Eight Legal Considerations for Church Membership

Many churches have abandoned membership as an outdated relic incompatible with effective governance in a modern world. Perhaps your church is considering doing so. If so, there are several advantages of church membership that should be considered in making an informed decision. Eight advantages are described in this article.

Key point. Church members have such legal authority as is vested in them by their church's governing documents, and in some cases by state nonprofit corporation law.

Background

Any discussion of church membership must begin with a definition of membership.For the first several centuries of church history, membership was an ecclesial rather than a legal status. The few isolated references in the New Testament to membership fail to define the term, and seem to refer to baptized individuals of a common confession or faith. Church membership became more formalized in the wake of the Protestant Reformation by the various emergent sects, but again, typically involved baptism and assent to a specific creedal confession.

The concept of church membership changed dramatically in the 19th century with the advent of nonprofit corporation laws that applied to any nonprofit organization, including churches. These laws emerged at about the same time that French political historian Alexis de Tocqueville traveled to America in the mid-19th century. Upon returning to his native France, de Tocqueville published his observations in his classic work, Democracy in America (1835). Perhaps above all, he was struck by the propensity of Americans to join "associations." He famously noted:

Americans of all ages, all conditions, and all dispositions constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds, religious, moral, serious, futile, general or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found seminaries, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; in this manner they found hospitals, prisons, and schools. If it is proposed to inculcate some truth or to foster some feeling by the encouragement of a great example, they form a society. Wherever at the head of some new undertaking you see the government in France, or a man of rank in England, in the United States you will be sure to find an association.

I met with several kinds of associations in America of which I confess I had no previous notion; and I have often admired the extreme skill with which the inhabitants of the United States succeed in proposing a common object for the exertions of a great many men and in inducing them voluntarily to pursue it.

It is no coincidence that nonprofit corporation laws emerged at the same time as this explosion in the number of voluntary associations formed for charitable or religious purposes. Many of these associations adopted the corporate form of organization for many of the same reasons described below, perhaps most notably the status, rights, and authority of members.

1. Voting rights

The most fundamental right of a member is the right to vote at regular and special meetings of members, and thereby participate directly in the governance and direction of the organization. Both nonprofit corporation laws and Robert's Rules of Order Newly Revised address this important right, and make clear that nonmembers have no such authority.

Robert's Rules of Order Newly Revised states, "A member of an assembly, in the parliamentary sense, is a person entitled to full participation in its proceedings," which include the following basic rights:

• attend meetings of the membership
• make motions at meetings of the membership
• speak in debate
• vote

Nonprofit corporation law vests additional authority in the members of incorporated churches, including:

• the selection of board members
• discipline of board members
• authorization of the sale of church property
• authorization of the purchase of church property
• amendment of governing documents
• approval of budgets
• approval of loans and other means of financing
• authorize mergers with other congregations
• authorize dissolution of the corporation

Persons who attend a church that does not recognize membership generally do not have any of these fundamental rights, and this sometimes comes as a surprise to persons accustomed to voting in other churches or voluntary associations, and in political primaries, elections, and referenda. This means that fundamental decisions involving a church's property, location, name, finances, employees, leadership, activities, and a host of other decisions pertaining to its mission and ministries ordinarily will not be made by the congregation.

2. Avoiding vicarious liability

The traditional rule was that an unincorporated association was a collection of members rather than a separate entity apart from its members. Several consequences flowed from this distinction. First, an association could not own or transfer property in its own name; second, an association could not enter into contracts or other legal obligations; and third, an association could not sue or be sued. The inability to sue or be sued had many important consequences. It meant, for example, that members of an unincorporated association were personally liable for the acts of other members committed within the course of association activities. One court stated the general rule as follows:

The members of an unincorporated association are engaged in a joint enterprise, and the negligence of each member in the prosecution of that enterprise is imputable to each and every other member, so that the member who has suffered damages to his person, property, or reputation through the tortious conduct of another member of the association may not recover from the association for such damage although he may recover individually from the member actually guilty of the tort. Williamson v. Wallace, 224 S.E.2d 253, 254 (N.C. 1976).

