How to Incorporate a Nonprofit Ministry

By Lee Hall, J.D.

How to Incorporate a Nonprofit Ministry

By Lee Hall, J.D.

A ministry comprises charitable outreach under the auspices of a church. Some churches extend their reach by founding independent nonprofit ministries under state law. Like the church itself, any newly formed nonprofit must operate exclusively for its charitable purpose.

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Strategy and Structure

Once formed as a separate nonprofit entity, the ministry establishes its financial independence, though the church may maintain control by placing its board members on the ministry's board as well. On the other hand, the ministry can form a distinct board. Donors may prefer to fund an independent ministry.

Your ministry needs a set of bylaws to describe the structure and guide the leaders and members in advancing the ministry's mission. These bylaws should include:

  • The officers' and directors' duties and roles
  • The protocol to elect directors and select officers, including the details of their terms and a removal process
  • The procedure for the ministry's meetings and for voting on issues pertaining to its operation
  • Guidance for financial activity
  • Criteria for accepting and revoking membership, hiring staff, and due diligence in selecting people who will work with children

Ensure that the bylaws adhere to the rules set forth in the Internal Revenue Code, §501(c)(3). Good bylaws help to resolve issues that arise for the ministry's membership. They can also preserve the original intent of the founders of the new organization for years to come.

Incorporating the Ministry and Establishing Tax-Exempt Status

A nonprofit ministry must follow several steps to file for incorporation and establish tax-exempt status. Here's a checklist to help you make sure you're on the right track.

1. Choose a name. It cannot already be taken by another organization in the state of registration. Visit your state's business database to run an online name search.

2. Define, in writing, the ministry's purpose. A precise charitable purpose, unique to the ministry, must go into your articles of incorporation.

3. Select a registered agent with a street address within the state to accept legal correspondence on the ministry's behalf. Some nonprofit ministries rely on their affiliated churches to handle this role. Alternatively, you may enter into an agreement with a registered agent service.

4. Refer to the state's incorporation statute for specific requirements. Individual states often have requirements for approving nonprofit activities, like the handling of a drug and alcohol rehab program or the education of children. The agency requires a copy of the organization's articles of incorporation. Its approval should accompany your actual filing for incorporation.

5. File your Articles of Incorporation with the state. The chief information sought by the state includes the names of the entity and its incorporators, its address, and its charitable purpose. Include the correct filing fee and request a certified copy from the state to use when applying for federal tax-exempt status.

6. Check with your state as to the requirements for registration as a fundraising entity. Fundraising is vital to any non-profit. If you intend to fund your ministry through grants and donations, the selling of products or services, hosting fundraising events, or in-kind contributions, check your state's requirements with regard to fundraising.

7. Request recognition as an organization eligible for tax-exemption under section 501(c)(3) of the Internal Revenue Code. Complete and submit an Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code (Form 1023). This includes information about the ministry, its work, and its fundraising plan, as well as the board's contact details. Await approval from the Internal Revenue Service.

Be sure to attach copies of the bylaws and the articles of incorporation with your Form 1023. Although bylaws need not be publicly disclosed, note that the IRS requires nonprofits to show, upon anyone's request, a copy of its 1023 and supporting documentation. In the interest of transparency, the ministry may affirmatively display copies of the bylaws, along with incorporation and tax documents, on the informational section of its website.

 

If the process seems like more work than your ministry needs, there's a workaround. Your ministry can avoid filing Form 1023 and still receive an exemption from income tax—if you're willing to form as a church auxiliary. Otherwise, if your ministry's mission is best served separate from the church, forming as an independent nonprofit might be the way to go.

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