What if the ministry we want to buy has debt?

Understanding Debt in Buying a Ministry

Buying another ministry can help you grow your mission, reach new communities, and make your resources stronger. But what if the ministry you want to buy already has debt? In this case, you need to carefully consider the legal, financial, and operational aspects of the move to safeguard your ministry's interests and make sure everything goes smoothly.

Church Law and Strategy's PASTOR SUPPORT PLAN helps churches with 2,500 to 10,000 members. When these churches want to buy something with debt, they need to do a lot of research, manage risks, and get legal help that is strategic. This blog talks about how to handle ministry purchases that involve debt, the legal issues that come up, the most important things to take to lower risk, and how the appropriate partnership can protect your ministry.

Different kinds of debt that are common in ministry acquisitions

• Mortgages or liens on property or buildings
• Loans or lines of credit that haven't been paid
• Unpaid debts to vendors or contractors
• Liabilities relating to employees, such as overdue salaries or benefits
• Lawsuits or judgments that are still ongoing and making you pay money

Before making any purchases, it's important to know what these debts are and how big they are.

Why Due Diligence Is Important

Any purchase, especially one that involves debt, needs to be carefully checked out first. Some important areas are:

• Checking all of the debt agreements and financial statements
• Checking the ministry's cash flow and ability to pay off debt
• Looking into lawsuits or legal claims that are still open
• Checking on the status of liens and property encumbrances
• Talking to creditors and lawyers

The church legal audit and compliance report from Church Law and Strategy gives a full evaluation to find hidden hazards and suggest strategies of action.

Negotiating a Debt Assumption or Settlement

It is very important to talk about how debt will be handled:

• Find out if your ministry will take up the debt or if it will stay with the seller.
• Talk to your creditors about the conditions of your debts and maybe restructure or settle them.
• Include indemnification clauses to keep your ministry safe from hidden debts.

To write agreements that safeguard your ministry's interests, you need to hire a lawyer with experience.

Taking care of liability and protecting assets

Buying things can put your ministry at risk for debts you didn't anticipate coming. To lessen this:

• Do full risk evaluations
• Get promises and representations in purchase agreements
• Require an escrow or holdback to cover possible debts.
• Check your insurance coverage and make changes as needed.

Church Law and Strategy's church risk management and liability waivers program helps ministries keep their assets safe when they buy new ones.

Things to think about for IRS and nonprofit compliance

Acquisitions change tax-exempt status and reporting:

• Make sure the new company still does things that are exempt from IRS taxes.
• Send the IRS the right notices or changes.
• Keep an eye on income from unrelated businesses and other compliance risks.

Our church 501(c)(3) compliance attorneys help make sure that everything stays in line during acquisitions.

Integration of operations and financial controls

Success after buying anything depends on how well it is integrated:

• Make sure that financial systems and reports work together.
• Make sure that all ministries' policies and procedures are the same.
• Talk about staffing, the roles of volunteers, and how leadership works.
• Be open and honest with your congregations.

The ministry strategic operations advice from Church Law and Strategy helps make changes go smoothly.

How the PASTOR SUPPORT PLAN Helps Buy Companies with Debt

The PASTOR SUPPORT PLAN gives:

• Full due diligence and legal checks
• Executive strategy meetings to plan acquisitions
• Priority access to lawyers during talks
• Reviews of finances and insurance to keep assets safe
• Programs offering pastoral support for leaders

The PASTOR SUPPORT PLAN gives ministries the tools they need to make complicated purchases.

Questions that are often asked

Q: Can we say no to taking on debt when we buy something?

Yes, however it depends on the conditions of the contract and the negotiation. It's really important to know your liabilities ahead of time.

Q: What happens if debts that weren't reported come up after the purchase?

Indemnification clauses and escrow agreements can help; you need a lawyer to help you.

Q: How does having debt affect our tax-exempt status?

Proper administration and compliance keep the exemption; misusing it or getting money that isn't related to it can put it at risk.

Getting a ministry that already has debt means dealing with financial risks, legal issues, and operational problems. By working with Church Law and Strategy's PASTOR SUPPORT PLAN, you can be sure that you have the expert advice, thorough audits, and strategic advice you need to secure your ministry's purpose and assets.

This blog article is simply meant to give you information and is not legal advice. You do not become a customer of Church Law and Strategy or its agents by reading this article. If you need legal counsel that is specific to your church or organization, please talk to a professional lawyer.

Links inside

• Church Legal Audit and Compliance Report
• Church Risk Management and Liability Waivers
• Church 501(c)(3) Compliance Attorney

Links Outside

• IRS Guide on Mergers and Acquisitions: https://www.irs.gov/charities-non-profits/charitable-organizations
• National Council of Nonprofits Resources: https://www.councilofnonprofits.org/
• Debt Management Strategies for Nonprofits: https://nonprofitquarterly.org/