The legal disabilities connected with the unincorporated association form of organization persuaded many churches to incorporate. Unlike many unincorporated churches, church corporations are capable of suing and being sued, entering into contracts and other legal obligations, and holding title to property. But perhaps most importantly, the members of a corporation are shielded from personal liability for the acts and obligations of other members or agents of the corporation.

3. Risk management

Churches face an array of litigation risks, including:

• child molestation
• failure to report child abuse
• sexual misconduct involving adult victims
• sexual harassment
• wrongful termination of employees
• various forms of employment discrimination under federal and state law
• personal injuries to church members on church property and during church activities
• personal injuries to employees

The risk of legal liability can be mitigated through appropriate risk-management techniques that are more likely to be understood and applied when authority is shared by a functioning board and membership.

4. Church discipline

The courts have ruled that churches have a constitutionally protected right to discipline members, but not nonmembers. In Watson v. Jones, 80 U.S. 679 (1871), the United States Supreme Court developed a framework for the judicial review of ecclesiastical disputes that has persisted essentially unchanged ever since. The Court began its landmark opinion by acknowledging that "religious organizations come before us in the same attitude as other voluntary associations for benevolent or charitable purposes, and their rights of property, or of contract, are equally under the protection of the law, and the actions of their members subject to its restraints." Though recognizing in principle the authority of civil courts to address the "rights of property, or of contract" of ecclesiastical organizations or officers, the Court proceeded to severely limit this authority. Most importantly, the Court held that "whenever the questions of discipline, or of faith, of ecclesiastical rule, custom, or law have been decided by the highest church judicatory to which the matter has been carried, the legal tribunals must accept such decisions as final, and as binding on them …"(emphasis added).

In 1872, one year after the Watson decision, the Supreme Court emphasized that it had "no power to revise or question ordinary acts of church discipline, or of excision from membership," nor to "decide who ought to be members of the church, nor whether the excommunicated have been regularly or irregularly cut off." Bouldin v. Alexander, 82 U.S. (15 Wall.) 131 (1872) (emphasis added).

Many courts have followed this rule of judicial "non-intervention," concluding that the discipline and dismissal of church members is exclusively a matter of ecclesiastical concern and thus the civil courts are without authority to review such determinations. This position generally is based upon the First Amendment guarantees of religious freedom and the nonestablishment of religion, or upon the fact that by joining the church a member expressly or implicitly consents to the authority of the church to expel members. One court has noted: "A party having voluntarily assented to becoming a member of the local church thereby subjects himself to the existing rules and procedures of said church and cannot deny their existence." State ex rel. Morrow v. Hill, 364 N.E.2d 1156 (Ohio 1977).

In summary, the prevailing view is that a church may promulgate rules governing the expulsion or excommunication of its members, and such rules bind the civil courts and the church's members.

CASE STUDY 1 The Iowa Supreme Court ruled that it lacked the authority to resolve a lawsuit brought by an individual challenging his dismissal from church membership. It concluded that the member's dismissal was an internal church matter over which the civil courts have no jurisdiction. It observed, "The general rule is that civil courts will not interfere in purely ecclesiastical matters, including membership in a church organization or church discipline." The court concluded:

[The church's] decision to excommunicate [the member] was purely ecclesiastical in nature, and therefore we will not interfere with the action. Interfering with the decision would contravene both our history of leaving such matters to ecclesiastical officials and the First and Fourteenth amendments of the United States Constitution. Marks v. Estate of Hartgerink, 528 N.W.2d 539 (Iowa 1995).

CASE STUDY 2 The Michigan Supreme Court ruled that it was barred from resolving a claim by a dismissed church member that his church violated his legal rights when it dismissed him. The court concluded that the member's claims against both the pastor and church were barred by his own consent to the process of discipline. The court noted that upon becoming a member of the church, he "explicitly consented in writing to obey the church's law, and to accept the church's discipline 'with a free, humble, and thankful heart.'" The court concluded:

As the Supreme Court stated over 130 years ago, "all who unite themselves to such a body do so with an implied consent to this [church] government, and are bound to submit to it." Smith v. Calvary Christian Church, 614 N.W.2d 590 (Mich. 2000), quoting Watson.

