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Legal Development in Texas Regarding Church Records

The Texas Supreme Court ruled that a state nonprofit corporation law that granted a limited right to inspect corporate records did not mandate the disclosure of donor records.

Texas
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Key point. Many nonprofit corporation laws give members the legal right to inspect certain corporate records. These laws generally do not give members the right to inspect donor records.

The Texas Supreme Court ruled that a state nonprofit corporation law that granted a limited right to inspect corporate records did not mandate the disclosure of donor records. While the case did not involve a religious charity, the court's conclusions are of direct relevance to any church incorporated under a comparable law.

The Texas Nonprofit Corporation Act specifies that nonprofit corporation "shall maintain current true and accurate financial records with full and correct entries made with respect to all financial transactions of the corporation." It further specifies that "[a]ll records, books, and annual reports of the financial activity of the corporation shall be kept at the registered office or principal office of the corporation … and shall be available to the public for inspection and copying there during normal business hours."

Based on these provisions, a group of persons demanded that a charity turn over documents revealing the identities of all donors and the amounts of donors' annual contributions. The charity resisted this request, claiming that the inspection right provided under the nonprofit corporation law did not refer to inspection or disclosure of donor lists, and that even if it did, such a provision would violate the first amendment freedom of association.

The persons demanding the donor lists insisted that once the charity incorporated under the nonprofit corporation law, it "waived" any objection (constitutional or otherwise) to disclosure of financial records, including donor lists.

The state supreme court ruled that the right of inspection did not extend to donor lists. It noted that "the statute does not expressly require that contributors' identities be made available to the public." And, it found that the intent of the legislature in enacting the inspection right "was not to force nonprofit corporations to identify the exact sources of their income; rather, it was to expose the nature of the expenditures of that money once received from the public and to make nonprofit organizations accountable to their contributors for those expenditures."

As a result, the statute "can be upheld as constitutional when interpreted as not requiring disclosure of contributors' names." On the other hand, if the statute were construed to grant access to donor lists, then "it would violate the first amendment [right of association] in some circumstances, thus rendering it unconstitutional."

The court concluded that the phrase "financial records" does not include "the names of contributors or members."

Application. Many church leaders have wondered if members have a legal right to access donor information. This case suggests that any church incorporated under the Texas nonprofit corporation law (or a comparable statute in another state) is not required to turn over any records identifying either the names of donors, or the amounts of donors' contributions.

The fact that this decision represents a ruling by the Texas Supreme Court will give it greater weight in other states. In re Bacala, 982 S.W.2d 371 (Tex. 1998).

See also Church Records

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Posted:
  • July 1, 1999

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