Nonprofit Church Law Ministry

Expert Attorneys with a Ministry Perspective


September 2015

Incorporation of Churches: A New Day

By H. Robert Showers, Esq.


While it is estimated that over 85% of all churches are now incorporated with 49 states permitting incorporation and West Virginia on the verge of permitting it, most governing documents are poorly drafted, woefully out of date, or not followed. Thus, they do not protect or contain the 21st-century risk-management provisions that are now available to churches throughout the country. Why should a church care about its governing documents and risk-management provisions like incorporation? The primary answer to this question is that there is significant change in the legal climate of this country.

 Twenty or 30 years ago, most Americans, whether Christian or not, held a common framework of basic moral values such as honesty, fairness, respect for others, self-discipline, and accountability. In recent years, however, respect for these values and qualities have been undermined by a growing emphasis on individualism, diminished respect for authorities, acceptance of relative morality, and a loss of common norms and values. The loss of common values even within the church can cause a great deal of confusion and conflict. It can also expose a church to devastating losses. A generation ago, very few people—especially members of the church—would have dreamed of suing the church, but the legal climate today has changed dramatically and lawsuits against churches now are commonplace. Part of the reason for this recent change is that people have different expectations about how a church should conduct its affairs and treat its members. When these expectations are not met, a lawsuit often follows, which can ruin a church’s spiritual life, reputation, and finances.

As Proverbs 22:3 warns, “A prudent man sees danger and takes refuge, but the simple keep going and suffer for it.” Understanding the absence of common norms and values can pose a threat to the unity and well being of your church. You would be prudent to incorporate and develop bylaws as a means of establishing commonly accepted standards for how church members should treat one another and govern themselves as a body of believers. In particular, incorporation and its governing documents are designed to accomplish the following four goals:

  • to prevent surprises and disappointed expectations by providing potential members a thorough explanation of how the church intends to govern itself;
  • to reduce the likelihood of confusion and conflict within the church by establishing clear operational guidelines;
  • to prevent the misuse of authority by church leaders by balancing these powers and establishing procedures that protect members from being disciplined or losing rights without due process and full notice; and
  • to reduce the church’s exposure to legal liability by satisfying recently developed legal requirements, even in areas we deny that the state has jurisdiction, and by requiring that potential lawsuits will be resolved through biblical mediation or arbitration rather than through civil litigation.


The benefits of church incorporation

Before the Falwell case, Virginia and West Virginia were the only two states in the United States where churches and religious denominations could not incorporate. Thus, Virginia churches were unincorporated associations, which subjected their members2 and particularly their leaders, such as the pastors and boards, to all forms of liability and precluded a church’s ability to hold title to its property. There are many forms of liability for which either an insurance policy does not cover the acts upon which a lawsuit against a church is based, or its coverage is limited. A board of directors (elders, deacons, or pastors) could be personally liable for the liabilities that were essentially against the church. There have been cases in which a pastor, deacon, or elder has suffered greatly because of this status as an unincorporated association, and the courts have imposed personal liability for the negligent or reckless acts of the church or its officers, directors, or agents.

Now, here are nine benefits for church incorporation:

  • Incorporation will substantially limit liability of the pastor or pastors, the board, and the members, which, as long as the church board is not “grossly negligent,” would provide a sure liability shield.
  • Under incorporation, trustees are no longer needed for church corporations and court appointment of such trustees is not required to hold, manage, buy, sell, transfer, or encumber real property of the church corporation. Of course, church corporations may still authorize trustees to have that legal authority with the church members’ approval, or it can delegate it to one or more of its officers or directors. Unincorporated churches, however, must comply with all the old law provisions requiring court approval for appointment of trustees and court approval for all buying, selling, encumbering, or transferring land to another entity (other than the new church corporation).
  • Under incorporation, real or personal property for church corporations no longer needs to be held by trustees, but can be held in the name of the church corporation or a separate property-holding nonprofit corporation.
  • Incorporation often makes it easier for a church to buy, sell, and encumber real estate, operate bank accounts, and engage in other business transactions.
  • Incorporation protects the corporate name in the state and eases tradename and trademark registration where appropriate.
  • Incorporation also lends to the stability of an organization more than an unincorporated association does, because the members, directors, trustees, and officers of a church may change over the years.
  • Churches must be incorporated to receive grants through government faith-based social-service-provider programs or private foundations.
  • Incorporation and tax exemption can often permit special nonprofit mailing rates and procure discounts from vendors.
  • Finally, most banks and lending institutions prefer to deal with an incorporated entity to assure its governance, purpose, and legal status.

But churches need not be incorporated to be exempt from federal income tax. At least one court, though, has observed that, “[W]hile not a pre-requisite for exemption, a showing that an organization seeking a property tax exemption is incorporated as a church or religious association will lend credence to that organization’s claim that it is a bona fide church or religious organization.”


Concerns about church incorporation

Other than ill-placed theological concerns about separation of church and state,3 the primary downside to incorporation may be the upfront costs and the requirement that an informational report and nominal fee must be paid annually to the State Corporation Commission (“SCC”) or suffer the loss of its nonprofit-corporate status. Some commentators have alleged the following other disadvantages of incorporation:

  • It requires the rewriting of a congregation’s constitution and bylaws to conform to the requirements of the IRS and the SCC, which could cause dissension since some provisions may be matters of disagreement within a church; however, most church bylaws are out of date and desperately need updating for 21st-century legal compliance and risk-management purposes, as well as for streamlining.
  • There is a cost to setting up and maintaining the church corporation. Currently, the SCC charges for filing the articles of incorporation. Additional attorney fees from a knowledgeable attorney skilled in church laws and tax-exempt entities and knowledgeable about your church government will also be needed to tailor your church corporation’s articles of incorporation, and the constitution and bylaws. An annual report—which reflects an updated list of officers and directors—often must be filed each year with the SCC.
  • A registered agent, instead of trustees, must be designated to receive service on behalf of the corporation. (He or she must be either a member of the Virginia State Bar or a director of the corporation.) A good attorney who serves as a registered agent, however, will have a system for recording all incoming and outgoing mail and faxes and will better be able than lay trustees to handle legal documents with deadlines and to correctly answer complex legal issues.
  • Names on bank accounts need to be changed to the corporate name and all property should be transferred to the church corporation. (This provides much better protection for the church and can be done easily by a knowledgeable church- and real-estate-law attorney).
  • Certain rules are determined by statute, unless the bylaws or constitution provide differently, which good bylaws will, including the following:  annual meeting, quorum requirements, notice provisions, use of proxies, terms for directors and officers, removal of an officer by the board of directors, judicial dissolution of the corporation, and court-ordered meetings of the corporation.
  • Although inspection of records by members would appear to be governed by the Nonstock Corporation Act, it is debatable whether that can be changed by the church’s constitution or bylaws. While it can be limited or restricted through bylaws—especially as a church corporation under separate church-law sections—most churches make records to members available (except salary information) since churches desire to be transparent to its donors and fellow Christian brothers and sisters.
  • A church-corporation director is liable for failure to exercise “good faith business judgment of the best interest of the corporation”; however, a leader in an unincorporated association is completely liable for acts of the association.