CASE STUDY 3 A Minnesota appeals court ruled that church members could not challenge their dismissal in court. The court noted that the First Amendment "precludes judicial review of claims involving core questions of church discipline and internal governance." It concluded that the members' claims all involved core questions of church discipline that it was not able to resolve. Schoenhals v. Mains, 504 N.W.2d 233 (Minn. App. 1993).

CASE STUDY 4 A Missouri court ruled that it was barred by the First Amendment guaranty of religious freedom from resolving a lawsuit brought by a dismissed church member claiming that his church defamed him in a letter it sent to members of the congregation. The court noted that the First Amendment prevents

civil court intervention in matters involving church discipline, including the discipline of a member of the congregation … . Here, the claims of libelous remarks are clearly related to [the pastors'] belief that [the member's] conduct within the church required he be disciplined; the comments were made during the time of the controversy concerning his removal from membership; and the remarks were made to people associated with the church as a part of the pastors' report to the "church family" about the member's impending removal from the church membership. As such, they fall within the scope of First Amendment protection. Brady v. Pace, 2003 WL 1750088 (Mo. App. 2003).

CASE STUDY 5 The Oklahoma Supreme Court refused to resolve the claim of former church members that their dismissals were improper. The court observed:

We cannot decide who ought to be members of the church, nor whether the excommunicated have been justly or unjustly, regularly or irregularly, cut off from the body of the church. We must take the fact of expulsion as conclusive proof that the persons expelled are not now members of the repudiating church; for, whether right or wrong, the act of excommunication must, as to the fact of membership, be law to this court. Fowler v. Bailey, 844 P.2d 141 (Okla. 1992), quoting Shannon v. Frost, 42 Ky. 253 (1842).

CASE STUDY 6 The Texas Supreme Court ruled that the First Amendment guaranty of religious liberty prevented it from resolving a dismissed church member's claim that her pastor committed "professional negligence" by using information she shared with him in confidence as the basis for disciplining her. Westbrook v. Penley, 231 S.W.3d 389 (Tex. 2007). See also Moultin v. Baptist Church, 498 S.W.3d 143 (Tex. App. 2016).

The courts have not extended the constitutional protection afforded churches in disciplining members to the discipline of nonmembers.

5. The "qualified privilege"

Many courts have concluded that the law should encourage members of churches and other organizations to share with each other about matters of mutual concern without undue concern about being sued for defamation. As a result, these courts have ruled that church members are protected by a qualified privilege when sharing with other church members about matters of mutual concern or common interest. This means that such communications cannot be defamatory unless made with malice. Malice in this context means that the person who made the allegedly defamatory remark knew that it was false, or made it with a reckless disregard as to its truth or falsity. This is a difficult standard to prove, which means that communications between church members will be defamatory only in exceptional cases. The same rule has been applied by a number of courts to statements made in the course of church disciplinary proceedings.

One court explained the qualified privilege as follows:

A privilege will be granted to statements that occur under circumstances wherein any one of several persons having a common interest in a particular subject matter may reasonably believe that facts exist that another, sharing that common interest, is entitled to know … . This privilege is termed conditional or qualified because a person availing himself of it must use it in a lawful manner and for a lawful purpose. The effect of the privilege is to justify the communication when it is made without actual malice. Thus, when a statement is privileged the law requires a showing of actual malice to overcome that privilege. Actual malice means with knowledge that the statement was false or with reckless disregard of whether it was false. Reckless disregard requires proof that a false defamatory statement was made with a high degree of awareness of its probable falsity. Generally, when publication is made under circumstances creating a qualified privilege, the plaintiff has the burden to prove malice … . Malice exists when the evidence shows that the speaker entertained serious doubts as to the truth of his statements. Hanssen v. Our Redeemer Lutheran Church, 938 S.W.2d 85 (Tex. App. 1997).

