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Church Incorporation - February 2012

February 07, 2012

The creation of corporate entities for the purpose of limited liability has become commonplace. Individuals and groups regularly take advantage of corporations, limited liability companies, or other structures in order to limit exposure to liability, but only within the last decade has this option become available to a particular type of group in Virginia, namely churches. Churches in Virginia have traditionally operated as unincorporated associations of individuals. The property of an unincorporated church is generally held in the name of trustees registered at the local courthouse (depending on the denomination; churches with ecclesiastical officers, catholic churches for example, often have their property titled in the name of a bishop). Many churches of long standing in Virginia continue to operate as unincorporated associations with trustees and new churches continue to be formed using this structure, although incorporation of churches is becoming more and more commonplace as awareness of the option has spread over the ten years since Falwell v. Miller, 203 F.Supp.2d 624, 632 (W.D.Va. 2002). However, this structure brings with it the possibility of personal liability for church leaders and members with regard to church activities. As with changes to anything one is comfortable with through long association, changes to one’s church can often engender fear and uncertainty. Gaining a basic understanding of the incorporation process, and that it is not meant to radically change the structure or day to day administration of the church, can help assuage the fear and uncertainty often felt about church incorporation.

Prior to Falwell v. Miller, churches in Virginia were unable to incorporate because of Section 14(20) of Article IV of the Constitution of Virginia which read, “The General Assembly shall not grant a charter of incorporation to any church or religious denomination...” In 2002 the aforesaid section was determined to be unconstitutional, and the Virginia code and the practices of the Virginia State Corporation Commission were subsequently changed to allow churches to incorporate.

Of course saying that a church can incorporate is much easier than actually explaining what that means to a congregation or church committee. Most churches have both religious and administrative functions. The most common fear of church officers, staff, and congregation members is that the incorporation process is going to change or disrupt the church either spiritually or administratively. Although doctrinal issues involving involvement of church and state are matters to be settled internally by a given church, the practical answer is that incorporation is not meant to have any effect on your worship or the spiritual life of your church, or to subject the church to any sort of domination by the state. Incorporation of a church is merely a series of administrative processes and creation of various legal documents in order to gain certain legal or practical protections and advantages for the church.

The historical restriction on church incorporation made some sense given that in the colonial era, obtaining a corporate charter was a political process requiring the grant of a specific petition to the Virginia General Assembly. However, the modern incorporation process is commenced with through a non-political administrative process administered by the Virginia State Corporation Commission. A Certificate of Incorporation can be obtained from the SCC through submission of relatively simple articles of incorporation meeting some basic statutory requirements, along with a filing fee. A simple form is available on the SCC website but it is not designed specifically for churches, and a church considering incorporation should consult a knowledgeable church attorney prior to filing articles of incorporation, particularly if the church intends to pursue a separate 501(c)(3) exemption, as additional specific language may be required. It should be noted that merely obtaining a Certificate of Incorporation by no means completes the process of incorporating a church, particularly if it is an existing and operating church with a congregation and assets. Although the incorporation process can certainly be used as a time for review of the Church’s constitution, bylaws, policies, and procedures, and as an opportunity for improvement, it is not meant to alter the spiritual life of the church or to disrupt the way the church is administered on a day to day basis.

On the administrative side of the house, it is not possible to make a blanket assertion that incorporation of the church will have no affect whatsoever on the administration of the church. For example, once the church is incorporated there will be a requirement that the church file an annual report with the State Corporation Commission and pay an annual fee, but the annual report is quite short and cursory, requiring basically that you keep up to date the address of the corporation, registered agent’s name and address, and the names and address of the officers and directors. The annual fee is only $25.00. But again, incorporation does not have to change in any substantive way the administration of the church. The most common way to structure the corporation is simply to install the current leadership structure for the church (trustees, diaconate, church council, etc. depending on denomination) as the officers and directors of the corporation. Once the incorporation is complete, the church will likely have the same leaders it had before incorporation. Certain people may have some additional titles under the corporate documents, i.e. President, Vice President, Secretary, Treasurer, Director, etc., but they will likely have basically the same duties they had in the leadership structure before incorporation.

The goal when incorporating a church should be to help improve the peace of mind of the church personnel and congregation, and thus enhance the environment for spiritual growth and better enable the church to carry out its mission. Although this column is far too short to address every element of church incorporation, attorneys at Pender & Coward, P.C. have helped guide numerous churches through the incorporation process since incorporation became an option in Virginia, and would be happy to address your church’s congregation or leadership body about church incorporation issues.

Written by D. Rossen S. Greene.