Church property is held in the name of the church corporation and not by trustees. Once transferred to the church corporation, it may be bought, sold, or mortgaged without court approval. Simplifying the purchase and sale of property, however, may open the door to the possibility of abuse by church leaders. But with limits in good bylaws, it will provide for easier property transactions without state involvement or court oversight.

Over the years, many states have passed several statutory provisions that have tried to protect members and officers or directors of churches from being liable for the negligence of others in a church setting. Ostensibly, these laws were enacted to give churches some of the same protections that churches in other states receive by incorporating when incorporation was disallowed. Here are some examples: (1) No member of a church is liable in tort or contract for the actions of any other member of the church or the actions of the church itself; (2) unpaid officers, trustees and directors of certain tax-exempt organizations may have immunity from liability; and (3) the fiscal officer of the church who signs a deed or mortgage on behalf of the church is generally not personally liable on the debt.

Unfortunately, even these provisions are like Swiss cheese when it comes to limiting personal liability and thus, church incorporation appears to provide additional protection, perhaps as a belt-and-suspenders approach, on top of these provisions.


Process of incorporation

 While it would be understandable that the state Nonstock Corporation Act may be applicable,4 since now there is no special incorporation for religious corporations in some states, one must remember that there is church law sprinkled throughout the state code and in case-law history interpreting such church-law provisions. Thus, such nonstock–nonprofit law will probably only be used if the bylaws, church-law provisions, and case law do not cover the issue at hand. Thus, a church’s incorporation should be handled as a church corporation, not a nonprofit or nonstock corporation under nonstock statutes, in order to achieve all the church-law benefits and protections.

The general procedure for filing the articles of incorporation consists of the following steps: (1) preparation of duplicate articles of incorporation setting forth the corporation’s name, period of duration, registered agent and address within the state, registered office address, purposes and names and addresses of the board of directors, how they will be appointed or elected and set forth the incorporator or incorporators; (2) signatures of the incorporator or incorporators; 3) inclusion of all IRS-required tax-exempt language and (4) submission of the articles of incorporation, together with the prescribed filing fee to the SCC.

After approval by the SCC, it issues a certificate of incorporation. The church’s corporate existence begins at the moment the certificate of incorporation is issued. After such a certificate of incorporation is issued, however, the state and common law specify that an organizational meeting of the board or congregation (depending on church government) must be held at the call of the incorporator or incorporators to adopt the initial bylaws and constitution of the corporation, accepting members from the unincorporated entity to new church incorporation, confirming new directors and officers, authorizing new bank accounts, giving the corporation all authority and power to act, and changing legal documents to reflect the corporate status (see my article entitled Power in the Bylaws, Constitution and Policies for Incorporated Churches), and such other purposes as may come before the meeting.

After reviewing hundreds of church constitutions and bylaws documents over the past several years, we have concluded that it is imperative that a church’s constitution and bylaws be reviewed and amended by competent legal counsel knowledgeable in church- and tax-exempt law for legal compliance, governance changes, updating to conform to current church practice and best practices of risk management. There are too many nuances in church- and tax-exempt law and too many idiosyncrasies with churches and denominations to believe any longer that a lawyer can just dabble in this area of law.

Some of the typical provisions in the articles of incorporation will be whether the church corporation is to have members or not, the right of the members to vote, statement of the manner in which directors shall be elected, appointed or designated, amendment provisions, statement of the tax-exempt purposes and limitations, and the powers of the nonprofit tax-exempt corporation, as well as a statement of what happens upon dissolution. While some of these provisions are mandatory and others are permissive, it is essential that a number of the provisions, including the tax-exempt provisions, be strictly adhered to, in order to both protect and promote the corporate and tax-exempt status and its powers.


Frequently asked questions

 Who should serve as the church’s registered agent?

  • Ideally, the Incorporator and registered agent should generally be a member of the Virginia State Bar since Virginia law provides for that qualification and most, if not all, of the documents that will be delivered to the registered agent will be legal in nature. Some documents, such as lawsuits and annual reports, will contain important deadlines that, if missed, could incur significant liability on the church. To minimize the chances of important legal papers being lost, the registered address of the church should be a law office or other location with a system in place for recording all incoming mail and facsimiles. If the registered agent is not a state-licensed attorney, he or she generally must be a director of the corporation, and the registered address must be the same as the individual’s state business address.

What is an organizational meeting?

  • After incorporation, every new corporation is required by law to hold an organizational meeting at which members join the new church corporation, the bylaws are formally adopted, officers are elected or appointed, and other powers and policies are authorized for the new corporation or for officers to conduct the business of ministry. Depending on the form of church governance, upon request, the author will either schedule a phone conference with the client’s directors of the church corporation after the certificate of incorporation is received but before the bylaws and constitution are redrafted to determine the governance, etc., of the church and send a sample agenda and minutes for a congregational meeting to be conducted. Upon request and additional fee, the author’s firm representative may conduct the question and answer meeting with the members and board and the organizational meeting, but that service is generally not needed since this article and sample organizational meeting agenda and minutes are self-explanatory.

Who should serve as the Directors of the Corporation?

  • Typically, it is wisest to simply designate the church’s current governing board (trustees, organizational meeting, elders, or deacons) as the directors of the new church corporation and make the transition in the bylaws and over the years. This avoids extra meetings, confusion, and political strife, since it allows most of the duties and responsibilities of the governing individuals to remain the same.

Is it necessary to revise the church’s constitution and bylaws after incorporation?

  •  Absolutely yes. In incorporating many churches over the last several years, the author has found that all churches’ constitutions or bylaws, or both, are outdated, legally inadequate, or inconsistent with the new articles of incorporation. To ensure legal compliance, good risk management and clear, best practices for operating the church, Simms Showers strongly advises that a church revise its constitution or bylaws, or both, at the time of incorporation. Moreover, some revisions of the constitution and bylaws can be contentious, but incorporation provides an excellent reason to finally solve these problems. The organizational meeting provides a good easy opportunity to adopt these new governing documents.

Do most states require an annual report after a church is incorporated?

  •  Yes. Every year the SCC will mail to your registered agent an annual-report form containing the name and address of the corporation, registered agent’s name and address, and the names and addresses of the directors. Updates to the information on record of the church can be made at that time.

Is there an annual fee to keep the corporation’s status active?

  • Yes. Currently, the annual fee to remain active with the SCC is $25 in Virginia and many states. This fee is submitted along with the annual report form by the registered agent.

What is the best way to introduce the new members’ covenant or statement for members of the old unincorporated church?