Church leaders occasionally communicate potentially defamatory statements to their congregations. Examples include statements concerning suspected embezzlement by a church employee, allegations of sexual misconduct by a staff member or volunteer, or explanations of why a church employee was dismissed. Before making any statements to the congregation in such cases, church leaders should consider the following points:

• Such statements may be defamatory.
• Such statements will not be protected by the qualified privilege if nonmembers are present when they are made.
• Such statements may be protected by a qualified privilege if they are made to members only. This means that church leaders take steps to ensure that only members are present when the statements are made. This can be accomplished in a number of ways. For example, a special meeting of members is called and only persons whose names are on the church's current list of active voting members are admitted. As an additional precaution, members present at such a meeting should be asked to adopt a resolution of confidentiality, agreeing not to discuss the information with any nonmember under any circumstances. Persons dissenting from this vote should be excused from the meeting. Alternatively, the statements are set forth in a letter that is sent to active voting members (with the notation "privileged and confidential" on both the letter and envelope).
• Consult with an attorney before making any potentially defamatory statement to the congregation (in a meeting or through correspondence).

CASE STUDY 7 A Texas court ruled that a church was not liable for defaming a former secretary as a result of statements made to church members claiming that she had misappropriated church funds. The court concluded that the secretary had not been defamed because the church was protected by a qualified privilege and she failed to prove malice:

All of the members of [the church] have a common interest in the church's use of their financial contributions to the church; thus, the members have a common interest in information about those funds. The members who made the statements in question reasonably believed that the misappropriation took place and that the board, the members, and the parents [of the church's school] shared a common interest in the use of the funds and information about those funds. [The church] reasonably believed that these people were entitled to know of the misappropriation. [It] had a duty to perform for the board, the members, and the parents. [It] made the communications without actual malice. Hanssen v. Our Redeemer Lutheran Church, 938 S.W.2d 85 (Tex. App. 1997).

6. Inspection of church records

The nonprofit corporation laws of most states give church members a limited right to inspect church records. Nonmembers have no such right. Records that church members can inspect generally include some or all of the following:

• minutes of all meetings of members and board of directors;
• a record of all actions taken by the members or directors without a meeting, and a record of all actions taken by committees of the board of directors;
• accounting records;
• a list of the names and addresses of members;
• articles of incorporation and all amendments to them currently in effect;
• bylaws and all amendments to them currently in effect;
• resolutions adopted by the board of directors relating to the characteristics, qualifications, rights, limitations, and obligations of members;
• the minutes of all meetings of members and records of all actions approved by the members for the past three years;
• all written communications to members;
• a list of the names and business or home addresses of directors and officers;
• the most recent corporate registration report delivered to the secretary of state;
• financial statements of all income and expenses.

Nonprofit corporation laws generally require that a member seeking inspection of corporate records articulate a "proper purpose," and that the requested records are directly connected to this purpose.

CASE STUDY 8 The Alabama Supreme Court ruled that a dismissed church member no longer had a legal right to inspect church records since he no longer was a member. Lott v. Eastern Shore Christian Center, 908 So.2d 922 (Ala. 2005). Accord Ex parte Board of Trustees, 2007 WL 1519867 (Ala. 2007).

CASE STUDY 9 A Colorado court ruled that a church member's legal authority to inspect church records pursuant to state nonprofit corporation law ended when his membership was revoked by the church board. Levitt v. Calvary Temple, 2001 WL 423040 (Colo. App. 2001).

CASE STUDY 10 A Louisiana court ruled that an incorporated church had to allow members to inspect church records. Four members asked for permission to inspect the following records of their church: (1) bank statements; (2) the check register and canceled checks for all the church's bank accounts; (3) the cash receipts journal; and (4) monthly financial reports. The pastor denied the members' request. The members then sought a court order compelling the church to permit them to inspect the records. The pastor insisted that such an order would interfere with "internal church governance" in violation of the First Amendment. A state appeals court ruled that allowing the members to inspect records, pursuant to state nonprofit corporation law, would not violate the First Amendment. The court quoted from an earlier Louisiana Supreme Court ruling:

A voting member of a nonprofit corporation has a right to examine the records of the corporation without stating reasons for his inspection. Since the judicial enforcement of this right does not entangle civil courts in questions of religious doctrine, polity, or practice, the First Amendment does not bar a suit to implement the statutory right. First Amendment values are plainly not jeopardized by a civil court's enforcement of a voting member's right to examine these records. No dispute arising in the course of this litigation requires the court to resolve an underlying controversy over religious doctrine. Jefferson v. Franklin, 692 So.2d 602 (La. App. 1997).

