church.
8) An incorporated church can provide indemnification (protection or reimbursement) for its church leaders.
9) A church that is incorporated may purchase, sell, mortgage and lease land and buildings in the name of the church corporation.
10) Retirement plans and funds for church leaders and employees may be set up more easily with a corporation.
11) Incorporated churches may receive federal grants through government or faith-based social services and private foundations.
12) Churches that are incorporated may receive special mailing rates and purchasing discounts from business and vendors.