7 Ways to Protect Your Church: Leveraging the Law in Your Favor

            In today’s culture, legal threats to churches seem to be mounting on every side as many localities seek to restrict access to prime real estate through zoning, opponents of religious liberty attempt to dismantle tax-exempt benefits for churches and clergy, and disputes about church property and other issues increasingly wind up in the courts. 

According to ChurchLaw&Tax.com, the top five reasons churches wind up in court include:

            1.         Property Disputes

            2.        The Sexual Abuse of Minors

            3.         Personal Injury

            4.         Insurance Coverage Disputes

            5.         Zoning Issues

In this changing legal landscape, how can you protect your church from harm and increase your chances of staying out of court? Here are seven ways to protect your church:

1.         Leverage the Law in Your Favor

            2.        Strengthen Your Governing Documents

            3.        Minimize Your Liability Through Effective Policies

            4.        Develop Effective Employment Practices

            5.        Maintain Insurance Specific to Your Needs

            6.        Clarify Property Issues Early

            7.         Protect Your Children, Students, and Volunteers

Step One: Leverage the Law in Your Favor

You can leverage the law in your favor by (1) selecting appropriate corporate entities for your church; (2) effectively training your directors in their fiduciary duties; and (3) maintaining good records.

Corporation, Limited Liability Company, or Unincorporated Association

With West Virginia’s decision to finally allow churches to incorporate, churches in all fifty states may now leverage the benefits of incorporation as opposed to remaining an unincorporated association: (1) decreased exposure to liability for directors, officers, trustees, employees and other agents of the church; (2) less interference in property matters by circuit courts (in particular, in Virginia: (3) and ease of business transactions. To learn more about incorporation in Virginia, click on the link to download the free resource Church Incorporation in Virginia. (Insert Hyperlink). If you are a church planter, click on the link to download the free resource The Church Planter's Field Guide for information about starting your church on good legal footing.

            There are times when a church may want to also investigate forming separate legal entities to further limit exposure to liability. For example, if a church has a large preschool, it may consider forming a limited liability company where the church is the single member or forming a separate nonstock corporation for the preschool. In this way, a wall of separation is built between the activities of the church and preschool, decreasing the risk to the church. Of course, there are corporate formalities to be followed to ensure that the LLC or nonstock corporation is not a strawman or what is referred to as an alter ego, but when done correctly both the preschool and church can leverage the law effectively.

Train Directors in Fiduciary Duties

            A second way to leverage the law, is to regularly train directors in their fiduciary duties to the church. Directors are fiduciaries, or persons who have been entrusted with the responsibility to oversee the mission and resources of the church and have three important duties: the duty of care, the duty of obedience, and the duty of loyalty. In reference to the duty of care, directors must exercise good faith business judgment in the best interests of the church. In reference to the duty of obedience, directors of a nonstock corporation have the duty to the mission of the organization. Unlike directors of stock corporations, a church’s directors do not have a duty to shareholders (there are none), but they do have a duty to ensure the church stays on mission, not drifting from its tax-exempt purposes. Finally, in reference to the duty of loyalty, directors must place the interests of the organization ahead of their own interests at all times. Appropriately training directors, including having them execute Conflict of Interest and Confidentiality statements, protects the church.

Maintain Good Records

            In the time of Ezra, the people of Israel wanted to rebuild the Temple in Jerusalem, but opposition arose and there was a question as to whether the Israelites had the authority to rebuild the Temple. So, they wrote the King who ordered a search of the archives and in Ezra 6.2, the memorandum was found that authorized the rebuilding of the Temple. 

            Thank God for good record-keeping.

            I cannot tell you how many times I’ve asked pastors who come to me with a legal issue, “Did you document that decision? Is there a memorandum on file? Are there minutes to reflect that?” The following records should be kept permanently:

•  Articles of Incorporation

• Audits

• Constitution and Bylaws

• Corporate Resolutions

• IRS Determination

• Checks

• Insurance Policies

• Year-End Financial Statements

• Minutes of Board and Membership Meetings

• Real Estate, Deeds, Bills of Sale, Deeds of Trust (Mortgages)

• Record of Constitution
  

Most other records should be kept for seven (7) years, though some may be destroyed after two (2) years. Consult with your attorney for certified public accountant to develop a record retention policy.

Conclusion

            Your church can leverage the law to protect itself in this changing legal landscape by (1) selecting appropriate corporate entities for your church; (2) effectively training your directors in their fiduciary duties; and (3) maintaining good records. For more information on how Reynolds Law Group, PLLC can assist your church, call us at 757.219.2500 for an appointment or email assistant@ReynoldsLawGroup.com.