CASE STUDY 11 A New York court ruled that a church member had the legal authority to inspect church records despite the pastor's refusal to allow him to do so. The court acknowledged that only members had a legal right to inspect records, but it concluded that the member had not lost his status as a member of the church. It concluded:

The member is simply trying to enforce his secular rights as a member, using the church's own criteria of membership and the pastor's own admission that he has not been expelled as a member. Nor are the church's First Amendment rights violated by the inspection of the records, as the questions involved here are not concerned with internal ecclesiastical or religious issues, but purely secular ones. Watson v. The Manhattan Holy Bible Tabernacle, 732 N.Y.S.2d 405 (2001).

CASE STUDY 12 A Texas court ruled that persons who have been dismissed from membership in a church no longer have a right under the state nonprofit corporation law to inspect church records. Two Rivers Baptist Church v. Sutton, 2010 WL 2025444 (Tenn. App. 2010).

7. Tax-exempt status

In order to be tax exempt under section 501(c)(3) of the tax code, no part of a church's net earnings may inure to the personal benefit of an insider other than as reasonable compensation for services rendered. The Internal Revenue Service (IRS) construes this requirement as follows:

Churches and religious organizations, like all exempt organizations under IRC section 501(c)(3), are prohibited from engaging in activities that result in inurement of the church's or organization's income or assets to insiders (i.e., persons having a personal and private interest in the activities of the organization). Insiders could include the minister, church board members, officers, and in certain circumstances, employees. Examples of prohibited inurement include the payment of dividends, the payment of unreasonable compensation to insiders, and transferring property to insiders for less than fair market value. The prohibition against inurement to insiders is absolute; therefore, any amount of inurement is, potentially, grounds for loss of tax-exempt status. In addition, the insider involved may be subject to excise tax. See the following section on [e]xcess benefit transactions. Note that prohibited inurement does not include reasonable payments for services rendered, payments that further tax-exempt purposes, or payments made for the fair market value of real or personal property. IRS Publication 1828.

The issue of prohibited inurement is raised whenever control over a charity's finances is in the hands of a pastor with no oversight or accountability. Such an arrangement can arise whether a church has members or not, but in general, it is less likely when financial control is dispersed through a functioning membership and governing board.

To illustrate, in Private Letter Ruling 201517014 (2015), the IRS revoked the tax-exempt status of a religious organization on the ground of prohibited inurement of the organization's assets to the founding pastor and his family (the corporate "officers"). The IRS cited the following reasons for its conclusion:

• The officers expended the organization's funds for non-exempt purposes, including paying their personal expenses.
• The officers used the organization's funds to pay monthly auto loans and insurance, and there was no documentation of any business use of the vehicles.
• They also used the organization's corporate credit card to purchase clothing, furniture, and other personal items.
• The organization made a loan to at least one of the officers without any terms of repayment.
• There was no internal control to ensure that funds were used for exempt purposes.
• The officers had free reign over use of the organization's credit cards for personal expenses and over the transfer of funds to themselves with no documentation, and there was no record of the other board members having any involvement with the finances of the organization.
• The officers diverted thousands of dollars in payments of personal expenses, yet only had minimal documented charitable activities. The size and scope of the transactions were substantial in relation to exempt activities.
• The excess benefit transactions between the organization and its officers were multiple and repeated. No loan documentation exists, nor are the officers known to have made any payments of principal or interest on the amounts loaned.
• There were no internal controls in place, the board did not question officers' management of the organization's funds, and no safeguards were put in place to prevent the occurrence of excess benefit transactions. No correction is known to have been sought by or made to the organization.

