StartChurch.com as a Christian Social Entrepreneur’s Strategy for Tax & Legal

What’s Emerging in the Future of the Church?

Just at the right time, God led me to what I think is the right tax & legal organization – StartChurch.com.

I’ve been searching high and low for the right professionals for over a year to help me with my social entrepreneurial endeavors, involving my nonprofit organization Project What Extent Inc. and other visionary missions God has planted within my heart and mind.

Looking at their website was like a dream come true because I finally found more people that speak the same social entrepreneurial language as I do!

Everything StarChurch believes in and all the services they provide are EXACTLY what I need and have been looking for long and hard. It’s as though God created this brilliant company just for me! Thank You Lord!

I can’t wait to contact them after our Christmas celebrations, to get the ball rolling for God’s 2017 mission for my life.

Let’s. Start. Church.

The following is a collection of important excerpts I gathered from the StartChurch.com website for my future reference:

Ecclesiastical Entrepreneurism

When you survey churches across America, less than 3% of churches earn income outside of tithes, offerings and pledges. That is and continues to be the traditional method of income generation for churches and ministries, but the time has come to no longer depend on the traditional. We advocate the concept of ecclesiastical entrepreneurism as a necessary component of church life and its impact on the community. Just imagine what your ministry would look like today if it had the ability to generate sizable amounts of income outside of tithes and offerings. That is an opportunity worth seizing. Life is too short to live satisfied with the traditional, especially when there are “new wineskins” for this time and season. To start and run a ministry owned business is to break out of the traditional methods used in times past and to begin carving a new way of doing church business. The days of churches depending solely on giving are over.

It all begins with empowerment. Our founder wrote the resource titled “Expansion.” This resource casts the vision for why every church should have a church-owned business that produces extra streams of income. We then focus on listening to you and follow your direction and vision. After all, it’s your call, your vision and your ministry. We follow your orders, as you direct, to fill out articles of incorporation, church/ministry minutes to approve action, the stockholder agreement between business and ministry, Tax ID Number, bylaws and more. Moreover, it comes with our founder’s resource on how to start and manage a church-owned business . This resources discusses everything one needs to know about the ownership of the shares and how to issue them, how to use them to attract investors and to raise capital for the business, the seven considerations of a business plan, how to dream and much more.

Here is a quick scenario! Pastor Tom loves to preach every Sunday using illustrations that involve a multimedia experience, whether music and video, PowerPoint, Bible verses on screen, or sermon notes being distributed. He is able to do that because his church uses the services of a video/multimedia company. Every week Pastor Tom gets the invoice for it and it is $0.00. Why is it FREE? Well, that is because his church owns 100% of the issued shares of the business. Wow! Amazing! It’s a real for profit business that the church owns. In addition, the business pays the church a quarterly dividend of around $12,000.00. Those dividends are tax free to the church.

Protecting Assets with a Holdings Corporation

StartChurch: Protect Your Ministry - Establish a Holdings Corporation

The legislative culture seeks to limit the freedoms religious organizations have, but there are still regulations out there that provide great benefits to these same organizations. One of these benefits can be found in section 501(c)(2) of the IRS Code. This is by far the most important aspect of the Code as it relates to churches and nonprofits protecting their assets. This section of the Code authorizes the establishment of a holdings corporation with the sole purpose of holding title to property owned by a 501(c)(3) organization such as a church or ministry. In other words, a holdings corporation is a corporation whose sole purpose is to hold and protect a church’s or ministry’s assets. It should never do business with the outside world and does not receive donations. A church can conduct the work of the ministry without fear of losing any of its assets because they will belong to a separate entity. Imagine the peace of mind one can have by knowing that the church can enjoy the use of its building and other property while keeping it out of the hands of malicious lawsuits!

Adding a For Profit Arm

Under Section 502 of the Internal Revenue Code, a ministry can establish a for-profit arm to help earn tax-free income by way of donations and dividends. When done correctly, a for-profit arm can give you options that will empower your church or ministry to grow. Most churches are stretching their faith by believing God for $1,000.00 in the offering just to pay church rent every month. Why not believe God for more? If you want the Lord to entrust you with a million dollars of income, you must place yourself in a position where you have no other choice but to trust HIM for a million dollars. A for-profit, ministry-owned, business is just the way to do it.

