Churches are starting separate businesses to help fund ministry. Should your church follow the trend?
When you think of a business, you rarely think of a church or ministry running or owning it. You may even wonder if that’s something a church can actually do. Well, the answer is yes, as long as it is done correctly.
It can be strange to think of a church owning a business. What kind of a company would a church have, anyway?
An excellent biblical example of ministry and business working together is the Apostle Paul, who was also a tentmaker. This is a great biblical example of earning an income through a business or a job outside of the church and at the same time funding life and ministry.
The good news is that the church can do the same.
Having a business creates a source of revenue that is entirely independent from tithes and offerings. This additional income gives pastors freedom to do what God has called them to do, without having to worry about lack of resources or numbers of members.
Not only does a church business create revenue for the church, but it also creates job opportunities that can add value to the local community and provides a great outreach opportunity to spread the gospel in the marketplace. Because of the value a local business adds, it’s a unique way to spread the love of Jesus to people who may not go to a church.
So, how does a church or ministry start a business? And how do you go about determining what business your church or ministry should run?
How Does a Business Profit Ministry?
For a church or ministry to start and run a business, the business must be established as a separate corporation formed under section 502 of the Internal Revenue Code. This section of the IRC was created to allow nonprofit, tax-exempt organizations to own for-profit businesses.
This is a unique corporation that is set up as a for-profit business controlled by the church or ministry. The company can engage in any lawful activity and be open to the general public. It doesn’t matter what type of business the ministry chooses, as long as it is a legal business and the ministry feels good about it.
The church or ministry controls the business, but it is separated from any liabilities of the business because they are both separate entities.
The ministry owns the business by owning the business’ shares of stock. When the business is formed, the ministry enters into a stockholder agreement and can purchase shares of stock.
As the business makes money, it pays the ministry in the form of dividends. The dividends are 100% tax-free to the church, and the church or ministry can then use those funds however it wishes.
When Is a Good Time to Start?
Since you now have a better understanding of a church-owned business, you might be wondering when would be the best time to start one.
When starting a church business, there are a few things to know.
Businesses or for-profit arms are not subject to the same requirements and rules as nonprofits. Because of this, a business is not limited in its activities. This allows for more freedom and creativity with your business activities.
While ministries, churches and other nonprofit organizations are exempt from paying taxes, businesses must file and pay taxes at the end of the year. This is something to plan for while creating and launching your church business, even with the expectation that your business may not turn a profit in its first year. It’s a great time to start your church business when these three things are in order: when you have a marketable business idea, when you have the people and finances to support it, and when your church is established and thriving.
To start, you want to make sure your church is able to handle starting and maintaining a business. This includes finances as well as any staff members or volunteers who choose to be a part of the business.
Eventually, you will want to hire staff specifically and only for your business. To begin, it’s good to have help in getting it started and growing. You will want to make sure that it is not overextending your ministry or your staff members.
What Are Some Ideas for Starting a For-Profit?
There are so many possibilities for potential church businesses. A church business can be anything that is marketable, legal and doesn’t compromise church beliefs.
Here are a few examples of potential church businesses:
- Coffee shop
- Hotel and Bed-and-Breakfast
- Media Productions
- Recording Studio
- T-shirt company
- Design Firm
- Real Estate
- Magazines and Newspapers
- Software Repair
- Clothing Line
No matter what type of business you choose, make sure you do your research to see if it is a viable option for your church and community. You will want to do market research and know the cost and demand of what it will take to make your business thrive.
How to Make It Happen
Once you have decided on the perfect business for your church, you will register your business. You should register your business as a C-Corporation.
Even though your for-profit arm is registered like a regular business, it is owned and controlled by your church. The relationship is established by becoming the majority shareholder and referencing the 502 Revenue Code in your business’ purpose statement.
Because the for-profit arm is its own entity, the church is separated from any liabilities of the business. So, in case the business does not do well, the church does not take the brunt of the collapse.
Once the for-profit arm is incorporated, your church then buys 51% of the shares of the company to make your church majority shareholder. By leaving additional shares open for purchase, it leaves additional funding options. Your church can continue to invest in the business as needed.
Purchasing shares does a couple of things for your business and church. First, the church is able to make the decisions of the business since it is the majority shareholder. Second, the money used to purchase the shares becomes seed money for the business to launch and grow. Third, as mentioned before, because the church is majority shareholder, it makes money off of the business because of the investment it put into it. Your church gets paid from the dividends of the shares from the net profit earned.
Grow Your Church’s Future
As you can see, there are excellent benefits to having a church-owned business. Not only is it a fantastic evangelistic opportunity, but it also helps support the ministry it is funding.
The apostle Paul traveled to different cities making and selling tents. He evangelized and used his business as an opportunity to spread the gospel. Not only that, but it provided additional funding for his ministry. Your church can do the same.
Your church’s business can have just as much of a ministry impact as your church. And your business and ministry can work together to reach more people for God’s kingdom.
This article was first published on startChurch.com. Used by permission.