DH King & Associates, LLC
Attorneys and Counselors at Law
Legal Guide For
Churches
And
Religious Organizations
2003 Edition
DH King & Associates, LLC
Attorneys and Counselors at Law
Marietta, Georgia
CHURCH FORMATION……………………………………………………………... / 7
Why Incorporate……………………………………….………..…………………... / 7
Reserving a Name……………………….……….……………..…………………… / 8
Articles of Incorporation………………………………………...………………….. / 9
Notice of Incorporation……………………………………….…..………………… / 10
Tax Identification Number…………………………………….……..……………... / 10
Non-profit Organization Postage……………………………………………………. / 11
CHAPTER 2……………………………………………………………………………... / 12
CHURCH GOVERNANCE...………………………….………..………….………… / 13
Forms of Church Rule..……………………………………….…………………….. / 13
Bylaws ...…………………………..………………………..………………...…….. / 14
Director Duties and Responsibilities………………………..………………………. / 19
Best Practices………………………………………………..….……….…...….….. / 22
CHAPTER 3……………………………………………………………………………... / 23
TAX EXEMPT STATUS……….……………….………………..…………………... / 24
Federal Tax Exempt Status………….………...…………..…………………….…... / 24
Restrictions on Political Activity……………………………..…………………….. / 26
State Tax Exempt Status……………….………………..……………….…………. / 27
Sales Taxes………………………………………………..……………….………... / 28
Ad Valorem Taxes………………………………………..………………………… / 29
CHAPTER 4……………………………………………………………………………... / 31
INSURANCE……………………..…………………………………………………... / 32
Liability...……….………………..…………...…………………………………….. / 32
General Liability…………………..………………………………………………... / 33
Automobile………………………..……………………………………..…………. / 34
Hired and Non-owned Automobile…..…………………………………………….. / 35
Counseling………………………………..………………………………………… / 35
Director and Officer……………………..…………………………………………. / 35
Sexual Misconduct……………………..…………………………………………... / 35
Employee Dishonesty……………………...……………………………………….. / 36
Property……………………….…………...………………………………………… / 36
Workers’ Compensation………..………...………………………………………….. / 37
CHAPTER 5……………………………………………………………………………... / 40
GIFT GIVING………………………………………………..………………………… / 41
$250 Substantiation Rule……………….…….……………..……………………….. / 41
$75 Disclosure Rule………………………..………………..………………………. / 44
Gifts of Property…………………………..………………..………………………... / 45
Restricted/Designated Gifts…………………..…….………..………………………. / 46
CHAPTER 6……………………………………………………………………………... / 49
FUNDRAISING ACTIVITIES………………………………..……………………….. / 50
GA Solicitation of Contributions Act.…………..….………..………………………. / 50
Sales Promotions……………..…………………...………..……………………….. / 50
Fundraising………………………………………………..………………………… / 51
Paid Solicitors…………………………………...………..………………………… / 51
CHAPTER 7……………………………………………………………………………... / 54
EMPLOYMENT ISSUES…………….….….…………..…………………………….. / 55
Negligent Hiring...…………………….…….….…...…..………….………………... / 55
Employment Related Documentation..……….…………...………….……………… / 55
Background Checks……………………….….………..………….…………………. / 58
Employee Selection……………………….….………..………….…………………. / 60
Employment At Will……………….………….………..………….………………… / 63
Federal Wage and Hour Regulations..…………..………..……….…………………. / 64
Employment Tax……………………………….……..………….…………………... / 67
FICA and FUTA Taxes……………………….………………….…………………. / 67
Payment of Employee Business Expenses…….……………….…………………… / 68
Special Rules for Compensation of Clergy…….…………….…..…………………. / 70
CHAPTER 8……………………………………………………………………………... / 74
CHURCH LIABILITY…………………………..……….…………………………… / 75
Clergy Malpractice……………………………..……..……………………………... / 76
Clergy Sexual Misconduct……………………..……..……………………………... / 78
Child Abuse/Molestation………………………..……..….…………………………. / 79
Inadequate/Improper Supervision…………………..…..…………………………… / 84
Other Liability Risks………………………..……..…….…………………………… / 84
Copyright Laws…………………………………..………………………………… / 84
Church Vehicles………………………………..………...………………………… / 86
APPENDIX………………………………………………………………………………. / 88
Appendix A: Articles of Incorporation…….…...….…….…………..….……………... / 89
Appendix B: Notice of Incorporation…………...... …..……………..…….…………... / 92
Appendix C: Bylaws…………………………………..…………..…………………… / 93
Appendix D: Application for Employment………….…..……………….…………….. / 106
Appendix E: Certification and Background Check…………………….….…………… / 111
Appendix F: Criminal Record Check…………………..………….….………………... / 112
Appendix G: Reference Contact Form…………………..………….….………………. / 113
Appendix H: Counseling Policy………………………...…………....………………… / 114
Appendix I: Activity Participation Agreement……………………..…………………. / 115
Appendix J: Acknowledgement of Risk Release and Waiver…….…..………………. / 116