Also see Let Us Set Up a Ministry Owned Business For You!:

Leading a ministry is a very challenging task. The fact that you have landed on this page is an indicator that the vision in your heart is greater than what the ministry’s finances can provide. StartCHURCH™ has come to understand that part of the process of growing your ministry is the development of a business mindset to finance the gospel. If there is one area where most churches are weak, it is in keeping up with business responsibilities. Most church business plans consist of depending solely on tithes and offerings. The hope of most pastors and leaders rests in the possibility of adding new financially strong members who can boost weekly giving. Unfortunately, that rarely happens as hoped. What if the church developed a plan to generate real income through legitimate for profit businesses owned by the church? What if the church created a plan to save cash over a period of time and invested it into a real income producing business? What if the profits were enough to pay for excellent facilities for the church, which in turn produced income, too?

Setting Up A Ministry

Minister

Ordination

Many ministers believe that they are only able to plant a church if they have either been ordained or licensed as ministers of the gospel. However, after establishing a church on a solid legal foundation, you can become ordained right through the very church you started. We provide all of the needed paperwork that empowers your ministry to ordain ministers, including the founder.

Also see obtaining a Custom License and Certificate.

Minister’s Housing Allowance

The best tax savings plan in America!

The housing allowance is one of the best tax saving benefits that exists for pastors. Our in-house CPA and attorney recommend that pastors in America, set up a housing allowance designation set up by the church. By setting up this program, the minister will be able to save thousands of dollars every year in taxes. If properly implemented, any minister can exclude home expenses from his or her income. These home expenses range from rent, property taxes, and principle and interest, to appliances, repairs, furniture, and much more, so long as those expenses provide the minister with a home. It does not matter whether you own or rent a home, if you are a licensed or ordained minister, you can create a housing allowance program and save big on taxes.

Self-Employment Tax Exemption

We offer a large discount if you want to create your housing allowance along with your self-employment tax exemption application (Social Security).

Employee or Self-employed?

For tax purposes, members of the clergy may be treated as either employees (preferred by the IRS) or independent contractors. In either case, with approval from the IRS, clergy may decide to be made exempt from self-employment (Social Security and Medicare) taxes. If an exemption is claimed, no benefits are available to the clergy member under either program in retirement. So unlike other taxpayers who are required to pay Social Security and Medicare, clergy may choose whether or not to participate.

Community Development Corporation

Imagine meeting the strongest needs of your community, while growing your influence as a church, all with resources from outside of your ministry.

CDC stands for community development corporation. It is a secondary corporation that can be used to accomplish the ministry dreams and vision that a church cannot otherwise accomplish.

A CDC is not an alternate funding source but a separate corporation, run by church members, to reach the needs of your city through the use of governmental grants.

a CDC that is a separate corporation from the church. This is considered a nonreligious nonprofit. The vision for this corporation initially is not “creating disciples”; it is “meeting the needs of your local community”. The staff of this CDC can be church members able to share the gospel. The overarching goal of this organization is to help people. To this end, the CDC can apply to receive monies that the government has set aside to help such needs. As the CDC renders services to the community, the church does its job to share the goodness of the Lord with those who are being served.

Is there something in your heart that you have not done because you do not have the finances for it or because you are waiting for the church to back it financially? Maybe there is another way. Through creating a CDC, you might be able to reach and bless your community and increase your influence in the city.

The CDC can be the avenue through which you can have great impact on your city, while not draining the funds of the church.

Compliance

KeepRight Program

Making Annual, Legal Compliance Easy!

Notes

December 27, 2016

I spoke on the phone with Lester at StartRight.com and he was very helpful in answering all of my questions and understanding all of my needs as an “ecclesiastical entrepreneur.”

The StartRight Program is the service they provide to help you start a 501c3 church or nonprofit. Even for my already-incorporated nonprofit organization, Project What Extent Inc., they will start from the beginning to ensure their work will allow for a successful 501c3 tax-exemption application.