  •  While church covenants or applications that each member signs are optional to legally enforce risk-management provisions, such as biblical conciliation and church discipline, it is best to get all members to sign the document of how we will live together as a body of believers. It is best to treat the organizational meeting as a charter celebration and have the members sign the members’ covenant as “charter members.” The more positive the process and celebration, the easier it will be received. Also, explain that the 21st century brings new challenges and risks, and the new bylaws and member covenants will best meet the increasing 21st-century risks of the church. We have developed a sample letter for our clients to accompany the new constitution and bylaws that can be tailored for the pastor or church leader to sign and be made available to church members to explain why the church is incorporating, changing its constitution and bylaws, and having a members’ covenant and other legal requirements.

Do we have to change the legal documents (deed, mortgages, bank accounts, etc.) after we incorporate our church?

  • Yes. When a church incorporates and becomes its own legal entity, trustees are no longer required for church corporations to hold, manage, buy, sell, encumber, or transfer real property and court appointment of such trustees are obviously no longer required. Thus, upon incorporation being finalized (bylaws and constitution revised and organizational meeting held), court-appointed trustees may now transfer real and personal property to the new incorporated church without the need for court approval by simply sending a gift deed for recordation or letter to transfer property to the clerk of the county court where the property is located with instructions to transfer to the new church corporation. See state law for further instructions or contact a knowledgeable church-law attorney to help in this process. Beware, however, that the signing trustees are properly appointed by the church and approved by the court and empowered by the unincorporated association through minutes to transfer the property to the new church corporation to be accepted by the president or secretary of the new church corporation. Of course, if there is refinancing or other property issues involved you may want to use the court to approve the transfer, etc.

Is there a detailed process concerning transferring property from the unincorporated association to the new church corporation and is it necessary?

  • The basic reason is to more fully protect the property and church with the corporate shield. Of course, for more protection many larger churches with net assets worth more than $1 million are creating property-holding corporations or companies with the church being the sole member to separate its major liabilities from its major assets. (See Church and Nonprofit Affiliates and Subsidiaries legal memo for further information.) Here is the basic church gift-deed process:
  • If the trustees have been court approved (signed court order proving appointment) and willing and able to sign the gift deed, then the members resolution authorizing these trustees to transfer to the new church corporation is all that is needed for the gift-deed authorization; however, if the trustees are not approved or are no longer living or in the area, able and willing to sign the gift deed, then new trustees must be appointed by the church (consistent with the number under the association bylaws) and then a petition and order filed with the court authorizing their appointment and approval to transfer property.
  • Once that is accomplished, one has to research the deeds and land descriptions with the tax-identification numbers to begin to draft the gift deed or deeds (although it is not needed under the law, the church needs to make a decision on whether to notify the bank of the transfer).
  • After the gift deed, or deeds, is drafted, then the trustees have to sign and get notarized and have the church chairman or president accept the gift.
  • Then the signed and notarized gift deed gets recorded at the county courthouse either by the church or our firm and returned for the church and us to keep a filed recorded copy of the gift deed.
  • Obviously, the cost depends on how much has already been done and how many parcels the church has along with how much title research we must do. A simple gift-deed process for one parcel with the resolution and church recording the gift deed generally runs around $500 an hour, but if one has to do the entire process including the petition and order, drafting and filing, or multiple gift deeds, the cost could rise considerably.

Will church incorporation require the church to file for 501(c)(3) tax-exempt status?

  • Absolutely not. Churches that meet the requirements of IRC section 501(c)(3) are automatically considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS. See IRS Publication—Churches and Religious Organizations Benefits and Responsibilities under Federal Law at Although there is no requirement to do so, some churches seek recognition of tax-exempt status from the IRS because such recognition assures church leaders, members, and contributors that the church is recognized as exempt and qualifies for related tax benefits. For example, major contributors to a church that has been recognized as tax exempt would know that their contributions generally are tax-deductible, but vendors and government grant officials may want to see an IRS tax-exempt-determination letter.

How does a church get started with church incorporation, how long does it take and cost?

  • First, we have a new church or nonprofit entity client fill out the Church Incorporation Questionnaire and Retainer and submit it, along with the requested documents, both in hard and electronic copy, to Simms Showers LLP. Presently, churches and denominations or associations who are existing clients receive a reduced fixed fee, while other churches will pay slightly more, plus a filing fee and optional costs for the entire package. The entire process normally takes two-to-four months, but it can be expedited in emergency situations or can take longer if the church needs more time to work the acceptance process for the new constitution and bylaws, etc.

Should we separately incorporate more risky ministries, such as childcare operations, schools, motorcycle clubs, social or community service, or camps associated with the church, or separate our valuable property assets from our operations liabilities?

  • While this is beyond the scope of this article, and the author has written extensive articles on this complex question and these subjects, it is generally prudent in the 21st century to separate your major assets from your major liabilities. But you also have to decide whether you would file it as a separate tax-exempt entity with its own 501(c)(3) status or whether it would come under the church’s automatic tax-exempt status through a sole-member nonprofit LLC or integrated auxiliary of the church. Moreover, you have to also think of the practical aspects of running multiple organizations with different boards, financials, and corporate or tax-exempt status.



Incorporation provides a great opportunity for churches to revise, update, and make its constitution and bylaws legally compliant, more workable from a governance point of view, and better manage 21st-century risks. The entire process involves gathering documents and information to draft and file articles of incorporation, obtaining the certificate of incorporation, serving as registered agent, revising the constitution and bylaws, and working to tailor such documents to church needs, drafting the Members’ Covenant, helping church leaders with the approval process up to and including the organizational meeting, providing a sample agenda and minutes for that important meeting. Churches need knowledgeable attorneys who understand the nuances of tax-exempt law, church law, and other related religious nonprofit law to be able to tailor their bylaws and policies and set the organization up correctly for the present and the future. Local attorneys, attorneys in your church, or friends with your congregation are generally not able to do these tasks or understand the nuances of this complication and complex area. It is not what they know that hurts you, but what they do not know about this area.


Reprinted from “Nonprofit and Church Legal Trends,” September/October 2010 edition, with permission.

The Power of Well Drafted Church Bylaws

By Robert Showers, Esq. July 29, 2011



Fifty years ago, very few people—especially members of the church—would have dreamed of suing the church, but the legal climate today has changed dramatically and lawsuits against churches are increasingly more common. Fortunately, every state now permits churches to incorporate, which was not always the case. In 2003, West Virginia became the last state to remove the ban on church incorporation following the Western District of Virginia federal court’s decision to strike down the same ban in Virginia in Falwell v. Miller in 2002.[1]

The ability to incorporate serves as a powerful tool for churches and member non-profit organizations in protecting itself from litigation and legal liability. However, church and nonprofit Incorporation is an involved and somewhat complex process, and one of the requirements when applying to become a corporation is to create and submit a set of Articles to the state and bylaws that comport with the articles as the high level operations manual. This memorandum focuses on why every church and non-profit organization should not only adopt well drafted 21st century bylaws, but also adhere to its bylaws, as well as suggestions in creating effective bylaws based on the author’s legal experience in having guided numerous churches through the incorporation process. Bylaws should be drafted for times of crisis and dispute and answer all the critical questions to successfully navigate through the difficult times without resorting to courts or people voting with their feet due to confusion and disagreements.  Bylaws should be drafted to be legally compliant with state corporate and IRS provisions, bring the written operations into conformity with the actual way the church is governed and apply best practices and risk management to protect the church and its ministries for the 21st century in which live and minister.