Appendix K: Medical Release Form………………………………..…………………. / 117
GLOSSARY……………………………………………………………………………... / 118
This reference material is intended to provide churches, religious organizations and their pastors and staff with accurate information about the subjects covered. However, such information is not intended to be sufficient for dealing with a particular legal problem, and the authors and distributors do not warrant or represent its suitability for such purpose. This reference material is being distributed with the understanding that the authors and distributors are not rendering legal, accounting or other professional advice for any particular legal problem, and the reader should not solely rely upon this document without consultation with an attorney. The forms contained in the Appendices are intended to be samples and are not to be used without independent legal consultation concerning the most current changes in the law and the appropriateness of the forms for a particular situation.
About the Firm:
DH King & Associates is a law firm organized as a Georgia limited liability company. The firm represents churches and other charitable organizations, as well as startup and closely held businesses.
About the Author:
David King is a principal in the Marietta law firm of DH King & Associates where he practices in the areas of business and non-profit law. He received his B.S.degree, cum laude from Southern Illinois University, his M.B.A. degree from Brenau University and his J.D. degree from Georgia State University. Mr. King has spoken to various groups in his area of practice and is a contributing writer in such works as Independent Contractor or Employee? and Shareholder Recognition under Internal Revenue Code Section 351. Mr. King is a member of the American Bar Association (business law and employment and labor law sections), the State Bar of Georgia (business law and employment and labor law sections) and the Society of Human Resources Managers (certified Senior Professional).
Copyright © 2003 by DH King & Associates, LLC. All rights reserved.
Chapter 1
Overview
This chapter explains the benefits of incorporating, as well as the steps necessary to incorporate a church in Georgia and the process to obtain a federal tax identification number.
Why Incorporate
General
A corporation is an entity which comes into existence when, upon application by one or more persons, the Secretary of State issues a Certificate of Incorporation. By law, a corporation is an independent entity, a “person.” It has a life of its own, separate and apart from its owners, officers and employees with the ability to sue, be sued and conduct other business affairs. Unlike a partnership, its life does not depend on the existence of any individual or group. In addition, the owners’ liability for the debts of the corporation is ordinarily limited to the amount of the owners’ investment.
The word “corporation” immediately brings to mind companies like General Motors, IBM and Microsoft. However, corporations come not only in various sizes but also in various types. One such type is the nonprofit corporation. A nonprofit corporation is usually a charitable entity, such as a hospital, college, church or other religious organization. Typically, nonprofit corporations are headed by boards of trustees or directors, and do not have shareholders. Although they are often run like a business, their purpose is to aid in the accomplishment of various social goals.
Benefits
A mission should plan to incorporate at the same time the mission is constituted as a church rather than continue as an unincorporated association. There are many benefits to incorporating a church located in Georgia as a Georgia nonprofit corporation. As mentioned above, incorporating creates a distinct legal entity that is separate and apart from the members. Consequently, members of an incorporated church are not responsible for the debts and obligations of the church, unless they have guaranteed a debt or participated in conduct that created a claim against the church. Members of an unincorporated church may not be protected from such liabilities and can be held individually and severally liable for all indebtedness incurred by the church. Simply, a single church member could be held responsible for all of the debt of the church.
