The Legal Status of a Church
Is Your Church a Religious Corporation or a Not for Profit?
In Illinois there are two corporation laws that can be used to form churches: the Religious Corporation Act of 1872 and the Not for Profit Corporation Act of 1986. Most lawyers practicing in the state of Illinois have probably heard of the latter statute, but relatively few may have heard of the former one.
Churches typically function with little awareness of their underlying corporate structure until they need to engage in some sort of commercial transaction–such as the purchase of real estate or obtaining a commercial loan–then the corporate structure becomes a matter of some attention.
Both kinds of corporations can function in the modern world of commercial transactions, but one type functions more easily than the other. Care to guess which one? The modern act: the Not for Profit Corporation Act is familiar to banks, title companies, and lawyers.
For example, as part of the process of purchasing property or securing a loan, a bank or a title company will routinely verify the legal existence of the church. They will look up the corporation on the Illinois Secretary of State’s database to check if the corporation is in “good standing.” Good standing is maintained by timely filing of the corporation’s annual report which is a simple document listing the current officers and board of directors, their addresses, and the business address. The church incorporated under the Not for Profit Act must have a registered agent. The registered agent is the person designated to receive mailings from the Secretary of State and service of process in the event of a lawsuit.
However, churches organized under the Religious Corporation Act do not appear on that database. That is because they are formed by merely filing an affidavit in the local County Recorder’s Office. These are seldom searchable online. The advantage of this type of corporation is that they are not required to file an annual report, and they do not need a registered agent. The disadvantage is there is no way to verify their legal existence.
When churches learn that their church’s corporation does not appear on the Secretary of State’s database, they sometimes rush out and form a not for profit corporation. By doing so, they may have inadvertently filed a second corporation which can lead to a variety of confusion and legal problems.
If you read the Religious Corporation Act, you will see that it most naturally applies to churches within denominations that exercise significant control over their local churches. It was written in a time when most churches were structured that way. Many newer churches exist outside traditional hierarchical denominations as either fully independent or part of a voluntary association. For these churches, the old 1872 law is a poor fit.
When the Not for Profit Corporation Act was passed in 1986, the state legislature did not require that all churches formed under the old Religious Corporation Act be converted to the new form. However, they did create a way for churches to elect to make the change. Here at Bea & VandenBerk, we have helped many independent churches and those part of voluntary associations make this transition because of the advantages of the more modern law.
This article is provided for general information and should not be relied upon as legal advice for a specific situation. If you are in need of specific advice or legal representation, please do not hesitate to contact us.
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