Religious congregations have essentially two options regarding legal organization. First, they can exist as informal associations, i.e., bodies of persons acting together in pursuit of a common enterprise, but without a charter. Many, perhaps most, begin this way when interested persons begin meeting in homes or rented facilities for worship. As the Supreme Court of Alabama noted long ago, “A church or religious society may exist for all the purposes for which it was organized independently of any incorporation of the body under the statutes of the state; and, it is a matter of common knowledge that many do exist and are never incorporated.” Hundley v. Collins, 131 Ala. 234, 239 (1902). Second, congregations can incorporate under the laws of the state in which they exist. A corporation is an association clothed with corporate authority after complying with applicable state laws.
Choosing to incorporate or not is not necessarily a selection between truth and error, right and wrong, or righteousness and unrighteousness. In fact, associations and corporations ordinarily operate in similar ways. However, the decision is an important one and brings potentially significant ramifications that should be thoughtfully considered. Here, I briefly discuss the primary benefits of formal organization and attempt to address one of the common concerns.
Benefits of Incorporation
Oftentimes, a congregation with no formal organization, i.e., an unincorporated association of members, cannot hold or transfer property, enter into contracts, borrow funds, or participate in legal actions in the congregation’s name. Consequently, all of its business must be conducted in the name of its individual members. So then, “church” property—in this case, property legally owned by individual members with the understanding that it is for the church’s use—must be bought or sold by individually named members, and members who incur debt in their own names for the church’s work will be personally liable if the obligations go unmet. For instance, if a congregation’s meeting space is not properly maintained by the landlord and a dispute arises about the rent, the landlord would potentially sue and recover rents from individual members in their personal capacities. Additionally, individual members would potentially be liable if, for example, a visitor fell and seriously injured himself on “church” property. If the visitor sued the individual elders, preachers, or members in a church existing as an unincorporated association, all of them could potentially lose personal assets as a result.
Incorporation does not create churches, of course. Churches do not owe their spiritual existence to the civil law. Whatever the law may say or recognize, churches assemble for public worship, spread the gospel, and strengthen members spiritually. Incorporation does, however, allow churches to operate as legal entities under state laws distinct from its individual members. Congregations have existences above and beyond their individual members, and incorporation allows them to function accordingly. Incorporated churches, then, can open bank accounts, own property, apply for and receive mortgages, enter into contracts and participate in lawsuits in their own names and separate from their individual members. This insulates members from potential liability and loss of their personal assets as a mere consequence of their service to the church. The aforementioned fallen visitor could not recover from individual elders, preachers or members directly in an incorporated church. The church, as a separate legal entity, would ultimately be responsible.
Concerns about Incorporation
When discussing the subject of incorporation, some who oppose it fear that incorporating invites additional and unnecessary government scrutiny and oversight, but this concern is oft overstated. Filing articles of incorporation does not change churches’ obligations to the state in any appreciable way. It does not bring demands regarding faith, doctrine, or practice. The law consistently recognizes a distinction between churches as religious groups devoted to spiritual activities, and churches as legal entities engaged in various forms of business. According to the Supreme Court of Kansas, “The two functions may be performed by the same individuals, but only when they act in different capacities. The former is a matter in which the state or the courts have no direct legal concern, while in the latter the activities of the church are subject to the same laws as those in secular affairs.” Gospel Tabernacle Body of Christ Church v. Peace Publishers & Co., 211 Kan. 420, 422 (1973).
Governments already regulate various matters for churches, including aspects of property ownership, contractual agreements, and lawsuits. Generally, when disputes arise pertaining to such matters, the secular courts can and will decide them if they are called upon to do so by one or more of the parties. Incorporation, or the lack of incorporation, does not change that for churches. Government also regulates zoning, health and safety codes, and employment laws for unincorporated associations and corporations alike. Moreover, churches automatically have 501(c)(3) tax-exempt status whether they formally apply for it or not. Applying for and receiving a “determination letter” from the Internal Revenue Service makes it easier to reap the benefits of the status, but it does not change it. Incorporating does not alter these realities one bit, and avoiding incorporation does not make these burdens go away. Rather, incorporation allows a congregation to act and be accountable for its actions rather than exposing its members to personal liabilities for the group’s work.
Concluding Observations
Incorporation is a tool that legally empowers churches to act as official entities while protecting their members from unnecessary exposure to personal liability for church dealings. Stated another way, it provides a significant reduction in member exposure to personal loss as a consequence of the church's work. This benefit comes at the expense of some relatively light filing requirements and fees, as well as modest attorney expenses. Additionally, the corporation must appoint trustees as nominal titleholders for and custodians of church property. These trustees are accountable to the congregation for the use and management of the property.
Incorporation is principally a matter of legal standing in handling church assets and liabilities, and the courts acknowledge that the First Amendment prohibits civil courts from intervening in church disputes about religious doctrine and requires them to defer to church organizations in purely religious matters. Jones v. Wolf, 443 U.S. 595, 602 (1979); see also Hutterville Hutterian Brethren, Inc. v. Sveen, 776 F.3d 547, 553 (8th Cir. 2015) (observing that secular courts “may not resolve disputes of religious doctrine or ecclesiastical polity, because such a resolution would violate the First and Fourteenth Amendments to the United States Constitution”); McCarthy v. Fuller, 714 F.3d 971, 976 (7th Cir. 2013) (“once the court has satisfied itself that the authorized religious body has resolved the religious issue, the court may not question the resolution”). Of course, it is possible that laws will change and the government could seek to impose meddlesome burdens on churches specifically because they are incorporated. If that happens, then congregations could dissolve their corporations and continue on as unincorporated associations. Remember, incorporating is voluntary, and the attendant benefits can be voluntarily surrendered at any time.
Disclaimer: This post is provided for informational purposes only. It does not constitute legal advice, and should not be construed as legal advice. If you want legal advice, please contact and retain a lawyer licensed in your jurisdiction.