Have you ever wondered whether you should start a new corporation? Maybe you’ve just founded a church or just started itinerating on a regular basis. Or, maybe you are launching a major new initiative for an existing church or ministry. Let’s consider some commonly-asked questions concerning why and when to form a new corporation. Today’s question:
What are the benefits of forming a corporation?
The most significant benefit of forming a corporation is liability protection. A corporation assumes the liability that its members and leaders would otherwise face. For example, assume that a guest at an unincorporated church falls down and breaks her hip. Who is liable for the injury? Certainly, the owner of the property might be liable. But, it may be surprising to learn that the leaders of the church and even the members of the church may also be held personally liable for the injury. By contrast, if the church is incorporated, the corporation–not the leaders or the members–would typically be liable for the injury. Thus, the corporation assumes the liability which would otherwise be assessable against the individuals. Another benefit of forming a church corporation or ministry corporation is that a corporation may can enter into contracts. Without a corporation, a minister may find it necessary to borrow money or enter into contracts for the ministry in his personal capacity. Although banks often require ministers to personally guarantee loans to churches or ministries, a personal obligation will always be required if ministry has not been incorporated.
Corporations also have perpetual existence. They don’t die, get sick, or move away. So, conducting church or ministry operations under the auspices of a corporation allows for the ministry’s real estate and finances to be held and used for religious and charitable purposes forever, despite what may happen to the original founders or leaders over time.
Also, use of a corporation is often required in order to ensure tax deductibility of donations. The IRS permits unincorporated churches to receive tax deductible donations as long as the church is formed as an association, with a formal governing structure. However, unincorporated entities which are not churches are not permitted to receive tax deductible contributions and must usually pay state and federal income taxes on the donations which they receive.