Churches and other member non-profit organizations are subject to the provisions and guidelines contained in their governing documents, which generally include the Articles of Incorporation, Bylaws, Constitution(although not legally required), and a Policies and Procedures manual or similar variation.[2] The Articles of Incorporation, which is commonly referred to as the corporate charter, is filed with the secretary of state, and typically sets forth details such as the church or organization’s official name, purpose, and directors.[3] The Articles along with the bylaws are required by both the IRS and the state in the incorporation process.

The constitution of a church is generally he supreme body of rules that govern the church and hence it is logical that it contain the theological aspects of the church. Since the Articles and bylaws contain the operational details of the church as a corporation, it may be appropriate for the church to spell out its beliefs, values, and practices in its constitution such as ordination procedures, members covenant and other theological points. Whereas bylaws define routine operational items that may be easily amended, a constitution must be a theological document that is difficult to change and requires much thought and prayer before amending. This is because a group of voters should not be able to overturn a church’s theological doctrine without significant time and discussion about such suggested changes after much thought and prayer. Therefore, the author recommends that whenever a constitutional amendment is brought for a vote, a longer notice period should be given to the members than a vote for a change in bylaws, and a larger majority to approve the amendment should be required.

The policies and procedures of the church is more of a manual that outlines the specifics in a church’s day-to-day operations. These can be changed by the church board, and does not necessarily require a membership-wide vote or notice, and is also expected to change as the needs and size of the church evolve over time. Whereas the bylaws can be thought of as an aerial (bird’s eye) view of the church governing structure, the policies and procedures of the church should be the zoomed-in (worm’s eye) detailed instructions for those serving in the church.

Bylaws refer to the rules of internal government adopted by the Articles under the theological premises of the Constitution and is a broad sweep of the operational structure of the organization.[4] However, unlike in a business corporation where the individual who owns the most stock in the organization controls it, “the Bylaws of a nonprofit corporation spell out the essential relationships of the participants. [Bylaws] are the power document of the organization.”[5]

There are three important reasons why every church or member non-profit organization should adopt and abide by a well drafted and current set of agreed upon bylaws. First, as a matter of law, for any church that is incorporated or seeks to incorporate, bylaws are mandated by the state and IRS. However, even if a church is not incorporated, it would still be prudent to adopt bylaws. In fact, it may be even more urgent for unincorporated churches since they do not have the benefit of the legal protections that are offered to incorporated churches and non-profit organizations.

Second, bylaws are a helpful way to update the text of the document with the actual practices of a church or organization in the twenty-first century. Moreover, the bylaws should match the church’s theological views as expressed in the constitution. Bylaws should not exist as a mere formality, but should be a “living” governing document that encompasses the church’s history and theology while providing current and ongoing structure. Therefore, it is necessary that it be practical, useful, and applicable.[6] In order to prevent bylaws from becoming archaic and outdated, it is helpful to make them easier to amend (than amending the constitution). When voting on changes to the bylaws, a short notice to the members and a requirement for a simple majority for passage is sufficient. This will ensure that they remain current and also consistent to the operations and actual practices of the church.

A church governance structure typically has four categories of people which should be addressed in its bylaws: 1) members, 2) officers, 3) board of directors, and 4) teams and committees. First, the bylaws should define who is a member, the requirements in becoming a member, the privileges and responsibilities of a member, voting privileges, church discipline/removal from membership and so forth. Next, officers are the day-to-day operators of the church. The state requires three officers: President, Treasurer, and Secretary. However, if the church so desires, they may have additional officers.

Third, it is critical to define the board of directors, which may be known by other comparable names in different churches (e.g., Board of Elders, Board of Deacons, Church Council, Leadership Team, etc.). How an individual becomes a member of the board, number, qualifications and terms of board members, the powers a board holds, and how he or she may be removed are some of the issues that must be clearly addressed. Furthermore, a church may consider a “staggered voting” or “rotating class” model in electing its board members. This is where a portion of the board is elected each year so as to ensure continuity in the church leadership, as well as bring in fresh ideas and perspectives through the new directors.[7]  Also meetings notice, quorum, unanimous written consent for actions without board meetings, conflict of interests and transactions with interested parties should also be addressed in this section.

Finally, teams and committees should be defined in the bylaws, but only permanent (standing) committees and teams need to be included in the bylaws. For example, it would be appropriate to define the role and responsibilities of the finance, nominating or personnel committee in the bylaws. However, a church may consider including a separate clause regarding special teams or ad hoc committees that are formed from time to time and refer the reader to the Policies and Procedures manual which would contain the specific details. Since special teams or temporary committees are not always in existence in the daily operation of the church, excluding the specific details from the bylaws yet referring the reader to the Policies and Procedures would allow the document as a whole to be applicable and relevant.

The third reason as to why a church should adopt and abide by well crafted bylaws is to manage the church’s exposure to risk in times of crisis or dispute. While a church should always operate in accordance with its bylaws, it is unfortunately often the case where members do not refer to the document until conflict arises.[8] Hence, it is paramount that the bylaws clearly establish the procedures and practices in preparation for such a time. Three procedures will assist in the developing of efficient protocol for such situations.

The first step is to simply outline how the procedures for meetings or elections will operate. For example, many organizations and corporations utilize the Roberts Rules of Order.[9] Though a seemingly minor detail, it is often the minor technicalities such as the improper calling of a membership meeting or an error in voting protocols that can cause further dissension and disruption in a church. Therefore, it is recommended that from the beginning, the church include a clear and standard method of operation in its bylaws.

Second, a church or organization should categorize and define the processes for discipline. Two categories that are commonly identified as demanding discipline by a church body are biblical heresy and instances of moral and biblical misconduct. The categories a church chooses to discipline is their discretion, however, once established, the church must then describe the process by which the discipline will be carried out in its bylaws so as to avoid any confusion should it need to be utilized. Stating who will provide the discipline, how it will be announced to the general congregation, what privileges will be revoked, and what penalties will be incurred are just a few of the topics that a church must consider. Yet, because an incorporated church is unlike a typical business corporation, discipline must be addressed with the church’s theology in mind. Thus, all churches should establish its disciplinary practices with the goal of repentence, reconciliation with the church and rehabilitation of the individual rather than simply punishment. However, the law requires that basic due process(what the member is charged with and process to be heard to defend oneself before a board of its peers) should be followed before taking away a membership right of the accused person.

