Many stay-at-home members use this verse to justify not fellowshipping with a larger organization. On the surface, it seems to support their argument. However, we must look at it in context.
The chapter begins with Jesus teaching about our need for humility (verses 1-5). He uses the analogy of body parts to show the importance of not offending little ones (verses 6-10). He then gives the Parable of the Lost Sheep to show His concern for every sheep (verses 11-14). He instructs about how we should deal with offenses among us (verses 15-20). The context of the entire chapter is interpersonal relations and offenses, not church administration. Peter understood this, for he immediately asks how often one should forgive a brother (verse 21).
God requires two or three witnesses lest injustice come from one man's word against another (verse 16; Deuteronomy 19:15). He will honor the decision based on the judgment of two or three along with the accuser. If the offender will not listen to them, the offense should be taken to a larger forum—the church. The very context assumes the existence of a larger group. God prefers, however, that matters be handled privately in a smaller group whom He will be among rather than escalating every personal problem to the attention of the whole church. Notice the instruction: Go to the offender ALONE first, then escalate it only as necessary to solve the problem.
In I Corinthians 5, Paul shows how this works in practical application when a church member was unabashedly committing sexual sins. Notice that Paul had ministerial, hierarchical authority over the Gentile church in Corinth. He even made his judgment of the situation—disfellowship that man!—without being present! Later, upon the man's repentance, he ordered him restored, and forgave even as they forgave (II Corinthians 2:10). He also legislated what their attitude and approach to a repentant sinner should be!
Did he allow every group of two or three in the congregation to make a judgment? How would God have bound the conflicting judgments that surely would have arisen between the people of varying levels of understanding and maturity in Corinth? The church would have been divided into many small groups had Paul not exercised his authority.
Is that not what we have seen as groups have misapplied Matthew 18:20, lifting it out of context, and justifying their own doctrinal and administrative decisions? This misapplication and twisting of this one scripture automatically repudiates any authority God placed in an ordained ministry and splinters the church. Is that how Paul understood Scripture, or did he constantly defend his own position as an apostle and that of the local ordained ministry to preserve unity?
We are told to judge by the fruits. What are the fruits of two or three people deciding they can make doctrinal and administrative judgments? We need look no further than the dividing and redividing of groups in today's greater church of God to see that the fruits are not good.
Scattered sheep are just that: scattered and in grave danger. Contrast the dubious idea of Christ giving administrative authority to two or three scattered sheep to the very clear and powerful administrative authority given to Peter as head administrator of the church in Matthew 16:18 (see also John 21:15-17). Compare also Hebrews 5:4 where no man can take the office of high priest to himself. Can any of us decide we are the final word? Can we take any office in the priesthood to ourselves? God compares presumption to witchcraft (I Samuel 15:23).