Monday, September 18, 2006

Should Churches Be Incorporated?

Summary

Historically, most churches in America have chosen, for both legal and financial reasons, to incorporate rather than remain as an unincorporated association. In the last twenty-five years, good men have raised several objections to the incorporated status of churches in America. The purpose of this article is three-fold: (1) to review the features of unincorporated associations and corporations, (2) to compare the advantages and disadvantages of both, and (3) to answer some frequently asked questions about incorporation. It is not the purpose of this paper to tell a church what to believe on this issue; LLM defends, not dictates, the faith of Independent Baptist churches.

Unincorporated Associations

It is not required in America that churches incorporate. “A church or religious society may exist for all the purposes for which it was organized independently of any incorporation of the body . . . and, it is a matter of common knowledge that many do exist and are never incorporated.” Murphy v. Taylor, 289 So.2d 584, 586 (Ala. 1974), quoting Hundley v. Collins, 32 So. 575 (Ala. 1901). Indeed, most Independent Baptist churches are begun as unincorporated associations, i.e., by the voluntary association of two or more individuals under a common name for a particular purpose.

Historically, because of its informal organization, an unincorporated church had no legal existence, with the following consequences:
• The church could not own or transfer property in its own name; rather, the property had to be held by one or more persons in the church.
• The church could not enter into contracts or other legal obligations; rather, one or more persons in the church would have to enter into such contracts or other legal obligations. If the church defaulted on its mortgage payments, the members who signed the church’s mortgage contract would find that their money, houses, cars, or other property were at risk.
• The church could not sue or be sued; rather, one or more persons in the church would sue or be sued. If someone sued the church for injury from a slip and fall, the members of the church would be sued, placing their money, houses, cars, or other property at risk.

Several states have passed laws to limit the unfortunate legal consequences of the unincorporated association status upon individual members.

Incorporation

The principal aspect of a corporation, distinguishing it from an unincorporated association, is its status as an entity, able to exist and operate as a separate legal being [interestingly, the concept and name of incorporation is derived from the Bible -- the church as the “body” (corpus) of Christ]. The above-described legal shortcomings of an unincorporated church eventually caused most churches to adopt the corporate legal organization, for the following reasons:
• The church corporation could own or transfer property in its own name.
• The church corporation could enter into contracts or other legal obligations. If the church defaulted on its mortgage payments, the members who signed the church’s mortgage contract would not be personally liable.
• The church corporation could sue or be sued. If someone sued the church for injury from a slip and fall, the church corporation, not individual members of the church, would be liable. [NOTE: This discussion of unincorporated associations and corporations should not be construed as an endorsement of litigation; God’s Word in I Corinthians 6 flatly prohibits a Christian from taking a brother or the church to court.]

Since all corporations, including churches, are organized under state law, some Independent Baptist leaders have argued that churches should never incorporate. The following section answers some frequently asked questions on that important issue.

Frequently Asked Questions

1. “Aren’t incorporated churches creatures of the state?” No. Virtually every Independent Baptist church began as an unincorporated association. In due course, some of those already existing churches chose to adopt the corporate status, usually for the reasons mentioned above.

2. “Doesn’t incorporation of the church constitute a subordination of a church to the authority of the state?” No. God created three primary institutions -- the family, government,and the church -- each with its own God-ordained sphere of responsibility. The primary purposes of incorporation -- to own property, to enter into contracts, and to sue or be sued -- are within the sphere of the God-ordained role of government. “The law recognizes the distinction between the church as a religious group devoted to worship, preaching, missionary service, education and the promotion of social welfare, and the church as a business corporation owning real estate and making contracts . . . 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., 506 P.2d 1135 (Kan. 1973).

3. “I am Biblically opposed to government licensure of the church. Isn’t incorporation a form of licensure of the church?” No. Licensure is defined as “an administrative lifting of a legislative prohibition.” Under American constitutionalism, churches are not prohibited from forming or operating; there is no governmental agency which approves the creation of a church. Your church started before it was incorporated. As noted above, a “church . . . may exist for all the purposes for which it was organized independently of any incorporation of the body . . . and, it is a matter of common knowledge that many do exist and are never incorporated.”

4. “Aren’t incorporated churches subject to more governmental regulation than unincorporated churches?” No. With respect to taxes, zoning regulations, building regulations, fire regulations, health regulations, and employment regulations, an unincorporated church is subject to governmental laws to the same extent as incorporated churches.

5. “Are there any Biblical grounds for opposing incorporation of churches?” LLM defends, not dictates, the faith of Independent Baptist churches. LLM holds to the Biblical and historical Baptist doctrine of separation of church and state. If and when incorporation creates an unnecessarily intrusive and Biblically unwarranted relationship with the state, the church should reconsider incorporation.

6. “I don’t feel Biblically that my church should be incorporated. Can my church unincorporate itself?” Yes. Just as a church voluntarily chooses to incorporate, a church can voluntarily choose to dissolve its corporate status. LLM suggests that a church consult with an attorney to determine the statutory procedures for dissolving the church’s corporate status and the legal consequences of reverting to its status as an unincorporated association.

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