The Pros and Cons of Starting a Church vs. Buying One from a Legal Point of View

Churches and ministries generally think about two main methods to grow: starting new churches or buying ones that are already there. They do this to reach more people and make a bigger difference. There are legal issues and risks with both strategies, but they also have their own strategic advantages. To choose the best option for their ministry's aims and resources, leaders need to know all the legal effects of each one.

This in-depth guide talks about the legal pros and downsides of forming a church and buying one. It deals with concerns with property, following the rules, running a business, being responsible, and dealing with hazards. Our three levels of legal plans—THE FOUNDATION PLUS PLAN (Tier 2), THE PASTOR SUPPORT PLAN (Tier 3), and THE EXECUTIVE PLAN (Tier 4)—can also help your church flourish.

The Good and Bad Things About Starting a Church the Right Way

When you start a new church plant, you have a blank slate, but you also have to pay attention and perform a lot of legal work.

It can be good for you legally to start a church.

• Custom Governance Framework: If you start from scratch, you can create rules, bylaws, and governance structures that are just right for your current aim, vision, and manner of doing business. New churches can start with built-in best practices and compliance standards, so they don't have to deal with old paperwork or rules that don't match.
• Clean Tax-Exempt Status: A new church plant can apply for 501(c)(3) tax-exempt status as a new organization without having to worry about any tax debts or IRS compliance issues from previous operations.
• Optimized Property and Responsibility Structure: You might incorporate protective clauses in your lease or purchase agreement and build up your property to decrease your responsibility. You can set up new property ownership as long as the parent ministry is okay with the risks.
• Unified Culture and Branding: It's easier to include the culture, doctrinal standards, and operational practices of the parent church from the start when you start over. This means that there will be fewer fights in the church.

Starting a Church Can Cause Legal Issues

• Long Process of Incorporation and Exemption: To start a church plant, you need to fill out a lot of paperwork with the state to become a business, apply for federal tax-exempt status, and register with the state. It can take the IRS a few months to finish its work, which might make it harder to get money and keep things going.
• Initial Liability Exposure: Most new churches don't have comprehensive insurance or a systematic strategy to manage risks immediately away. This makes it easy for people to accuse them of things like property damage, staff problems, or mission operations.
• Fundraising Compliance Hurdles: Each state has its own standards that new groups must fulfill before they can legally ask for donations. These guidelines say that registrations must be considerably varied from state to state.
• It costs a lot of time and money to get the business going. Making all of the legal, accounting, administrative, and operational systems from scratch costs a lot of time and money.

The Law's Benefits and Drawbacks of Buying a Church

Buying an already-established church is a quicker method to grow, but it has challenges from the past.

The Law's Benefits of Being a Church Owner

• Tax-Exempt Status: Most of the time, when you buy a church, it already has 501(c)(3) status. This makes it easy to handle money, solicit for grants, and talk to contributors.
• When companies buy other companies, they usually get property, tools, technology, and a group of people who give money. These things are known as "infrastructure and tangible assets." This lowers costs at the start and helps the ministry grow more quickly.
• Continuity of Operations: If you keep the same leaders, staff, and ministry activities, the community will trust you more and things will keep going without the delays that come with starting over.
• Faster Market Penetration: Buying a firm enables you to quickly go to a new place or set of individuals, which makes it easier to make an impact.

If You Buy a Church, You Could Be in Trouble with the Law

• Hidden Legacy Liabilities: If a ministry buys another one, it might have to deal with debts, lawsuits, unresolved employment concerns, or IRS problems from its prior activity. These can affect the ministry's money and reputation.
• Combining boards, revising bylaws, and ensuring sure policies are in line all require careful legal planning to avoid conflicts and make sure everyone is on the same page.
• Risks with Property Title and Zoning: Title searches can reveal liens, easements, or zoning rules that restrict how the property can be used. You should read contracts like leases and service agreements very carefully and maybe even try to amend them.
• Cultural and Doctrinal Differences: It could be hard to work together legally and practically if people have different ideas about how to run a church or a ministry or if they have different doctrinal beliefs.

All Models Have Big Legal Problems

Before planting or buying, ministries must perform complete audits of the laws, finances, and operations to uncover risks, liabilities, and holes in compliance.

• Governance Alignment and Documentation: Updated bylaws and policies are examples of unified governance frameworks that are needed to make sure that decisions are made clearly and that the law is obeyed.
• At both the state and federal levels, it is very important to follow the regulations for starting a business, paying taxes, asking for donations, and hiring people.
• Risk Mitigation Strategies: To keep people, volunteers, and property safe, make sure you have the correct insurance, indemnification agreements, and operational controls in place.

How Our Various Legal Plans Help Churches Grow

• The Foundation Plus Plan (Tier 2): This plan is a wonderful option for new churches who need help with things like registering their trademarks, gaining their tax-exempt status from the IRS, filing for incorporation, and preparing basic governance papers.
• THE PASTOR SUPPORT PLAN (Tier 3): This plan is for ministries that are buying other ministries and require help with due diligence, preparing merger agreements, integrating governance, and making sure they are following the law.
• THE EXECUTIVE PLAN (Tier 4): This plan gives ministries that own and control a number of factories and make acquisitions a full-service legal and operational partnership that includes strategic planning, continuing compliance, risk management, and executive counsel.

Some Real-Life Legal Problems

Case Study 1: A Plant That Works Effectively and Has a Clear Legal Reason for Doing So

The FOUNDATION PLUS PLAN helped a developing church in the city build a plant with all the legal planning it needed. The company kept out of problems by following its own regulations, registering as a 501(c)(3) early on, and making sure its bylaws were clear. Their outstanding management and rule-following helped them gain the trust of funders and get people involved in the community fast, which helped their ministry thrive.

Case Study 2: A Legal Plan Helps Fix Problems with Buying Stuff

A church in the neighborhood bought a historic congregation that had a lot of intricate tax and property problems. With THE PASTOR SUPPORT PLAN, the parent ministry did a lot of research, rectified title problems, and made sure that all of the governance documents were in sync with each other. Lawyers made deals that saved money and brought individuals from various cultures together. This made the merger run more easily and had a bigger effect on the community.

Finally

You should think about more than just the church's goal and money while determining whether to build or buy one. You should also consider what the law says. Both of these strategies can help you do well if you plan beforehand and obtain guidance from an expert.

Our tiered subscription legal plans allow you flexible, all-around support to help your ministry grow in whatever way you wish. This will assist you in growing in a way that is safe and sure.

Links Inside

• Read the church's report on audits and following the law to learn more.
• Learn more about what a lawyer who works with church governance can accomplish for you.
• Learn how to pay pastors in a legal way.

Other Sites You Can Visit

• IRS Tax-Exempt Status for Churches
• National Council of Nonprofits – Growth Resources
• State Charity Registration Requirements

This blog post is just for information and doesn't give legal advice. If you wish to start or buy a church, you should talk to a lawyer who knows a lot about church law.