Choosing the right entity type is one of the first legal decisions a church or religious organization makes, and it affects liability, taxation, and ongoing compliance for years to come. This article focuses primarily on the formation of a corporation, but it’s important to understand all the entity types available and how each affects your church.
Entity Type: Unincorporated Association
An association is formed once two or more individuals mutually agree to act for a common lawful purpose, whether for profit or not. An unincorporated association can act and conduct business in the same manner as the other entities discussed below, including holding ownership of real property. However, what such an association cannot do is legally separate itself from its members. The individual members of the association may be personally liable for its debts and the liabilities of the whole. Regardless of whether a member of an association consents to a rental agreement, for example, when those individuals enjoy the benefits of that contract — by attending services at that location — they may be personally liable for the rent payments under its terms.
Much like other entities, an unincorporated association may adopt rules for its own internal management, such as bylaws, a constitution, or articles of association. The tax exemption available to religious corporations under the Internal Revenue Code is usually available to most unincorporated associations that meet all the conditions for exempt status. In California, an unincorporated association is considered nonprofit if its creating document contains the necessary nonprofit language.
In California, an unincorporated association should file a statement with the Secretary of State indicating the location of its principal office and its designated agent for service of process. In addition, all unincorporated associations, even if organized on a nonprofit basis, are subject to California income tax until the California Franchise Tax Board grants tax-exempt status.
Entity Type: Limited Liability Company
An LLC is a relatively young form of business that has some advantages over corporations and partnerships. The primary advantage over a partnership is that, like the owners (shareholders) of a for-profit corporation, the liability of the owners (members) of an LLC for the obligations of the LLC is limited to their financial investment. However, as with a partnership, members of an LLC have the right to participate in management of the LLC, unless the LLC’s governing documents provide otherwise. For California income tax purposes, an LLC with at least two members will be classified as a partnership. To be taxed as a corporation, the LLC must make such an election with the Internal Revenue Service.
Entity Type: Corporation
A corporation is a legal entity created under state law that requires filing certain documents with the California Secretary of State. A for-profit corporation involves owners (shareholders) who are generally not personally liable for the obligations of the corporation but, as implied, are organized for the purpose of making a profit. The nonprofit corporation, by contrast, does not have “owners” in that sense. Since the corporation is formed to provide some religious or public benefit, it is “owned” by its members or stakeholders. As nonfinancial “owners” of the corporation, members are not financially responsible for the obligations of the nonprofit corporation. The main exception is officers and directors under limited circumstances (see Church Officer and Director Liability, elsewhere on this site).
One benefit of a nonprofit corporation is that the organization is not required to pay taxes on money received related to its exempt activities. Another primary benefit is a limited property tax exemption. In addition, members who donate funds to the organization may also enjoy a personal tax deduction, provided the church is a registered 501(c)(3) in good standing.
Entity Type: Nonprofit Corporation
The process of creating a tax-exempt nonprofit corporation is fairly complex and requires not only time and money, but also an understanding of both the legal and tax issues involved. In addition to forming the corporation with the Secretary of State, the corporation must then apply for tax-exempt status with both the state and the IRS.
In brief, a group of like-minded individuals must first agree on the purpose for which they are legally organizing as a corporation, followed by filing charter documents, or articles of incorporation, with the state. Although there are several necessary elements to the articles, the most important is stating the specific purpose for which the corporation is organized.
Once incorporated, a meeting of the board of directors must be called. At that first meeting, bylaws — often referred to as a constitution — must be adopted. This document must be consistent with the articles of incorporation in how it defines the rules and procedures under which the corporation will operate. The bylaws may be extensive and typically include topics such as: qualifications for membership; member classifications; the manner of admission, withdrawal, suspension, and expulsion of members; voting rights and privileges of members; the appointment or election, duties, compensation, and tenure of officers; the number, qualifications, manner of election, powers, and duties of directors; and the numbers required to establish a quorum for meetings of members, committees, and the board. Thereafter, annual meetings must be held, and the California Secretary of State’s office must be notified of the corporation’s current officers and directors.
Once properly organized under the California Secretary of State and the necessary governing documents adopted, the nonprofit corporation would then apply with both the California Franchise Tax Board and the Internal Revenue Service to be officially granted tax-exempt status. Although obtaining tax-exempt status is beyond the scope of this article, it’s important to note that an organization exempt from federal income tax is not automatically exempt from California tax. California tax-exempt status must be applied for separately, in addition to federal tax exemption.
Ongoing Compliance: Statement of Information Filing
Regardless of which entity type you choose, once your church incorporates, ongoing state filings continue beyond the initial formation. Every California corporation, including nonprofit corporations, must file a Statement of Information (Form SI-100) with the Secretary of State within 90 days of incorporation and every two years thereafter, along with a $20 filing fee. This filing updates the state on the organization’s current officers, directors, and registered agent for service of process, and missing it can eventually lead to the corporation being suspended.
A Note on the Corporate Transparency Act (BOI Reporting)
Newly formed corporations, LLCs, and similar entities were, for a period, required to report Beneficial Ownership Information (BOI) to the federal Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act. As of a March 2025 interim final rule, however, FinCEN exempted all domestic entities — meaning any corporation, LLC, or similar entity formed under U.S. law, including newly formed church corporations — from BOI reporting entirely. Currently, only entities formed under foreign law that register to do business in the United States are required to file.
This is a welcome simplification for churches choosing an entity type today, but the underlying law remains in place and a final rule is still expected from FinCEN sometime in 2026, which could change these requirements again. For the most current status before forming a new entity, check directly with FinCEN’s Beneficial Ownership Information page.
Please see our other related articles
Why Use Bushore Real Estate
Corporations in Suspension
Does Your Church Need to Apply for Tax-Exempt Status? A Decision Guide
Group Tax Exemptions
Disclaimer: Every situation is different, and particular facts may vary, thereby changing or altering a possible course of action or conclusion. Laws vary between federal, state, county, and municipal jurisdictions and change over time; this article was last reviewed for accuracy in July 2026, but laws may have changed since publication. This information is general in nature and is not intended as legal advice, a legal opinion, or professional services. You should consult a qualified legal, tax, or other professional advisor familiar with your specific situation before acting on any information contained herein.