In addition, when a church is involved in more complex business transactions, many businesses and financial institutions require that the church be incorporated before initiating negotiations. For example, most lenders will require the church to be incorporated prior to making any loans to the church for the purchase of real estate. Because an unincorporated association has no legal existence that will permit it to hold property, the property is deemed to belong to the members as tenants in common. Incorporation provides the prospective creditor with an entity that is distinct from the members, removing any questions as to whether the transaction involves the church or its members.
An incorporated church also benefits from clearer rules of governance than an unincorporated church. The laws regarding the governance of Georgia nonprofit corporations are more developed than unincorporated associations. Consequently, the law provides more clarity and less likelihood for disagreement between members over the proper operation of the church.
Finally, the staff and members of an unincorporated church have a greater exposure to tort liability (church liability will be discussed in later chapters). As a general rule, any member of an unincorporated organization may be held liable for the actions of others acting on behalf of the organization. There are federal and state laws that offer some charitable immunity, but in Georgia the immunity is very limited and the federal immunity laws may not apply to unincorporated organizations.
An affirmative vote of a majority of the members present at a special meeting called to discuss incorporation is normally required for the church to take the action. The consent of the members of the church should be memorialized in the form of a written resolution. The resolution should authorize one or more individuals to serve as incorporators for the church to begin the process and should authorize them to take such steps required or necessary to complete the incorporation. The resolutions should also transfer all assets of the church to the corporation as soon as the church is incorporated. Transfers of real estate are normally effected by the signing of deeds and the transfer of personal property by the signing of bills of sale. Furthermore, contracts and other agreements should be changed to the name of the church.
If the church is a mission of another church and has not formed as an independent church, both the mission and the sponsoring church should pass resolutions confirming that the mission is forming as a separate and distinct church, independent of the sponsor church. If the mission and sponsoring church have other matters that will end upon formation of the new church, such as financial support, then those matters should be addressed in the resolution.
Reserving a Name
The first step to incorporating in Georgia is to reserve the church name with the Corporations Division of the Secretary of State by fax or its web page. The name of any nonprofit corporation in Georgia must contain the word “corporation,” “incorporated,” “limited” or an abbreviation of those terms in its name. The Secretary of State will then issue the applicant a reservation number that is effective for 90 days. The reservation number must be placed on the completed application for incorporation (Transmittal Form 227) and submitted to the Secretary of State’s office with one original and one copy of the church’s articles of incorporation and a check for $60, made payable to the Secretary of State. Articles of Incorporation are considered effective the date received by the Secretary of State unless a post-effective date is specified in the application.
Articles of Incorporation
Once the appropriate name has been reserved, the articles of incorporation must be prepared. Similar to for-profit corporations, Georgia has few provisions that must be included in the articles. The following provisions are required under Georgia law:
- The name of the corporation (i.e., Second Baptist Church of Atlanta, Inc.)
- The street address and county of the corporation’s initial registered agent
- Name and address of the incorporator(s)
- Whether or not the corporation will have members
- The mailing address of the initial principal office of the corporation
- A statement that the corporation is organized pursuant to the Georgia Nonprofit Corporations Code. O.C.G.A. § 14-3-202(a).
The purpose or purposes for which the corporation is formed is not required under Georgia law. However, if the nonprofit desires to obtain an exemption from federal income taxes under Section 501(c)(3) of the Internal Revenue Code (“I.R.C.”), certain other provisions must be included. The articles must limit the organization’s purpose to one or more of the exempted purposes provided in I.R.C. § 501(c)(3). The articles must not expressly permit the organization to engage, other than an insubstantial part of its activities, in activities that are not in furtherance of one or more of those exempt purposes. This requirement is met if the purposes stated in the articles are limited by reference to Section 501(c)(3). The articles must also provide that upon dissolution of the corporation, its assets must be distributed for an exempt purpose, to the federal government or to a state or local government for a public purpose. If these provisions are omitted, upon filing of the applications for exemption (discussed below) the IRS will request the articles by amended, costing the organization time and money.