Finally, the third step, and one of the most effective ways for a church or organization to protect itself during times of conflict, is to build in a biblically-based Dispute Resolution clause into its bylaws. The Bible commands Christians to seek assistance from other members, especially from the pastors and elders, before turning to the civil courts.[10] Therefore, it may be prudent for a church to include in its bylaws a requirement that when disputes or disagreements arise, the individual must first seek the advice and counsel of the pastor, elder, or other members if possible. Additionally, the bylaws should indicate that all discussions regarding such matters will be sealed in confidence.[11] Protecting confidences is a sign of Christian love and respect.[12] It also discourages harmful gossip[13], invites confession[14], and encourages people to seek needed counseling[15].  According to biblical process if the personal advice and corporate mediation does not reolsve the dispute then binding arbitration with specific procedures within or outside the denomination and church should be outlined.  Often such processes are referred to in  or similar national Christina mediation/arbitration groups but there must be a specific waiver that the right to civil courts will be forfeited for the confidential Christian mediation/arbitration process and no appeal will exist to secular authorities.

Further, it is recommended that churches include in its short membership covenant, or a similar document which is presented to each new member to sign, that all members agree to follow the provisions in the bylaws regarding the church’s dispute resolution procedures, church discipline and confidentiality procedures. This will ensure that members are aware of the church’s dispute resolution and discipline procedures, and moreover, shield the church from harmful litigation. These one page member’s covenant should be kept in a secure fire-proof location along with deeds and other important church documents to insure easy access if needed 10-20 years later.



Bylaws create greater transparency in the church by providing members a thorough explanation of how the church intends to govern itself and by establishing clear operational guidelines that reduces any potential confusion or conflict within the church. Bylaws can also prevent the misuse of authority by church leaders by establishing procedures to protect members from being disciplined or losing rights without due process and sufficient notice. In addition, it reduces the church’s exposure to legal liability by requiring that potential lawsuits first be handled by biblical mediation or arbitration before going to civil litigation.

Although the Bible provides overall guidance for Christians as to how to live and serve in community with others, it is silent on issues such as the sufficient amount of notice that should be given to church members, how long church officers should serve, or how to dispose of property in the event a church dissolves. Bylaws are intended to answer these ambiguities so that the church or non-profit organization may continue to devote itself to its purpose and mission. Moreover, no two churches or organizations’ bylaws are likely to be the same because each organization is unique with its own preferences as to what governing structure or dispute resolution model will work best for their congregation and leadership.[16] While a church can use other churches bylaws as examples, many lawsuits and horror cases have underscored that each set of bylaws must be tailored by an expert to best serve that individual church. Therefore, churches should devote significant time, thought, and prayer when drafting its bylaws as well as seek wise legal counsel to guide them through this process because once in place, the bylaws may prove to be a powerful tool in the continued existence, protection and growth of the church. Paying for expert legal advice to a church law expert who may have defended numerous churches in legal battles and written hundreds of bylaws will be well worth the effort since this document and produce great fruit in years to come.



[1] Falwell v. Miller, 203 F. Supp. 2d 624 (W.D. Va. 2002).

[2] Richard R. Hammar, Pastor Church & Law (3d Ed.), 278.


[4] Id. at 281.

[5]  Bylaws Function as “Constitution” of Nonprofit Corporations (Spring 2006).

[6] According to Richard Hammar, Bylaws should cover details including:

(1) qualifications, selection, and expulsion of members; (2) time and place of annual business meetings; (3) the calling of special business meetings; (4) notice for annual and special meetings; (5) quorums; (6) voting rights; (7) selection, tenure, and removal of officers and directors; (8) filling of vacancies; (9) responsibilities of directors and officers; (10) method of amending bylaws;… (11) purchase and conveyance of property…. (12) adoption of a specific body of parliamentary procedure; (13) a clause requiring disputes between church members, or between a member and the church itself, to be resolved through mediation or arbitration; (14) a clause specifying how contracts and other legal documents are to be approved and signed; (15) signature authority on checks; (16) “bonding” of officers and employees who handle church funds; (17) an annual audit by independent certified public accountants; (18) an indemnification clause; (19) specification of the church’s fiscal year; and (20) “staggered voting” of directors (a portion of the board is elected each year—to ensure year-to-year continuity of leadership).

Id. at 281.


[7] Id. at 281.

[8] Ready Reference Page, Bylaws Function as “Constitution” of Nonprofit Corporations (Spring 2006).


[10] See Rom. 15:14; Gal. 6; 1-2; Col. 3:16; 2 Tim. 3:16-4:2; Heb. 10:24-25; 13:17; James 5:16.

[11] Although confidentiality is to be respected as much as possible, there are times when it is appropriate to reveal certain information to others.  In particular, when the pastors and elders of this church believe it is biblically necessary, or when reporting is mandated by law such as in child abuse cases, they may disclose confidential information to appropriate people in limited circumstances.

[12] See Matt. 7:12

[13] See Prov. 16:28; 26:20

[14] See Prov. 11:13; 28:13; James 5:16

[15] See Prov. 10:19; Rom. 15:14

[16]  Bylaws Function as “Constitution” of Nonprofit Corporations (Spring 2006).

Nonprofit and Church Affiliates and Subsidiary Organizations

  1. Introduction

An organization’s corporate structure is vitally important to its long-term maintenance and day-to-day operations, as the corporate structure establishes the rights, powers, tax consequences, and liabilities of the organization.  Whereas in the past a Church was low risk and had limited liability and thus, generally only needed one structure to protect and provide all possible benefits to its members and affiliate organizations, this has dramatically changed.  The 21st century has seen a substantial increase in lawsuits and judgments amounts and a purposeful targeting by the secular legal community of Church and non-profit organizations ass a new “deep pocket.”  Coupled with this changing legal environment, Churches have expanded and branched out into numerous other areas other than just weekly worship services (e.g.- daycare, schools, food pantry’s/clothes closets, low income or elderly housing, significant property holdings, etc).

In light of these new developments, it is more imperative then ever for Churches to consider structuring their various organizations in such a manner to separate their greatest liabilities from their major assets.  Each Church is different and should be analyzed accordingly by knowledgeable legal counsel to ensure that the proper structure is utilized to provide the most favorable tax, control, and liability arrangement for that particular Church.  This memorandum outlines various options available top churches and nonprofits to effectively manage their risks in this environment and briefly covers advantages and disadvantages of each entity and structure.

1.1     Examples and Overview of Issues

Let us start with an example typical of many moderate to large modern Churches.  Consider an incorporated Church that has opened a daycare and K-12 school in order to better serve the members of its congregation and community.  The school is advertised primarily at church services and on church bulletin boards, but it is open to non-members, who are charged the same amount as members for the school’s services.   The Church seeks to provide religious instruction and religious activities that correspond to the church’s beliefs, and general education is also provided.

