Church Merger and Church Acquisition

 What is a Church Merger or Church Acquisition?

A fairly recent phenomena, larger churches and smaller struggling congregations of similar denominations are more and more often pursuing a mutually beneficial "take-over" of the smaller struggling congregation.

When do I need Church Merger or Church Acquisition?

Many of the same fundamental business principals which impact the decision making underlying asset purchase agreements between businesses also are found in this unique venue.  More often than not the larger church’s tax and legal professionals will encourage the larger church to structure the acquisition as an asset purchase to avoid or limit issues relating to the assumption of the smaller struggling congregation’s liabilities (disclosed, undisclosed, and contingent; for example, sexual harassment claims and child abuse claims which haven’t been reported are a very important concern).

What is an Asset purchase agreement for churches?

Asset purchase agreements are often very complex because of the larger church’s numerous concerns, for example: the sales price (which may not represent fair market value), defining the assets which will be purchased, which of the smaller struggling church’s liabilities will be assumed, which of the smaller struggling church’s liabilities will not assumed, the smaller struggling church’s representations and warranties to the larger church, the smaller struggling church’s indemnification of the larger church, conditions that must be fulfilled before larger church is obligated to purchase, and risk of loss for a casualty or catastrophe that occurs before the closing.  And all of these maters must be addressed so that the larger church clearly understands both the upside and the downside of the transaction.  Normally the larger church will make an offer to purchase in the form of an asset purchase agreement which is prepared by the larger church’s counsel.

What is unique about Church Mergers or Church Acquisitions?

Three unique aspects of this type of transaction are (1) the dissolution and termination of the existence of the smaller struggling church’s nonprofit corporation; (2) the special meeting notices required for both churches approving the transaction, and (3) the special meeting notice required to dissolve and terminate the smaller struggling church’s nonprofit corporation.

IRS regulations for Church Mergers or Church Acquisitions?

However, the smaller struggling church must also retain the services of a certified public accountant to prepare and file the Internal Revenue Service forms which are required to terminate its exemption from Federal income tax under Section 501(c)(3) of the Internal Revenue Code of 1986).

I assist both smaller struggling churches and larger churches in the negotiation and preparation of asset purchase agreements, in the preparation of the special meeting notices required for both churches approving the asset sale and acquisition, and in preparation of the dissolution and termination documents and notices for the smaller struggling churches.  However, my services do not include the services described above which must be rendered by a certified public accountant knowledgeable in this area of tax law.