Church Finances and Business: Should My Church Incorporate (God’s Law)

A few months ago, I posted two articles on whether a church should incorporate.

Church Finances and Business: Should My Church Incorporate? (Federal law)

Church Finances and Business: Should My Church Incorporate? (State law)

But I get emails, and I just received one asking,

The subject of incorporation is causing a great deal of divisiveness in our family. I read your article on this subject but failed to find anything about a scriptural basis for submitting to the state’s ordinances on this legal action. What would be the defense for the statement, “It is scriptural to incorporate”?

It’s a fair question, although it’s not one I run into often. Around here, even the most conservative churches often incorporate because it’s the only way to get clear title to real estate. Banks routinely insist on it, and I’ve not run into anyone who has been greatly troubled by the idea.

Moreover, the courts routinely distinguish between the church as legal entity and the church as a spiritual body. As a result, the courts sometimes allow a church act in violation of the statute under which it is incorporated when its spiritual principles contradict state law. This is the holding of the famous Sixth & Izard Church of Christ decision, in which the deacons sued for an accounting for the church’s funds, arguing that the nonprofit corporation statute mandates that members of a nonprofit corporation receive accountings on request. The elders refused to produce the accounting, claiming that, as the spiritual leaders of the church, such things were exclusively their decision, regardless of state law — and the elders prevailed contrary to the state’s incorporation statute.

This ruling is pretty typical of church law, but I can’t say whether it would be followed in a given state as each state establishes its own corporate law.

Therefore, as a rule, incorporation of a church doesn’t change the church’s organization or operations any more than the church chooses. However, prudently, to avoid conflicts, the leadership of the church would adopt bylaws and articles of incorporation that would reflect the spiritual character of the church. In Alabama, we have a special statute just for churches that does nothing but authorize a church to incorporate so it can own real estate and grant mortgages. It says nothing about the internal affairs of the church at all.

Is incorporation authorized?

Now, the scriptures, of course, do not address the question either way, as corporations weren’t invented until many centuries later. If we were to adopt the maxim that all things not authorized by the scriptures are prohibited, then not only is incorporation prohibited, but so are church buildings and mortgages among many, many other things. Those who argue from authority expand the principle by reference to the doctrine of expedience. The question is whether a building, for example, is an expedient or aid in support of something that is clearly authorized, such as worship, and indeed it is. But incorporation is an expedient to buying and mortgaging a building in nearly all states and so is just as much an expedient as a building.

A better question

I, of course, reject this line of reasoning, as I find that it’s foreign to the scriptures and leads to absurd results. Check out the posts indexed under An Experiment in Christian Dialogue and CENI. I think a much better test is: Would incorporating assist the church in furthering God’s purposes for the church? This changes the inquiry from hopelessly subjective questions about what is a silence vs. an aid vs. an addition to the more scriptural question of what does God wants his church to do? And the first answer is that the church is to be the body of Christ, that is, the incarnation of Jesus through the church and its members. We are to be Jesus to the world.

Would incorporating help us do that? Well, it depends on why we incorporate, I suppose, but here are some reasons to incorporate:

* To take title to real estate

* To mortgage real estate

* To limit liability to the church so that each member is not personally liable for every wrong committed by every member while on church “business” (as the courts would use the term).

Now, just try to persuade someone to join your congregation if under the law of your state every member is personally liable for every church liability — the mortgage, the monthly bills, and damages for anyone hurt in the building or on a church trip. I think if you were open and honest with your converts, you just might lose a few members.

* To gain 501(c)(3) status so contributions are deductible and the church owes no taxes. IRS Publication 557 states,

Organizing documents. Each application for exemption must be accompanied by a conformed copy of your organization’s Articles of Incorporation (and the Certificate of Incorporation, if available), Articles of Association, Trust Indenture, Constitution, or other enabling document. If the organization does not have an organizing document, it will not qualify for exemption.

In other words, unless there’s written corporate charter or trust formation document or the like, the church isn’t a 501(c)(3) organization. (And, no, mailing in the New Testament will not do.) And that means contributions won’t be deductible and that the church owes income tax on its taxable income.

Would being exempt from tax and able to receive contributions further the church’s pursuit of God’s purposes? Unquestionably.

Now, I’ve read all sorts of articles on the Internet arguing that it’s just horrible for a church to incorporate — and these articles reflect as much knowledge of corporate law as I have of Sanskrit. Don’t let preachers ignorant of their subject lead you to make a serious mistake. Talk to a good lawyer who will take the time to study up on the church law of your state. And then apply your theology to what you learn. Don’t follow a blind man into a pit (Matt 15:14).

Scriptures

(Rom 13:1 ESV) Let every person be subject to the governing authorities. For there is no authority except from God, and those that exist have been instituted by God.

(1Pe 2:13-14 ESV)  13 Be subject for the Lord’s sake to every human institution, whether it be to the emperor as supreme,  14 or to governors as sent by him to punish those who do evil and to praise those who do good.

It is not inherently wrong to be subject to the law of the state. You are, whether you like it or not. The question isn’t whether the state governs your organization, but whether you can elect under state law to be governed under a law that better serves God’s purposes.

If you don’t incorporate, then state law decides what sort of legal entity your church is. In some states, it’s an unincorporated association, and in some states, that means every member is liable for all church debts. Other states have changed this result by statute. And where the result is changed by statute, the church is governed by an unincorporated association statute that is very similar to a nonprofit corporation statute.

Some states treat unincorporated churches as trusts with the elders as “trustees” having control of the property. That can be really tricky in a church without elders. If you have no elders, who are the trustees?

But all states allow you to elect to incorporate — not to come under state law (you’re already under state law), but to pick a better form of organization. Hire a lawyer and see how well a corporate form fits your church and its purposes. If it’s better than the alternative, do the smart thing.

(Mat 22:20-21 ESV)  20 And Jesus said to them, “Whose likeness and inscription is this?”  21 They said, “Caesar’s.” Then he said to them, “Therefore render to Caesar the things that are Caesar’s, and to God the things that are God’s.”

I read that to mean, among many things, that churches shouldn’t be paying taxes to Caesar unnecessarily. Get yourself organized as a 501(c)(3) organization! The way I have it figured, money given to a church is God’s and not Caesar’s. Take advantage of the rules that let that be so!

Just so, property law and organizational law has long been the prerogative of Caesar, that is, the state. No one has ever been able to incorporate except by permission of the state. But every state has created statutes designed to let churches incorporate for the church’s benefit. These statutes weren’t written to take over churches.  Don’t be paranoid. These laws were largely written by Christians to encourage the formation of charities! Use them for God’s purposes.