Although the school is well staffed and maintains all suggested and required safety precautions, injuries are inevitable, and while the church thoroughly screens, trains, and supervises the school employees, abuse could occur.  As you can imagine, any number of tragic events could occur at the daycare or school that would expose the church to major liability.  All of the church’s assets (e.g. the building, land, etc.) would be subject to any lawsuit of the school or daycare.  Even with the best of insurance, the church’s very existence would be at risk.

The questions then are: 1) which subsidiary structure would best shield this Church from the extra liability?  2 ) how much control would the Church have to sacrifice in order to protect themselves from these liabilities?  3) what type of administrative entanglements or costs would result from creating each subsidiary organization? And what structure to be more cost effective and easiest to operate. These are just some of the questions which an organization needs to contemplate in creating a subsidiary organization, and which would need to be discussed with legal counsel.

1.2     Legal Considerations

Undoubtedly, the most tangible benefit to creating a subsidiary is the “liability shield.”  In the same way incorporating a Church or Nonprofit (NP) acts as a shield to protect Church/NP leaders and members from personal liability, creating subsidiary corporations can protect a Church/NP from any extra liability.  For example, any claims against a subsidiary can only be satisfied by that subsidiary organization’s assets, and the Church’s assets would not be subject to any judgment and vice versa in most cases.

Another consideration is that certain business activities may jeopardize a nonprofit organization’s tax exempt status.  According to IRS code § 501(c)(3), a nonprofit organization must operate exclusively for at least one of the following exempt purposes: religious, charitable, scientific, literary, education, etc.  If a nonprofit organization expands to encompass and control an unrelated, non-exempt enterprise, any income from that enterprise would be taxed as unrelated business income (UBIT), and, if such activity and income is substantial, the organization’s tax-exempt status could be at serious risk.  In such a situation, properly establishing a subsidiary organization could also preserve the nonprofit’s tax-exempt status by isolating the for-profit activity in a subsidiary.

1.3     Administrative and Practical Considerations

A parent church/NP must also consider the extra administrative requirements of creating subsidiary organizations.  The oft-quoted saying by corporate lawyers is that creating an organization is like birthing a baby.  The incorporation is just the beginning.  After its birth, the parent Church/NP will need to maintain the subsidiary.  Obviously, some organizational forms are easier and less costly to maintain.  For example, if a Church decides just to create a separate 501(c)(3) organization then that subsidiary will have to comply with the extensive and costly requirements of receiving IRS tax-exemption approval (Form 1023), an annual tax return (990) will need to be filed, the organization will need to keep its finances separate from the Church (no commingling of monies), and observe all corporate formalities of having a separate Board that conducts regular board meetings with written minutes.  In conjunction with the time that will have to be devoted to the proper record keeping, the organization will also incur accounting and legal fees.

  1. A New Section 501(c)(3) Organizations

The first and most obvious option is for a Church to create a new separate non-profit corporation for a subsidiary.  Like the parent Church/Nonprofit, to qualify for tax-exempt status as a non-profit organization the subsidiary would need to meet the following four factors established by the IRS: 1) the organization must be organized and operated exclusively for one or more charitable purposes; 2) it must not allow for private inurement/benefit[1]; 3) no political activity and insubstantial amount of legislative activity (such as grass roots and direct lobbying, etc.) may not be a substantial part of its activities; and it must report and pay taxes on any unrelated business income (UBIT).[2]

Unlike a Church which automatically qualifies for tax-exemption with the IRS, a separate subsidiary organization is required to apply to the IRS for an exemption.  To do so, the subsidiary will have to complete and submit the lengthy and complex IRS Form 1023 and pay the application cost (currently $750) and respond to various questions and requests from the IR in order to achieve its favorable tax exempt determination.  Moreover, organizations required to file Form 1023 will also be required to file an annual renewal, Form 990 (unless gross receipts are typically less than $25,000/5,000 per year).

Therefore, establishing a subsidiary organized as a separate § 501(c)(3) organization provides all the tax-exempt benefits to the subsidiary that the Church/NP would have and would provide protection from liability to both the Church and the subsidiary.  But, the creation and maintenance of the subsidiary will require extra costs and administrative upkeep.

Using the above example of the church which operates a daycare and school, the daycare and school would be structured as one or two separate § 501(c)(3)’s.  The daycare and school would be required to satisfy all the requirements of § 501(c)(3), but could do so easily based upon their educational and religious purposes.  The subsidiary organizations would be tax-exempt, non-profit corporations and would therefore need to have their own Boards and comply with all IRS requirements, but all liabilities from the subsidiaries would be clearly separate from that of the parent Church/NP.

  1. Integrated Auxiliaries

Another option is the use of what is called an “integrated auxiliary.”  Although this structure can be very effective and beneficial, it has statutory requirements that limit its availability to very specific circumstances.  An integrated auxiliary must be a tax-exempt organization according to the IRS rules (listed above), it must be created and operated exclusively to serve a church or a convention or association of churches, and it must also be internally supported.

The sticky requirement is that the subsidiary be “internally supported.”  A subsidiary will be considered internally supported unless it offers admissions, goods, services, etc. to the general public (ie- not to the Church’s members), except on an incidental basis, and normally receives more than fifty percent of its support from any combination of governmental sources, public solicitation of contributions, and receipts from sale of admissions, goods, services, etc. in activities that are not unrelated trades or businesses.  Also, the IRS allows some organizations (men’s and women’s organizations, seminaries, mission societies, and youth groups) to be considered internally supported without demonstrating they meet the above test.

As an example, the church school/daycare mentioned above would likely satisfy the requirements of § 501(c)(3) and would also likely be internally supported.  Although the daycare and school receive monies from non-members, it does not market its services to the general public, and any public participation is on an incidental basis.  Thus, even if more than fifty percent of its support comes from receipts from the performance of services, the school would still be internally supported because it does no outside soliciting. To be doubly safe, the tuition may go directly to the church and then granted back to the daycare/school on a regular basis as needed for budgetary concerns.  If structured as an integrated auxiliary, the school would be automatically tax-exempt and would not have to file yearly tax returns.  There are many other considerations and possibilities to ensure a school meets the test that should be discussed with a knowledgeable attorney.

The great benefit to an integrated auxiliary is that it is exempted from applying for tax-exempt status (Form 1023), exempted from filing annual returns (Form 990), and exempted from filing tax returns upon dissolution.  The subsidiary organization can, in essence, “piggyback” off of the church’s tax exemption.  Like churches  integrated auxiliaries may also receive the benefit of restrictions on IRS civil tax inquiries and examinations, and therefore are generally not subject to the IRS’s typical procedure for tax inquiries and audits (though the IRS is loathe to audit a church or denominational related entities of any form without a specific complaint(s) alleging some form of egregious wrongdoing).

  1. Nonprofit LLCs

Many states, including Virginia[3] and Maryland[4] have recently passed laws allowing the creation of nonprofit LLC’s.  Using this structure and to be consistent with tax exempt purposes, the subsidiary would be created as a single-member LLC (SMLLC) and the Church/NP would be the sole member.  Like an integrated auxiliary, the LLC can obtain a derivative tax exemption, making it a “disregarded entity,” based upon the Church’s tax exempt status.

