For a wide variety of reasons, many with deep historical or theological roots, churches often want to avoid entanglements with government agencies. Concerns about state interference in religious affairs often make church leaders hesitant about organizing their churches as corporations. The thinking goes that by incorporating a church invites a host of new obligations that don’t apply to unincorporated associations, including obligations that may be against church doctrine. Scriptural rationales for eschewing incorporation may provide church leaders enough reason to avoid it. But from a secular standpoint there are a few reasons why incorporating does not create the degree of church-state entanglement that one might assume.
- Even an unincorporated association is subject to state and federal laws.
In California a church that operates without forming a religious nonprofit corporation is legally considered to be an unincorporated association. An unincorporated association need not register itself with the state, though registration is often needed as evidence that the association is a going concern for purposes of entering into contracts with third parties. Regardless of whether it registers or adopts formal governance documents, an unincorporated association is still subject to the default rules provided in the California Corporations Code. It is also subject to compliance with state and federal tax laws, including rules governing its tax exempt status.
- Laws benefitting churches and religious nonprofits tend to be form-neutral.
State and federal laws that provide carve-outs for religious organizations tend to apply to every kind of church, regardless of its legal form. Churches enjoy a broad range of important legal protections from pernicious state interference in their affairs, from constitutional free speech rights to shields against many kinds of civil lawsuits. For example, the ministerial exception allows all religious employers broad leeway to make hiring and firing decisions with respect to their ministers without incurring potential liability under antidiscrimination laws. A church does not lose these benefits by incorporating.
- Courts are unlikely to reduce a church’s liability simply because it is unincorporated.
Managing liability risks is one of the important rationales for organizing a church as a corporation. While a church operates as an unincorporated association its leaders face a greater degree of personal risk for the church’s debts and obligations. If a dispute arises over a contract or, much worse, the church is sued for a personal injury or sexual assault claim, the fact that a church is unincorporated likely will do nothing to shield it or its leadership from potential liability.
The Church Law Center of California can help
Incorporating a church does involve more formal paperwork than continuing to operate as an unincorporated association. A corporation also must comply with a greater set of formal, but secular governance rules. The Church Law Center of California can help you understand whether incorporation is the right choice for your church. Call us at (949) 892-1221 or reach out to us through our contact page.