I’m personally most interested in setting up a 1) Holdings Corporation, 2) Community Development Corporation (CDC), which would be Project What Extent, 3) a Church, and 4) a for-profit arm. Having these four entities in place will allow me to run a long-lasting, self-sustaining ecclesiastical enterprise.

Important notes to keep in mind:

• It’s easier to apply for loans through a Holdings Corporation compared with through a church
• A for-profit ministry arm must be 51% owned by the church
• If I apply this month with their “current promotion,” they will provide me with 3-4 free software packages and at least $150 off the cost for each corporation (x4 = $600)
• The cost for the StartRight Program (church, nonprofit, and holdings corporation) is $2,443 ($349/month for seven months)
• The cost for a for-profit ministry arm is $664 (332/month for two months)

The total would then be 7993 - 600 (discount) = 7393.

FAQ’s

Questions I asked Lester (sales) and Caleb (specialist)

1. Does StartChurch provide the leasing contracts for the Holdings Corporation? No
2. Will I be provided with all paperwork and documentation? Yes - StartChurch also keeps a copy
3. What are the backgrounds/credentials/certifications of the specialists? Unknown - seems like they are not necessarily tax/legal professionals, but they may have taken the StartChurch University program
4. Can you extend the 12 month payment plan? Yes - Will add 2 months for a total of 14 months
5. Can I receive discounts? Yes - $150 ($50/exempt organization + $50 extra negotiated)
6. Can I receive free software? Yes - 2 negotiated; Kingdom Steward for one year plus
7. What’s the next steps with specialist(s)? Will be assigned a StartChurch specialist for state-level and federal-level, and representation to speak with IRS agents; will be contacted within 72 hours of account opening
8. What is the timeline?? 6-8 weeks from account opening for state level (incorporation, EIN, etc); 6-12 months from account opening for federal IRS (501c3, etc.)
9. Is there a rush service? Yes - $399 for 48 hour turnaround instead of 3 weeks for the initial state level incorporation documentation; must make sure a specialist is available first; collect info and prepare documentation within 48 hours
10. What enables the leasing between nonprofits and the holdings corporation? Single parent holdings corporation (501c2) must have a parent (the nonprofit). Then with this relationship in place, implement a “Use Agreement” (terms of use) to use the holding corporation’s assets - not necessary to exchange money for the use. In the Use Agreement, we will want to add a clause to permit subleasing from the holdings corporation > church > other nonprofit or for-profit arm.
11. Can I track progress or is there a procedural checklist? No - but paperwork will be provided per entity so you can essentially put it together yourself.
12. Can I choose the state of incorporation for the for-profit arm to avoid California’s $800 Franchise Tax on LLCs? Any restrictions on doing (media) business in California? Yes, but check with CPA to figure out all the implications (e.g. corporate tax, “doing business as in another state”, etc.).
13. What is the legal structure of the for-profit arm (e.g. LLC)? Two options: 1) C Corporation (only structure that allows the nonprofit, i.e. another entity, to be a shareholder); nonprofit-to-nonprofit will not be subject to income taxes since both are exempt organizations; 2) S Corporation for multiple people-owners (another organization could never be an owner). Typically don’t recommend outside investors due to disagreements and conflicts; it’s simpler without other investors; it would also split the profit;
14. What is the legal structure of the holdings corporation (e.g. LLC, S Corporation)? It’s actually a 501c2 nonprofit holdings corporation organization with an exempt status so you can move assets between nonprofit, church, and holdings corporation without corporate taxes - income would simply move from nonprofit to holdings corporation as capital contributions. The Board simply resolves to donate to the holdings corporation.
15. What’s the refund policy? Refund can be provided at any time before work is done; can’t refund completed work; initial work will be done within 3 weeks (articles of incorporation);
16. Is pastoral ordination included in the StartRight Program? Yes - with all the requisite paperwork.
17. What is the service guarantee? What if something goes wrong or is not approved? Full refund for services if exempt status is not obtained, but we’ve helped over 10,000 organizations, but lacking certain information (info not disclosed, e.g. conflict of interest) would make a difference. Refund Policy can be resent by Lester/specialist
18. Who owns the holdings corporation? Is it one stockholder? Member? It is a single parent holdings corporation and the nonprofit (church) would own it.
