During the latest board discussion, leaders explored how a single-member LLC for churches can shield assets while expanding ministry reach. They noted that managing governance across multiple entities often proves more efficient than overseeing a single, sprawling program.
Mateo inquired about establishing church subsidiaries to safeguard assets and asked, “Can we maintain our church’s 501(c)(3) status within this structure?” He recognized the need for a strategic approach, as his questions currently outnumbered the available answers.
To illustrate, consider Faith Community Church (FCC), a centrally located congregation recognized for its dedication to service. The leadership sought a legally sound framework to manage its assets, outreach endeavors, and revenue-generating activities. To meet these goals, FCC organized community events ranging from fall festivals to welfare programs that provide food, clothing, and school supplies.
The New Ultimate Church Structure
I want to introduce you to a strategy that is becoming increasingly necessary to protect churches better in today’s litigious society. Single-member limited liability companies (SMLLCs) have emerged as valuable instruments for churches seeking the dual benefits of limited liability protection and tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. The versatility and simplicity of SMLLCs offer a structured approach to managing specific projects or assets while retaining the overarching 501(c)(3) status and governance of the church. This blog post delves into the operational and strategic advantages of SMLLCs for churches and ministries, illustrating these benefits through a detailed narrative of a sample church to show how easy it can be to leverage an SMLLC successfully.
Faith Community Church’s SMLLC
The church’s board decided to form a Single Member Limited Liability Company (SMLLC) to operate these programs. IRS Announcement 99-102 allows churches to form subsidiaries that automatically receive tax-exempt status under the church’s 501(c)(3). The newly formed SMLLC, Faith Outreach Ventures, enabled the church to maintain its tax-exempt status because the IRS classifies the new SMLLC as a disregarded entity for federal tax purposes. The financial activities of the SMLLC were reported directly under the church’s tax filings, simplifying administration without compromising the legal protection of the church’s assets. However, the SMLLC’s status as a separate legal entity provided the necessary limited liability protection, ensuring that any legal issues arising from the outreach programs did not impact the church’s core assets.
Simplified Administration: A Blessing for Governance
Guided by IRS publications and revenue procedures, specifically Revenue Procedure 2018-15, FCC was exempted from filing a separate application for tax-exempt status for Faith Outreach Ventures, LLC. The church’s board has expanded its oversight to include the SMLLC, streamlining governance and alleviating administrative tasks while maintaining its limited liability protection. The following are four key administrative simplifications afforded by this structure:
- There is no need for separate corporate records.
- There is no requirement to keep a separate set of minutes.
- There is no obligation to maintain separate books.
- There is no necessity for a separate tax return.
A Story of Growth and Community Impact
Faith Outreach Ventures, LLC assumed management of the annual fall festival, transforming it into a major event that attracts thousands and generates substantial funds for further programs. The company’s SMLLC has been pivotal in organizing Easter egg hunts that have delighted numerous children and conducting clothing and food drives that have offered essential aid to those in need. As the pastor often said to his church, “May our deeds match our words.” Moreover, their new organizational structure ensured that any legal claims of injury at these events could only be directed at the SMLLC, not the church itself.
At the onset of the school year, Faith Outreach Ventures initiated a supply drive to guarantee that every child had the necessary educational materials. The program has not only benefited the children but has also relieved the economic pressures faced by families in need. Moreover, donations given to the SMLLC are fully tax deductible by the donors.
The story of FCC and its SMLLC, Faith Outreach Ventures, showcases the advantages of strategic legal structuring in broadening the influence and efficacy of the church’s mission. The church has effectively shielded its assets while enhancing its capacity for outreach.
Harnessing Flexibility for Greater Impact
The operational flexibility offered by the SMLLC allowed the FCC to appoint dedicated teams for each outreach program, ensuring specialized attention and resource allocation. The agility of the SMLLC structure facilitated partnerships with other organizations and businesses, enhancing the church’s capability to serve the community.
Their Paid-Off Building
To add another layer of protection, the church started a second SMLLC to hold title to their paid-off building. The name they chose was Faith Community Church Trust, LLC. Just like their first SMLLC, as soon as they set up the entity, it fell automatically under the church’s 501(c)(3) status. This new subsidiary does not do business with the outside world. It only does one thing: it holds the church’s building title.
First published on StartChurch.com. Used by permission.