Incorporating the Local United Methodist Church
This memo
discusses some of the considerations and concerns involved in the incorporation
of a United Methodist local church. Each church needs to make its own decision
on whether to incorporate, based on the general factors and considerations set
forth below and based on their own set of facts and circumstances. The forms at
the end of the memo are suggested corporate forms and structures that need to be
reviewed by an attorney who is familiar with your church and not-for-profit
incorporation laws in your state.
¶ 2528.1 of The Book of
Discipline vests the charge conference with the authority to direct the board of
trustees of the local church to incorporate the church. The incorporation must
be accomplished subject to the Discipline and in accordance with local law.
(Note that as of January 2001, incorporation of churches is prohibited in
Virginia and West Virginia).
Incorporation should
protect and exempt the individual officers and members, jointly and severally,
of the local church, from legal liability for and on account of the debts and
other obligations of every kind and description of the local church. The first
step in the incorporation process should be the retention of qualified legal
counsel. Legal counsel should be very familiar with the structure of the United
Methodist denomination, especially the trust clause (¶ 2503), the local church
structure, and the various roles of the district superintendent as to certain
local church matters.
Advantages of
Incorporation
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- Limited liability
- Clear legal capacity to enter into contracts
and agreements
- Perpetual duration
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Under the law, a corporation is a
separate legal entity from its officers, directors and its incorporators.
Corporate powers are conferred by the corporate charter and by the state
corporation statute. The corporate form provides a continuous entity for the
ownership and management of property, and for carrying out the business and
programs of the local church. Assertions of liability for acts undertaken by
the corporation may be satisfied, if proved, from corporate assets only, rather
than from personal assets of the corporate directors, except in cases of fraud
against the corporation by a director, or where corporate formalities are not
followed, and a case can be made that the corporation is acting as an alter ego
of its directors.
A
corporation derives its powers and existence from the state. The sources of its
powers are its charter and the general statute under which the corporation was
organized. The statutes grant numerous specific powers relating to
organization, the use and conveyance of property, the election of officers, the
amendment of articles of incorporation and by-laws, the right of dissolution,
etc.
The “express powers” of a corporation are those
related to the business activities in which the corporation is engaged that are
enumerated in its charter. “Implied powers” arise out of reasonable inferences
about the scope and intent of the language of the charter powers as they relate
to certain facts and circumstances. Great care should be taken by the local
church corporation to insure that its acts and transactions do not extend beyond
its limits of authority. Such acts are termed ultra vires and should be
expressly barred by the corporation’s Articles of Incorporation.
Procedures for forming and organizing corporations
vary from state to state. However, general incorporation statutes in every
jurisdiction allow for the issuance of a charter of incorporation to certain
persons by a designated state official (usually the Secretary of State) in
compliance with the provisions of the corporation statute. The typical statute
requires:
1. The preparation and execution of the
articles of incorporation by the incorporators, and the acknowledgment of their
signatures before a notary public
2. The delivery of the articles of
incorporation to the Secretary of State, including any other required
incorporation papers and payment of required organizational fees
3. Filing of the articles by the Secretary
of State, and subsequent issuance by him or her of the certificate of
incorporation
4. The recording of the Certificate and
Articles of Incorporation with the Recorder of Deeds, or any other county
officials as required in the county or parish where the corporation is located
5. The convening of the first corporation
organization meeting at the call of the directors to adopt by-laws, elect
officers, and transact other business.
The articles of incorporation generally include the following provisions:
1. The name and address of the corporation.
2. The address of its registered agent for
the service of process, notice, or demand upon the corporation. Usually the
agent will be the board of trustees, inasmuch as it manages the business of the
local church about property and other legal affairs.
3. The duration or tenure of the corporation,
which may be perpetual or limited. Church corporations are typically perpetual.
4. The names and addresses of the
incorporators.
5. A statement of purpose for which the
corporation is formed.
6. The names and number of directors
constituting the initial board of directors, and the names and addresses of
those who are to serve as directors until the first called meeting.
7. Membership of the corporation, and, in
the case of the local church, specific reference to the Discipline provisions on
incorporation of the local church.
8. The powers of the corporation.
9. Procedures for the adoption of by-laws
by the board of trustees.
10. Definition of the quorum of directors needed
to transact corporate business.
11. Procedures for amending the articles of
incorporation.
12. Provisions for the distribution of assets
upon dissolution of the corporation.
Upon completion of the required charter application
and the articles of incorporation, these documents must be submitted to the
district superintendent for his or her written approval. The purpose of
obtaining the superintendent’s written approval is to insure conformity of the
documents with the Discipline. Particular attention should be devoted to the
following:
1. The corporation’s stated purpose and
powers must support the doctrine of The United Methodist denomination, and all
its property must be subject to the “laws, usages, and ministerial appointments”
of the Church.
2. The board of trustees, who ordinarily
will serve as the board of directors of the corporation per the Discipline, must
be properly selected. Officers of the board of trustees are the officers of the
board of directors of the corporation.
3. The powers and responsibilities of the
corporation, and its board of directors, should include the powers and
responsibilities about property specified for the charge conference by the
Discipline.
4. The members of the corporation are to be
the members of the charge conference.
5. Should the corporation cease to exist,
the title to all its property is to be vested in the annual conference board of
trustees, to be held in trust for benefit of the local church, if it should
continue to exist, and, if not, for the benefit of the conference or successor
entity.
6. The articles of incorporation and the
by-laws of the corporation that are submitted to the state should include the
provisions of the Book of Discipline of The United Methodist Church by
reference.
7. After completion of the incorporation,
care should be taken to deed all property into the new corporation. Real
property can be deeded by use of a quitclaim deed. This transfer can present an
excellent opportunity to review the title to property, to determine if there are
any limitations on reversionary interests and to make sure that the trust
clauses (¶ 2503) are put into the new deeds.
Many states now have
special religious corporation statutes that significantly decrease the reporting
requirements and filing costs for such corporations. There statutes also often
restrict the oversight role of the attorney general. Local counsel should
advise on incorporating under such statutes.
Note: Sample incorporation forms, including
bylaws, are included. Each state has different incorporation requirements.
These forms should be a useful starting point for the local church’s
attorney.
It might be helpful as
well to consult with other local churches that have recently incorporated in
your state to obtain samples of their forms for review, assuming their
incorporation forms have been prepared by a knowledgeable attorney with
attention to the unique structure of the United Methodist denomination.
Disclaimer: The General Council on Finance and
Administration is not engaged in providing legal or accounting services. The
service of a competent professional should be sought for legal and tax advice