19. Does StartChurch act as Agent for Service of Process for the lifetime of the organizations? No
20. Are the bylaws customizable? Will I be allowed to provide input for every section allowing customization? Yes - will have an appointment to extensively discuss the details, except for changes that would void our warranty/guarantee, e.g. something that would cause a conflict of interest. Everything you need and everything you don’t, so you can govern with policies and handbooks for operations rather than hard-baked and rigid into the bylaws.
21. Are Policy Documents written for Conflict of Interest / Code of Ethics? Yes - will provide initial board meeting minutes template; Policy packet contains about 10 policies - only adopt them if they’re useful and applicable; simply use board meeting minutes template to adopt a resolution of the board for the new policies.
22. Can payments be delayed during waiting times? e.g. after 501c3 application is submitted and before approval is received? No guarantee since the IRS takes their time, especially on churches. Just be sure if the IRS sends a message, send it to StartChurch to handle for us. StartChurch is flexible and will work with us on payment holds or movements if there is a legitimate delay.
23. Is it easy to add the for-profit arm after incorporation and tax-exemption of nonprofits? Yes
24. Can the for-profit arm be 49% privately owned without conflicts of interest? What document/language provides this protection? Yes, but have to be careful not to create a “business relationship”, e.g. pastor of the church is chairman of the board (has a big say over the church and assets), then also 49% owner of the for-profit business. If you follow the Conflict of Interest policy the StartRight Program provides it can prevent a possible conflict of interest; another example involves if the pastor works for the for profit arm and the church and has some control/influence over the for profit arm.
25. Can the for-profit arm be 49% owned by any shareholder type? E.g. private individual or corporation? Yes, also see #24.
26. Is the Holdings Corporation intended to hold the for-profit arm’s assets too? No - StartChurch holdings corporations can only work because the nonprofit holdings corporation is holding assets of another nonprofit, e.g. church.
27. Can PWE nonprofit be converted into Holdings Corporation? Yes, see #34.
28. Can Holdings Corporation own the for-profit arm? Yes, it is also a common strategy because then the for-profit arm can put its income into the holdings corporation as savings or to buy equipment; but beware, it is outlined in IRS: holdings corporation must transfer income from assets (from shares or property) to parent (nonprofit) every year; it can happen one after the other, will want a paper trail though
29. How can we money move from Holdings Corporation to nonprofit? church? for-profit arm? The holdings corporation shouldn’t be used as a savings account; it should act more as a shelter. If you move back and forth a lot you can run into problems. If the IRS/court sees you always took money from the holdings corporation when you were in trouble and then someone sued you, they could ask “Why don’t you just reach out to the holdings corporation again for financial help to settle the litigation?”; mainly use holdings for assets like a car, building, equipment.
30. Can Holdings Corporation accept donations? Yes - technically always from the church as capital contributions; but don’t want to accept donations, should keep holdings corporation in the background insulated from operations and the general public.
31. Is Holdings Corporation tax exempt? Yes
32. How can money move from church to Holdings Corporation? As capital contributions through resolution from the board.
33. What are the rules/restrictions for leasing equipment to church? to for-profit arm? Something you will specify in the “Terms of Use Agreement” between the holdings corporation, church, for-profit arm, and other entities.
34. Is it possible to re-class our existing nonprofit to act as our holdings corporation? Usually not recommended, but it is a viable option for us since we haven’t yet obtained our 501c3 tax exempt status.
35. What is StartChurch’s Better Business B rating? A+ BBB Rating, and this Business Is Not BBB Accredited; See the BBB website; 22 years in business in Lawrenceville, Georgia.
36. For the free monthly payments plan, can I change the payment date? Yes - the payment can be made anytime of the month.
37. Can you offer any discounts on the conference for existing customers? Yes - it depends. Currently (1/5/17) there is a buy-one-get-one-free special for the 2 upcoming conferences in Baltimore or Minneapolis ($109/registration) plus $29 manual (optional to get more than one).

