What Every Pastor Should Know About the Legal Side of Buying Another Church

Many churches and faith-based groups desire to add more ministry so they may reach more people, have more resources, and make a bigger difference. Many churches and faith-based groups are thinking about doing this, and it's a smart and daring thing to do. Acquisitions can help a company grow, but they also create a lot of complicated legal, financial, and operational problems that need to be carefully prepared for and handled by experts.

Pastors and church leaders need to know what the law says about buying a ministry so that the shift goes smoothly, the assets are safe, and the mission and integrity of both ministries are upheld. This comprehensive resource has all the information pastors need to know about the law before, during, and after they buy another ministry. It also talks about how our membership plans can help you with your legal problems at every step of the road.

What is the difference between ministry acquisitions and mergers?

Before we discuss the legislation, it's vital to know the difference between acquisitions and mergers:

Most of the time, one ministry buys or takes over the work or property of another ministry. The ministry that buys it is still the main legal body.

Mergers usually bring two firms together to establish a new one or keep the old one operating. Both companies get to vote on how the new company will be run.

When a business buys another business, it usually gets its assets, stocks (if the business is incorporated), or debts. This deal can provide the ministry that is buying additional power, but it also has certain legal problems.

When Buying a Ministry, the Most Important Legal Things to Keep in Mind

1. Full Due Diligence: The Most Important Step to a Safe Purchase

Due diligence is a thorough review procedure that helps the ministry that wants to buy another ministry find any financial, legal, or operational risks that come with the ministry it wants to buy. Some important things to pay attention to are:

• Check the group's audited financial records, tax returns (IRS Form 990), debts, obligations, and promises made by donors to see how financially stable it is.
• To find out how the organization is run and how decisions are made, study the articles of incorporation, bylaws, board minutes, and membership records.
• Property and Assets: Learn who owns real estate, equipment, intellectual property, and other physical or intangible assets, as well as any debts they may have.
• Contracts and Obligations: Look over any leases, vendor contracts, employment contracts, and grants you already have.
• Legal Compliance: Look for any litigation, rule violations, or problems with following the rules that have happened in the past or are happening now.

Our THE FOUNDATION PLUS PLAN (Tier 2) includes the whole church legal audit and compliance report. This is a really important due diligence service that helps you find dangers and tells you what to do before you buy something.

1. Making the deal to buy

The purchase agreement makes the deal official and sets the terms for both parties. It should be clear and complete, and it should include:

• Be clear about what assets are being bought and what obligations are being taken on.
• Talk about how the board will change, who will be in charge, and how the new ministry will work with the existing one.
• Representations and warranties: The seller must promise that their money is in good shape, that they are following the law, and that they have the right to sell.
• Indemnification clauses keep the buyer safe from future claims for debts that came up before the sale.

With THE PASTOR SUPPORT PLAN (Tier 3), you can get help from professionals with writing and changing your acquisition agreements. This makes sure that everything is locked down, which lowers risk and makes adjustments go more smoothly.

1. Staying free of taxes

It is very important to keep your tax-exempt status under IRS Section 501(c)(3):

• Check to see that the way the deal is set up doesn't put the buying ministry's tax-exempt status at risk.
• If you need to, send the IRS new applications or modifications to old ones.
• You need to follow the rules in your state for asking for donations and starting a nonprofit.

Our membership levels offer tax planning support to help churches comply with these complicated federal and state rules.

1. Moving goods and property to a new place

It is very important to transfer ownership of property and assets correctly so that there are no complications and everything goes smoothly.

• Look for real estate lawyers who can handle deeds, titles, and liens.
• Pay off any debts, such as mortgages, before the transfer.
• You need to alter your insurance plans and liability coverage to show that you are now the owner.

After looking at how successfully overhead functioned under THE PASTOR SUPPORT PLAN, we learned a lot about how to better manage assets and lower risks after an acquisition.

1. Changes in workers and volunteers

When one business buys another, employees and volunteers from both businesses are often involved:

• Look over and deal with any current contracts, benefits, and job obligations.
• Clearly and simply communicate changes to avoid confusion and keep important staff.
• If you need to, complete the steps for recruiting and firing. You might also want to think about giving someone severance pay or moving them to another employment.

With THE PASTOR SUPPORT PLAN, we can aid with meetings of executives and give you priority email access. This makes it easy to talk about complicated personnel issues directly during an acquisition.

How to Stay Away from Common Legal Errors

• Not doing enough research: Not finding hidden debts, liabilities, or compliance issues could end up costing you a lot of money.
• Contracts that aren't explicit: If the terms aren't clear, they can lead to problems and disagreements later on.
• Not filing your taxes: If you don't tell the IRS or change your filings, you might be punished and lose your exemption.
• Not getting the right approvals: If boards, members, or denominational bodies don't give you the right approvals, the deal may not be valid.
• Not following the ministry's beliefs and identity makes things harder and makes people depart.

How Our Tiered Subscription Plans Make It Easier for Churches to Buy Things

The Foundation Plus Plan (Tier 2) is helpful for completing legal audits, due diligence, trademark applications, and giving guidance on what to do next.

The Pastor Support Plan (Tier 3) includes quarterly meetings for executives, preferential access to lawyers, audits of insurance and expenses, and programs to help pastors. It's great for making deals to acquire stuff, changing the rules of government, and hiring new people.

THE EXECUTIVE PLAN (Tier 4): Provides high-level legal and operational support, strategic oversight, and specialist acquisition planning for big or complicated ministry expansions.

Finally,

Getting another ministry is a strategic chance that has big legal effects. To safeguard their missions and keep their workers honest, pastors and church leaders need to do a lot of research, write clear contracts, follow tax laws, and carefully manage their people.

Our tiered legal subscription services give you access to professional and scalable legal advice to assist your ministry securely move through every step of the acquisition process, from the first assessment to integration and growth.

Links inside

• Find out more about the church's report on audits and conformity with the law.
• Find out more about what a church governance lawyer can do for you.
• Find out how to legally pay pastors.

Links to other sites

• IRS Tax-Exempt Status for Churches
• National Council of Nonprofits – Mergers
• State Nonprofit Merger Requirements

This blog post is not legal advice; it is just information for you. If you need help with a specific ministry acquisition, talk to a church law lawyer who has been around for a while.