11,000 Nonprofits Lose Status

Organizations failed to file proper paperwork.

Brattman v. Secretary of the Commonwealth, 658 N.E.2d 159 (Mass. 1995)

Key point: In many states, incorporated churches can lose their corporate status by failing to submit an annual corporate report to the secretary of state.

The Supreme Judicial Court of Massachusetts upheld an action by the secretary of state revoking the corporate status of 11,000 nonprofit corporations that failed to file their annual corporate reports as required by state law!

Massachusetts nonprofit corporation law specifies:

If the corporation fails to submit its [annual report] for two successive years, the state secretary shall give notice thereof by mail, postage prepaid, to such corporation in default. Failure of such corporation to submit the required [report] within ninety days after the notice of default has been given shall be sufficient cause for the revocation of its charter by the state secretary.

Pursuant to this statute, the secretary of state revoked the corporate status of 11,000 nonprofit corporations in Massachusetts that failed to file their annual reports for two consecutive years. These revocations were all preceded by the required notice to the lapsed corporations. The president of a nonprofit corporation whose charter had been revoked filed a lawsuit challenging the actions of the secretary of state. The court ruled in favor of the secretary of state, noting that "it is undisputed that there was sufficient cause to revoke the charters of the corporations since they did not file acceptable annual reports for two consecutive years."

Several articles and recent developments in this newsletter have demonstrated the potential legal advantages of church incorporation. Most importantly, incorporation protects individual church members from personal liability for the negligence or misconduct of other members. Unfortunately, there are many churches that incorporated in the past but that have lost their corporate status.

As this case illustrates, in some states this can occur through a failure to file an annual corporate report with the secretary of state. It is a good practice to periodically check to see if your church is a corporation in good standing. You can do this in most states by contacting the office of secretary of state in your state capital. However, in a few states churches are permitted to incorporate by applying to a local court, and this type of incorporation may not be communicated to the secretary of state. As a result, your church may be incorporated though the secretary of state has no record of it. Fortunately, this is not a common occurrence. In most cases you can be assured that your church is not incorporated if the secretary of state has no record of incorporation.

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