Outstanding Questions:

1. Tax implications for C or S Corporation for-profit arm? Double taxation? Are accumulated earnings not taxed and then distributed to the Holdings Corporation tax free? Or taxed at the corporate level and then distributed tax free to the Holdings Corporation? Corporate profit is paid first on net profits
2. Are capital contributions to the holdings corporation handled on a contribution-by-contribution basis, each as a board resolution? Can we have a policy in place to streamline this process? Most of it is done by board resolution per item (or groups of items); capital contributions
3. Can the holdings corporation hold Trademarks as an asset (e.g. logo)? Any restrictions on this topic? Probably - but not certain - the structure of a holdings can hold real, personal, and intellectual property; 501c2
4. For #28, does income have to be transferred immediately? Or is it net income?
5. Refund policy document/webpage?
6. Will we be able to submit the 501c3 application for the holdings corporation before March? (To qualify for tax exemption retroactive to the date of its organization or formation, an organization claiming tax-exempt status under section 501(c)(3), 501(c)(9), or 501(c)(17) generally must file Form 1023, 1023-EZ, or 1024 within 27 months of the end of the month in which it was legally organized or formed. https://www.irs.gov/instructions/i990/ch01.html)
7. Should we amend articles of incorporation for WE now? Do we have to wait for church incorporate for church ownership or does that only happen at exemption filing? Must submit 501c3 application for church; when exempt status is submitted or finalized then we can jump into articles and 501c3 of holdings corporation since we’ll have to put in the bylaws that the holdings corporation will be owned by the church; bylaws tying it to the church as parent organization. Articles can be submitted simultaneously. However, Holdings Corporations have a 15 month 501c3 filing requirement compared to the 27 months for a regular nonprofit :(
8. StartRight for 501c3?
9. Rename nonprofit so holdings can have the name? Yes, possible, but some states have a hold on a name.
10. For-profit? Wait until church is incorporated.
11. Location of Church? IRS
12. Board membership and family? Need a majority that is unrelated (3/5 is okay). Regarding the my salary, wife and I shouldn’t vote
13. Budget approval Simple majority with me included as Pastor/President; 3/5, including me
14. Accountability board unanimous board vote for removal until accountability board
15. Amending bylaws? Applying 501c3 the IRS needs bylaws, but don’t need to file to state or IRS in general;
16. Statement of Faith Example #3 is Assemblies of God, #5; Most popular is #1
17. Bylaw review After sending them to me, we will review them together
18. Minister in bylaws the IRS definition of a minister
19. Removal of board members
20. “Discrimination?” Faith based organizations can discriminate under First Amendment, but not commonly possible**
21. Board distinction Want a distinction between church and holdings corporation; StartChurch recommendation is to not have any same members; liazon; pastors typically have their wives
22. Holdings board Minimum 3 board members
23. Can we add a teleconference provision in the for board meetings
24. Church meetings by about February; need public location - how long should we have? Does online location count? Meeting in physical home groups on a regular basis will be okay, but a solely online presence probably won’t cut it.
25. How is the Holdings Corporation protected from litigation against the church if the church owns the Holdings? See Wagenmaker & Oberly: Section 501(c)(2) Tax-Exempt Title Holding Corporations: The Good, the Bad, and Other Options
26. We incorporated December 2014 - was I supposed to file a 990-N postcard for 2014? Usually should start filing once EIN is obtained; we only obtained EIN March 2015 so we’re fine since we filed a 990-N for 2015 and will file this year for 2016.
27. Ordination Certificate Template for other pastors ordained by our ministry? StartChurch might have templates in the Document Suite.
28. Religious or Non-religious CDC? Religious = hire and operate based on religious beliefs; downside can be that certain donors/grants wouldn’t want to donate to you
29. Is it possible to tie CDC to Church? Not legally, but usually tied informally with the same governing individuals.
30. What do organizations usually use: Chairman or President? Sometimes the Chairman rotates yearly; or between two people (maybe President and Vice-President); current bylaws say President will serve the Chairperson; so I need to be Pastor/President/Chairman in order retain as much control of the church, and there’s no conflicts because the bylaws help us maintain balanced control with the board structure since a majority vote is still required, which must include my vote.
31. Conflict of interest related to CDC and church - should there be a separation of boards? No, there is no issue with the same boards since assets are not shared as is the case between the Church and the Holdings Corporation.
32. For-profit arm 51% ownership for the church/holdings is recommended, though it’s not required; you will have to register with the department of revenue in California for payroll and labor department on your own; 1120 tax return.
33. When and how much of profits are given through dividends Specified in bylaws to give board this responsibility. Typically set it up with 100,000 shares specified in articles of incorporation. Bylaws set the par value of shares to $0.001/share. See Par Value for a Startup Company’s Stock, CapGenius: Set the Par Value for your Common Stock “Absurdly” Low, and How many shares should be authorized in the certificate of incorporation?: “From a purely mathematical perspective, it doesn’t matter whether there are 1 million or 10 million fully-diluted shares. However, when companies are granting options to new employees, even the smartest engineers feel better receiving options to purchase 100,000 shares as opposed to 10,000 shares, even if it represents the same percentage ownership of the company.”
34. Franchise Tax in Delaware: See calculator: https://corp.delaware.gov/frtaxcalc.shtml.
35. Can I change how many shares we have? Yes, you can amend the articles to distribute more shares - amending articles is $30. However, if you already know you want more to start with then you should just incorporate with that number. (Note: Adding more shares after recruiting initial investors would dilute the shares.)
36. How can I move our media assets from one nonprofit to another? (i.e. Donating assets from Project What Extent to Church to Holdings?) This would simply be capital contributions through board resolution. Be sure to include an itemized list and fair market values at time of transfer.
37. How to avoid the appearance of tax evasion? It would be based on intention; tricky starting out if I have to fund the majority of it so I should either delay taking a salary/HA or delay making my own contributions to be safe.