The articles may also provide the names and addresses of the individuals who are to serve as the initial directors. However, including this provision in the articles should be carefully considered, as it is likely the board members will change prior to the nonprofit organization beginning its operations. If this provision is not added to the articles, written minutes will be necessary from the incorporator(s) naming the initial directors. In addition, a provision eliminating or limiting the liability of a director to the corporation or its members may be included.
Provisions not inconsistent with Georgia law may also be added to the articles regarding:
- Managing and regulating the affairs of the corporation
- Defining, limiting, and regulating the powers of the corporation, its board of directors, and members; and
- The characteristics, qualifications, rights, limitations and obligations attached to each class of members
Initial minutes must be prepared to ratify the incorporator’s actions, adopt the articles of incorporation, appoint officers and request for a bank account to be established. These minutes should be maintained in the church’s minute book. Sample articles of incorporation may be found in Appendix A. The church should have its attorney prepare or review the Articles of Incorporation prior to filing them.
Notice of Incorporation
All corporations must publish notice of intent to incorporate in the newspaper which is the official legal organ of the county where the initial registered office of the corporation is to be located, or in a newspaper of general circulation in such county and for which at least sixty percent of its subscriptions are paid. A list of legal organs is published at or the Clerk of the Superior Court can provide information as to the legal organ. The notice of intent to incorporate and a $40 publication fee should be forwarded directly to the newspaper no later than the next business day after filing articles of incorporation with the Secretary of State. Sample notice of incorporation can be found in Appendix B.
Tax Identification Number
Immediately following incorporation, the church must obtain a federal tax identification number from the Internal Revenue Service. This number will be necessary to open a bank account, and employ and pay compensation to employees for their services. This nine-digit number is secured by completing form number SS-4 and sending it to: Internal Revenue Service, Entity Control, Atlanta, Georgia 39901. The church will use this identification number on all tax forms, including employment tax returns, Forms W-2 for its employees, and correspondence with the Internal Revenue Service. Once a federal tax identification number is obtained, the church must contact the Georgia Department of Revenue to obtain a Georgia state taxpayer identification number to withhold state income tax on its employees. A state taxpayer number can be obtained by contacting the state’s Centralized Taxpayer Registration Unit at 404-651-8651.
Non-profit Organization Postage
Churches and other religious organizations are eligible for nonprofit postage rates from the United States Postal Service. However, individuals such as pastors are not eligible for nonprofit rates. Additionally, there are restrictions on the amount and kind of mailing, like advertising, that the church can do. Further, the nonprofit rate only applies to the church’s mailings and may not lend the use of its nonprofit rate to any other individuals or organizations. It is advisable to consult with the post office before designing and printing any mail piece.To apply for authorization to mail at nonprofit rates, the church must complete Form 3624 (Application to Mail at Nonprofit Standard Rates) from the post office or online at The completed Form 3624 and documentation to support the application must be submitted to the post office where the mailings will be deposited with the application only applying at that post office. Required supporting documentation includes either:
- Articles of Incorporation
- IRS determination letter of exempt status
- Financial statement prepared by an independent auditor, including balance sheets, notes, etc. that substantiate that the organization is a nonprofit
Chapter 2
Overview
This chapter explains the various forms of church governance and the importance of having written bylaws. The chapter also discussed required elements of church bylaws, as well as the duties and responsibilities of directors. The chapter concludes with some suggested best practices.
Forms of Church Rule
Once the church has been incorporated, the affairs of the church are generally managed in one of three manners. The church may be managed by:
- Its board of directors (directors, elders, trustees, deacon, etc.)
- Its members (congregationally led)
- A combination of each
Under Georgia law, unless an express provision to the contrary appears in the Articles of Incorporation or Bylaws, the presumption is that the church is to be managed by its board of directors. This further stresses the importance of specifying in the Articles of Incorporation or Bylaws the form of governance the church has elected to use and the authority of its directors. If the church desires to operate as a member led organization and fails to provide that form of governance in its Articles of Incorporation or Bylaws, the church will be considered a board of directors led organization and decisions made on its behalf by member vote may be void and subject to challenge.
Board of Directors
In a board of directors led church, the board of directors makes all of the decisions on behalf of the church, except those matters that the law requires be put to a vote of the members. Such matters include: