06.3 - Incorporating the Local Church

by Scott Selman

And whatever you do, in word or deed, do everything in the name of the Lord Jesus, giving thanks to God the Father through him.
Colossians 3:17 (NRSV)

According to The Buck Stops Here by Mary Logan, the most important reasons for a church to incorporate are (1) to provide a level of protection for individual trustees or directors from personal liability attributable to the actions (or failure to act) of the local church, and (2) to facilitate ownership of real property by providing for the continuous legal existence of the local church.

Incorporation generally limits liability for the acts of a corporation (including non-profit corporations) to the assets of the corporation. In other words, the personal finances of individual trustees or directors are not at risk because of litigation involving the church unless the trustees or directors have defrauded the church. Such fraud may include embezzlement, false representation, self-serving financial transactions, and other acts of a questionable nature.

Incorporation is also helpful in matters of property ownership by establishing the local church as a legally recognized, on-going entity in the state of incorporation. However, local churches should also review certain paragraphs in the The Book of Discipline of The United Methodist Church for additional instruction concerning property ownership. These paragraphs include:  ¶2503 (Trust Clauses in Deeds), ¶2506 (Conformity of Discipline with Local Law), ¶2529 (Local Church Board of Trustees’ Organization and Membership), ¶2538 (Incorporated Local Church Property – Title and Purchase), and ¶2539 (Unincorporated Local Church Property – Sale, Transfer, Lease, or Mortgage).

For non-profit incorporations in Alabama, the following information should be considered:

  • Incorporation must be in accordance with state law and enables a local church to be recognized as a non-profit corporation.
  • The Code of Alabama specifically recognizes religious as a lawful purpose for incorporating.
  • There are no annual filing requirements for non-profit corporations in Alabama.
  • Although advance approval of the non-profit corporate name is not required, the name chosen by a local church should not be the same as, or deceptively similar to, any other existing corporate name.
  • Non-profit corporations must have and continuously maintain a registered office and a registered agent. However, the address of the registered office may not be a post office box, and churches that are not able to receive mail at the church’s physical facility should consider providing for this kind of mail delivery.
  • Ideally, a local church should incorporate as a non-member entity, governed solely by its Board of Directors.
  • The Code of Alabama requires a non-profit corporation to have at least three directors and at least four separate officers, including a president, one or more vice-presidents, a secretary, and a treasurer. The same person can hold more than one office, except for the offices of president and secretary.
  • A non-profit corporation is actually formed in Alabama by filing and recording Articles of Incorporation with the Judge of Probate in the county where the registered office is located. There is a $20 filing fee payable to the Alabama Secretary of State, and a minimum charge of $25 payable to the Judge of Probate.
  • Incorporation is not related in any way to tax-exempt status under the Internal Revenue Code.

Sample United Methodist local church articles of incorporation and bylaws have been developed by legal department of the General Council on Finance and Administration (GCFA) and are available in the Conference Treasurer’s office. Bylaws basically set the tone for how the local church will operate and may include articles about identity, purposes and powers, governance, members, board of directors, church council, officers, meetings, indemnification, amendments, and dissolution.  

Local church bylaws should include the following statement:  “This organization is required to comply with The Book of Discipline of The United Methodist Church, which is incorporated herein by reference.” In addition, bylaws should include a provision that the local church Board of Trustees shall serve as the Board of Directors of the non-profit corporation, and officers of the non-profit corporation shall be members of the Board of Directors. 

Since there are no annual filing requirements for non-profit corporations in Alabama, the disadvantages of incorporating are generally limited to the administrative time required to file the applicable paperwork and the expenses of any legal assistance, the filing fee, and charges of the Probate Judge.

Local churches may also want to consider separately incorporating early childhood development centers, including preschools, day care centers, extended care programs, nursery schools, parents day out programs, and other similar programs. The decision to separately incorporate these programs must be made in consideration of applicable local church administrative policies, missional priorities, and legal issues. A useful memorandum prepared by GCFA on the separate incorporation of child care centers is available in the Conference Treasurer’s office.

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