To be a “disregarded entity” the LLC’s activities must be consistent with the church’s exempt purposes under § 501(c)(3).  For the Church to form or participate in a nonprofit LLC, the enterprise must further the church’s charitable purposes, the governing documents of the LLC must permit the church to act exclusively in furtherance of its exempt purpose, the church must have more than fifty percent control over the LLC, the church must maintain sufficient control over managers (e.g.- right to terminate agreement), and the LLC must not be operated more than incidentally for profit.  If the LLC engages substantially in unrelated business, it could jeopardize the exemption of the church organization and the deductibility of any donations to the church or the LLC, and it would expose the church to unrelated business income tax (UBIT).  However, some unrelated activity can be strategically made related to the organizational tax exempt purposes with a creative and knowledgeable attorney and thus, avoid the tax and problem with losing its tax exempt status.

Instead of setting the LLC up as a disregarded entity, the Church may have the nonprofit LLC seek its own tax exemption under § 501(c)(3) to further strengthen its liability shield.  Such an election would mean that the LLC would be required to follow the aforementioned procedural and administrative requirements associated with a § 501(c)(3) organization.  One uncertainty though is whether a contribution to a non-profit LLC would be deductible.  The IRS has not yet specifically held whether a donation to a SMLLC is tax-deductible, though it appears that a gift to a Church’s wholly-owned SMLLC would be deductible. However, in most cases the substantial contributions could go to the parent church/NP as a designated gift who in turn would grant it back to the NPLLC thereby avoiding the deductibility issue altogether.

An organization that is disregarded for federal tax purposes is, in this instance, considered to be part of its church/NP, unless the LLC files for its own exemption.  If the LLC is treated as a disregarded entity, it is treated like a branch of the church/NP organization.  Thus, it need not file an application for recognition of tax exemption (Form 1023), nor need it file an annual return (Form 990) as the LLC’s income is included with the Church’s.  On the other hand, a nonprofit LLC that elects to obtain separate § 501(c)(3) status will be required to file the forms necessary for obtaining and maintaining the tax exemption, and is therefore more costly.

Choosing a nonprofit LLC (disregarded or separately exempt under § 501(c)(3)) as the means by which to organize a subsidiary also allows for manipulation of control.  The church organization may retain direct management of the LLC by creating what is called a member-managed LLC, give up most direct control by creating a manager-managed LLC (i.e.- like a board of directors), or blend the two types of management.  If the LLC’s operations will be similar to those of the church, then the church, since it already has a certain expertise, might be more inclined to organize the LLC as a member-managed company, allowing the experienced directors to put their knowledge to use (note: liability concerns may prevent or alter this analysis).  If, however, the LLC will be branching out into unfamiliar territory for the church, it might be a more prudent decision if the church structures the LLC as a manager-managed company, so as to allow the church to bring in more experienced directors for the new enterprise.

One drawback to using an LLC is the lack of legal precedents regarding their use.  So far LLC’s have been treated similar to other corporations, but it is unclear if courts would differentiate, especially when dealing with non-profit LLC’s.  There is a concern that if a Church is the sole member of an LLC that if a creditor were to bankrupt the Church, then the Creditor might be able to reach the subsidiary LLC.  However, under Virginia[5] law unlike Maryland law, it appears that in such a situation the Creditor could only get revenues that the LLC pays to the Church and could not reach the assets held.  Therefore, using an LLC as a property holding company seems to be an appropriate use because a holding company would not generate much profit and the Creditor would be unable to reach the holding companies assets themselves.

  1. Statutory Property Holding Companies

The IRS specifically allows a property holding company (IRS code 501(c)(2)) that can be used to hold multiple types of property, such as real estate, capital campaigns, endowments, intellectual property, literature and investments.  To qualify, though, a number of requirements must be satisfied.  The company must exist for the exclusive purpose of acquiring, holding, and collecting income from property.  Even though the church transfers its assets to the holding company, it must maintain control over the activities of the holding company in order for the holding company and property to maintain its tax exemption.  Also, the holding company must remit its income to the church organization; however, it is permitted to retain income to cover operating expenses, depreciation, and income that is applied to indebtedness on property to which it holds title, and up to 10% of extra income. Under the tax code property holding companies are viewed as separate corporations and are accordingly required to file an application for exemption (Form 1023), and annual tax returns (990).

Clearly, the most tangible benefit to establishing a separate holding company is the clear limited liability that results from such a structure.  By creating a property holding company, a nonprofit organization can separate its main assets, its property, from its riskier activities.  If the holding company is the record owner of the nonprofit’s assets but is unlikely to be vulnerable to massive liabilities, then the assets that the church transferred to the holding company will likely be protected from claimants and creditors of the church.  With regard to tax benefits, donations to property holding companies are not typically deductible, but donors could simply make designated gifts to the Church for the benefit of the holding company. It should be noted, however, for churches it is generally better to utilize an integrated auxiliary or non-profit LLC to hold property in order to avoid the IRS filings although for investment and endowments the church/nonprofit should consider this property holding company for greater clarity and protection.

  1. For-Profit Organizations

If a nonprofit, tax-exempt organization expands to include a substantial for-profit enterprise, it will likely lose its tax-exemption unless it organizes a subsidiary.  Creating a for-profit subsidiary allows a nonprofit organization to engage in numerous activities that would have been unavailable to a tax-exempt organization.  Any type of corporate structure (corporation, LLC, etc.) would likely be effective at isolating the church’s liabilities and assets in an appropriate manner.

Although the Church and subsidiary must be legally separate entities, the church organization may still receive profit from the subsidiary.  If organized as a stock corporation or LLC, for example, a subsidiary could sell all of its stock or member interest to its church, and distribute profits annually to the church by paying a dividend, which would be considered part of the church’s income but would not be taxable to the church or deductible by the subsidiary.  Other income transfers to churches, such as rent, interest, annuities, and royalties, will generally be taxable to the church as unrelated income (UBIT).

If properly organized and maintained, a for-profit, non-exempt subsidiary can allow a church to engage indirectly in revenue-generating activities unrelated to its tax-exempt purpose, receive monies from the subsidiary, and isolate the church’s assets from third party claims while maintaining tax-exempt status.  Another option, not fully discussed herein, is creating joint venture agreements between nonprofits and for profits under specific IRS guidelines to allow for such revenue and related activity to occur.  Again, one should bear in mind that knowledgeable legal counsel is essential in determining what entity best serves the needs of an organization, and what consequences necessarily follow from any such election.

  1. Corporate Formalities Must be Strictly Observed

Regardless of the choice of corporate structure listed above, a church must properly maintain the subsidiary as a separate legal entity throughout its existence, or else a court may find that the Church is liable for the actions or debts of a subsidiary (or vice-versa).  Such a finding by a Court is called “piercing the corporate veil” (“PCV”).  Courts employ this legal device when organizations do not properly establish policies or conduct their activities in a manner that evidences they are separate entities.

