The legal disabilities connected with the unincorporated association form of organization persuade 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. Perhaps most important, the members of a church corporation ordinarily are shielded from personal liability for the acts and obligations of other members or agents of the church.
Two forms of church corporation are in widespread use in the United States. By far the more common is the membership corporation, which is comprised of and controlled by church members. Several states also recognize trustee corporations. The trustees of a trustee corporation constitute and control the corporation. A few states also permit certain officers of hierarchical churches to form a corporation sole, which is a corporation consisting of a single individual.
Some church leaders maintain that churches should never incorporate since incorporation constitutes a “subordination” of a church to the authority of the state. Such a view reflects a fundamental misunderstanding regarding the legal status of corporations. The term corporation has been defined “as an association of persons to whom the sovereign has offered a franchise to become an artificial, juridical person, with a name of its own, under which they can act and contract, sue and be sued, and who have … accepted the offer and effected an organization in substantial conformity with its terms.”26 Mackay v. New York, N.H. & H.R. Co., 72 A. 583 (1909) (this definition is still frequently cited by the courts).A corporation, then, is entirely distinct from its members and should not be confused with them. A church that incorporates is not “subordinating itself” to the state. Rather, it is subordinating only the artificial corporate entity to the state, and it is free to terminate that entity at any time. Similarly, under some corporation laws, the state can terminate the corporate status of church corporations that fail to file annual reports. But the termination of the church corporation under such conditions does not mean that the church itself is dissolved, for the church is completely independent of the artificial corporate entity and survives its demise. On the contrary, many church corporations have been terminated by operation of law because of noncompliance with the annual reporting requirements, yet church leaders and members alike remain oblivious to the fact.
One court acknowledged that “a church does not lose its ecclesiastical function, and the attributes of that function, when it incorporates. It does not, by incorporating, lose its right to be governed by its own particular form of ecclesiastical government. Incorporation acts merely to create a legal entity to hold and administer the properties of the church.”27 Providence Baptist Church v. Superior Court, 243 P.2d 112 (Cal. 1952).Another court has observed that “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.”28 Gospel Tabernacle Body of Christ Church v. Peace Publishers & Co., 506 P.2d 1135 (Kan. 1973).The United States Supreme Court has ruled that the First Amendment guaranty of religious freedom assures churches “an independence from secular control or manipulation, in short, power to decide for themselves, free from state interference, matters of church government as well as those of faith and doctrine.”29 Kedroff v. St. Nicholas Cathedral, 344 U.S. 94 (1952) (the Court ruled that a New York statute transferring control over Russian Orthodox churches in the United States from the Patriarch of Moscow to the governing authorities of the Russian Orthodox Church in America “violates our rule of separation between church and state”). See also People v. Wood, 402 N.Y.S.2d 726 (1978) (“The purpose of the Religious Corporations Law is not to determine the ecclesiastical jurisdiction. …”).
One legal scholar has observed that “the distinctiveness of the corporate entity from the members … is inherent in and exemplified by other corporate attributes, which could not be conceded were they one and the same, e.g., the transfer of shares and change in membership without change in the corporation [and] the right to sue and be sued in the corporate name. …”30 FLETCHER CYC. CORP. § 25 (perm. ed. 2008).The distinctiveness of the corporate entity from its members is also the basis for the limitation of personal liability of members for the acts of the corporation. This limitation of personal liability is not an example of social irresponsibility that should be avoided by churches. On the contrary, it is a recognition of the fact that church members should not be personally responsible for the wrongdoing of other members or agents over which they had no control.
Key point. Church leaders having theological opposition to church incorporation should consider letting the church membership determine whether or not to incorporate the church. Church members who are apprised of the potential personal liability they have for the obligations of their unincorporated church may not agree with their leaders’ theology on this issue.
In summary, churches wanting to avail themselves of the benefits of the corporate form of organization should not be dissuaded by unwarranted fears of governmental control. In the unlikely event that an incorporated church ever does believe that it is being “unduly controlled” by the state, it can easily and quickly rectify the problem by voluntarily terminating its corporate existence. A number of courts have specifically held that incorporation of a church under a state corporation law does not subject the church to any greater degree of civil scrutiny.31 See, e.g., Bourgeois v. Landrum, 387 So.2d 611 (La. App. 1980), rev’d on other grounds, 396 So.2d 1275 (La. 1981).