The IRS concluded:

In summary, the officers operated the organization more like a personal business than an exempt organization. They had control over the organization's funds, assets and disbursements and made use of the funds for personal use. They essentially appear to have had access to a zero interest line of credit with no promissory notes, terms of repayment, interest charged, or balance approved by an informed board of directors for purported loans … . The income and assets of the organization inured to the benefit of the officers [and thus it] was not operating exclusively for exempt purposes as required by section 501(c)(3).

Similarly, in Private Letter Ruling 201533022 (2015), the IRS revoked the tax-exempt status of a public charity because of the inurement of its assets to the personal benefit of its president. The charity was formed to educate people about the Christian faith. Its activities consisted of creating and running a website where it posted daily devotionals and articles. Donations were also solicited on the website, and donors were assured that their donations were tax-deductible.

The IRS noted that one of the requirements of tax-exempt status is that none of an organization's assets inures to the personal benefit of an individual other than as reasonable compensation for services. The IRS's examination of the charity's bank statements, canceled checks, and related books and records demonstrated that its funds were used to make payments to, or on behalf of, the president. The IRS cited the following practices as examples of prohibited inurement in this case:

• The president was a signer of the charity's bank accounts and approved expenses and endorsed checks for the payment of his own personal expenses, including signed checks payable to "cash" that were endorsed by the president.
• The charity's funds were also used to pay for the president's personal shopping expenses, personal residence expenses, loans, personal credit card expenses, and car payments.
• The charity did not maintain contemporaneous records documenting that the president had a housing allowance.
• The charity did not maintain contemporaneous records documenting that the president had a utilities allowance.
• The charity did not maintain contemporaneous records documenting that the president was reimbursed under an accountable plan.
• The charity did not maintain expense reports or receipts.
• Payments of expenses incurred by the president were made under a "nonaccountable" plan.
• The president's personal expenses were paid with the charity's funds.
• The charity made a no-interest loan to a for-profit company owned by the president.

The IRS concluded that the charity's tax-exempt status had to be revoked because it was not operating exclusively for exempt purposes, as its net earnings inured to the benefit of its president. The IRS noted:

The charity's exempt funds were being used for the private benefit of the organization's president. Its funds were used to pay for its president's clothing, jewelry, medical and dental expenses, credit card expenses, car payments, loan payments, and personal house expenses. The charity's funds were used to make checks payable to "cash" and these checks were signed and endorsed by the president. In addition, the charity's funds were used to make loans and cash advances to a for-profit corporation owned and controlled by the president. The loans and cash advances were made at 0 percent interest and were not collateralized. The charity was unable to provide proof of repayment for the loans and cash advances.

Such cases are not limited to churches that have adopted a form of governance without members. But many believe they are less likely to occur when control over a church's finances is dispersed among a functioning membership and board.

8. Miscellaneous considerations

There are several other possible advantages to the membership form of church governance that some have mentioned, including the following:

• Governance. Membership identifies those persons who have so aligned themselves with the church and its mission as to have the privilege of participating in important decisions, which often include selection of the pastor and board, and authorization of sales and purchases of church property.
• Insurance. Liability insurance for volunteers, and workers' compensation, may only protect persons who the church recognizes as members. Be sure to check with your insurance agent to explore coverage requirements.
• Parliamentary law. Most churches have selected Robert's Rules of Order Newly Revised (RONR) as their parliamentary authority, either by a provision in their governing documents or by longstanding custom. RONR explains the rights of members in deliberative assemblies, including attendance at annual and special meetings, the rules for making motions, participation in debate, and the right to vote. Without members, RONR is basically irrelevant except for meetings of a governing board of directors or trustees.
• Standing. Nonmembers generally have no "standing" to pursue litigation against a corporation or corporate directors for malfeasance.
• Governing documents. Generally, it is membership status that allows persons to participate in the content and adoption of a church's constitution and bylaws or other governing document as well as amendments to such documents. Without a body of members, there is no need for membership meetings and persons who attend the church ordinarily have no input in the content and amendment of its governing documents.
• Sense of community. Many persons choose to become members of a church as an expression of support for the church and its leadership and mission, and to more formally join the community of members.

For additional reading, see the article "Governing Well" on ChurchLawAndTax.com.