Courts have not established exact tests for deciding when PCV is appropriate.  They have, however, mentioned in many cases the types of behavior that will trigger a piercing.  A Church must be careful not to commingle funds with the subsidiary.  Meaning, the different organizations should keep separate financial records, bank accounts, and one organization’s funds should not be used for the benefit of the other.

As well, organizations must observe any formalities associated with the business structures involved.  For example, both the church and the subsidiary corporation should separately elect officers, conduct board meetings, keep independent financial records, and not have identical board members or officers.  It is recommended that no board members, but definitely no more than a slim minority of board members, overlap and that officers and employees are separate to insure the strongest shield.  Moreover, the Board for the subsidiary, especially any overlapping Directors, must not appear to neglect the interests of the subsidiary in order to focus exclusively on the interests of the church.   Such directors must take care to satisfy their fiduciary duty of loyalty and duty of care.   Courts have also looked to see if a subsidiary is properly financed or whether it seems designed merely to defraud any possible creditors.  If a subsidiary is improperly undercapitalized courts will PCV.

Finally, a Church must be careful not to promote the subsidiary relying solely upon the church’s reputation or represent to the public that the Church and subsidiary are one enterprise.  Court’s will not allow an organization to deceive the public via misleading advertising practices.  To avoid such an outcome, the organizations should manage their advertising and public relations in order to accurately represent their true relationship, such as a family of ministries or closely partnering together for common purposes.

8.   Substantive Bankruptcy Consolidation

The above considerations are some ways an organization can minimize the risk of PCV.  Many of those methods also apply in considering the likelihood of bankruptcy consolidation.  With bankruptcy consolidation, courts will consider the divisibility of corporate assets and liabilities, whether there are consolidated financial statements, the profitability of consolidation at a single physical location, the unity of interests and ownership between the various corporate entities, the existence of church and inter-corporate guarantees on loans, and the transfer of assets without observance of corporate formalities.  If a court orders substantive consolidation for either a church/NP or subsidiary in a bankruptcy proceeding, the creditors of the bankrupt organization will be able to satisfy their claims against the other organization that has funds.  Thus, in order to avoid such an outcome, a Church/NP should maintain the proper corporate formalities and finances to evince that the subsidiary is legally separate from the church.

  1. Summary

As should be evident from the above, a proper organizational structure is necessary but must be chosen wisely.  The subsidiary structure best suited for any given organization depends on the purpose, priorities, potential liabilities, and number and size of assets of the church.  The first move is for a Church to ensure that its Church is properly incorporated.  Then, a Church should assess the possibility of establishing any subsidiary organizations.  The Church should analyze whether it has significant assets: property, money, investments or buildings; or potential liabilities, such as active ministries connected to the Church like a school, daycare, thrift store, seminary, etc.

Once a Church realizes it needs to explore the possibility of establishing a subsidiary, it should seek legal advice from an attorney knowledgeable in corporate, liability/risk management and tax-exempt law.  A knowledgeable attorney can assist a Church in selecting the proper structure and also ensure that the subsidiary organization and Church are properly connected to each other in a way that complies with State law and the tax code.



[1] Private Inurement/Benefit Doctrine.  Section 501(c)(3) also indicates that an organization claiming exemption under that provision must not have any part of its net earnings benefit a private shareholder or individual (whether directly or indirectly affiliated with the organization).  Treasury Regulation 1-501(c)(3)-1(d)(1)(ii) specifically says that an organization “is not organized or operated exclusively for [exempt purposes] unless it serves a public rather than a private interest.”

[2] Unrelated Business Income.  Although commercial activity is permissible provided that the activity does not fail the “operational test,” if an organization engages in activities unrelated to its charitable purpose, the income from such activities will be taxed as unrelated business income.  If such unrelated business activities compose a substantial part of the organization’s activities, it could lose its tax-exempt status.

[3] Va. Code Ann. §13.1-1008 (2006)

[4] Md. Corporations and Associations Code Ann. §4A-201 (2006)

[5] Note:  Maryland law is different and does not provide as much protection to LLC’s.

Legal Alert: Supreme Court Redefines Marriage

Published on: Jun 26, 2015 @ 10:57

To view the full e-announcement, click here.

It is a sad day for those with a historical, Biblical, and eternal view of marriage and society. The U.S. Supreme Court decided that there is a fundamental right to same-sex marriage. The opinion can be seen here.

I wanted to share Christian Legal Society’s media release (below) with you, where CLS recognizes the majority’s feeble acknowledgement of religious liberty. However, we believe the dissenters are right – a large battle for religious liberty is ahead, including a possible fight over tax exemptions.

As a first step, CLS is holding a “Church-Guidance” webinar, which will help churches think through these issues. The webinar is July 8, 2 pm EDT.  Please sign up today and/or feel free to encourage your church leadership to sign up as well.  Click here for more information. I will be presenting at this national webinar and have prepared a white paper that will be distributed to the participants.

Thank you for being a part of Simms Showers Law Firm in so many ways.

Join us as we pray for our country and religious liberty.

In Christ,

Robert Showers

Managing Owner, SimmsShowers LLP




June 26, 2015

“The Supreme Court majority’s decision today creating a novel constitutional right to marriage between persons of the same sex was expected,” said David Nammo, executive director of the Christian Legal Society.

“CLS acknowledges the majority’s recognition that ‘the First Amendment ensures that religious organizations and persons are given proper protection as they seek to teach the principles that are so fulfilling and so central to their lives and faiths.’ We hope that the justices mean what they say and will protect religious liberty for all Americans – especially those whose religious beliefs adhere to a traditional view of marriage.”

The Free Exercise of Religion protects the right of Americans to live lives of integrity and dignity according to their core religious convictions, even when those religious convictions are unfashionable and unpopular with legal and cultural elites.  It is precisely the purpose of the First Amendment to protect Americans’ right to live according to those religious beliefs.

Heeding the warnings of Chief Justice Roberts and Justices Thomas and Alito, CLS will continue to respond and protect religious organizations and persons from those who may take this decision as liberty to be intolerant to those whose faith traditions disagree with same-sex marriage.

“As Chief Justice Roberts stated in his dissent, ‘Hard questions arise when people of faith exercise religion in ways that may be seen to conflict with the new right to same-sex marriage,’ and religious groups and organizations should understand that these questions will be hammered out court by court in many cases,” Nammo said.

The proponents of same-sex marriage have largely based their arguments on appeals to Americans’ traditional tolerance and fair-mindedness.  Unfortunately, in recent months, the proponents of same-sex marriage have failed to extend tolerance and fair-mindedness to their fellow Americans whose religious beliefs differ from their own.

But today’s decision means it is now the turn of the proponents of same-sex marriage to practice the tolerance and fair-mindedness that they have preached for so long — by respecting the constitutional right of their fellow Americans to live according to their sincere religious consciences.


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