Holdings - we will wait for church 501c3 application since holdings has 15 month window to apply for 501c3 itself.

Send Caleb names and addresses of board members

1 - CDC: religious or not 2 - CDC: name change or not 3 -

1. Articles of Incorporation
2. EIN number
3. 8 Policies
4. Minutes for Board Meeting

5. Minister Certificate

6. Bylaws to protect beliefs - living a life consistent with beliefs, refuse service, assets, etc.;

See S and C Corporations Create Different Tax Consequences

On the other hand, if the corporation pays dividends to the shareholders, those payments are subject to corporate-level income tax. However, the individual does not have to pay self-employment tax on the dividends.And, qualifying dividends (and most United States corporation dividends can fit into this definition) are taxed at capital gains rates and not the individual’s top marginal tax rate. Finally, dividends paid to a shareholder that actively participates in the business are not subject to either the 0.9 percent Medicare surtax on earnings or the 3.8 percent tax on net investment income that are levied on higher-income taxpayers.

Not Every Corp Can Be an S Corp

While there is no income limitation on S corporation status, restrictions on the number and types of shareholders and the types of stock can make it difficult to operate a large business as an S corporation. In most cases, family-owned business and small businesses generally are not affected by the limitations.

Only a corporation that meets all of the following requirements can make a valid S corporation election.

• The corporation must be a domestic corporation. This means that it must have been created under federal, state, or U.S. territory and it must be taxed as a corporation under local law.
• All shareholders must agree to the election.
• There can only be one class of stock issued by the corporation. However, there can be both voting and nonvoting shares. A difference solely in voting rights does not create a separate class of stock.
• There can not be more than 100 shareholders. However, certain related parties (such as husband and wife) are counted as a single member.
• There can not be any nonresident alien or non-human entity shareholders, unless the shareholder is an estate or trust that is authorized to be an S corporation shareholder under the tax laws. Certain exempt organizations, such as qualified pension, profit-sharing, and stock bonus plans, or charitable organizations will be allowed to be shareholders in an S corporation (for purposes of determining the number of shareholders of an S corporation, a qualified tax-exempt shareholder counts as one shareholder).
• An S corporation can hold qualifying wholly owned subsidiaries and can own 80 percent or more of the stock of a C corporation. The C corporation subsidiary can elect to join in the filing of a consolidated return with its affiliated C corporations, but the S corporation cannot join in the election.