While many people may not think of their local church as a corporation, it is more than likely that it is incorporated under Illinois law. Doing so establishes a religious organization or place of worship as a distinct legal person or entity, which enables it to engage in essential commercial transactions like opening a bank account, applying for commercial loans, or buying church buildings for sale in Chicago.
Should church members be concerned about incorporating?
Reservations about a church being incorporated is typically borne out of fear that the government will interfere, monitor, or even censor the church’s activities and messages.
In practice, however, incorporation does not encourage government institutions to regulate or intrude in a church’s affairs. Rather, this legal status benefits the church by providing the legal framework to enable its existence and continuous operation.
Being incorporated also protects the church’s individual religious leaders and congregation members from personal liability for any of the church’s actions.
Legal bases for incorporating churches in Illinois
Church organizations must be aware of their underlying corporate structure in order to facilitate commercial transactions without complication. The first step in understanding the corporate status of your church is to find out under which law it was incorporated.
In Illinois, the formation of churches is governed by either of these two corporation laws:
- Illinois Religious Corporation Act (RCA) of 1872
- Illinois General Not for Profit Corporation Act (NFPCA) of 1986
Notable differences between the RCA and the NFPCA
- Churches incorporated under the NFPCA appear on public record.
Under the NFPCA, churches file initial and subsequent annual reports to the Illinois Secretary of State, which makes the church’s corporate status publicly available here.
This accessibility is an advantage when facilitating transactions such as a transfer of ownership. Banks, lawyers, or title companies that are looking into a church’s existence and good standing (i.e. compliance with annual report requirements) will have an easier time finding NFPCA churches in the Secretary of State’s database.
On the other hand, churches formed under the RCA are more difficult to verify as a legal entity because they are not listed in a public database. Under the RCA, churches are only required to submit an affidavit of incorporation to the County Recorder’s Office. However, this original document may be difficult to locate, especially for older churches where the year or county of incorporation is unknown or forgotten through the years.
- The NFPCA is better suited for modern legal challenges facing churches and other religious organizations.
The RCA was created well over a century ago, back when church properties were only held in trust by individuals instead of being formally owned. The RCA enabled churches to legitimately own real estate, but it was not written to address legal ownership challenges that a church might face today.
The NFPCA, originally enacted in 1943 and amended in 1986, deals more specifically with issues concerning corporate governance and liabilities. These provide better protection for churches, especially for those that operate independently from any denomination or as a voluntary association.
- The NFPCA establishes clearer organizational rules.
Whereas the RCA does not explicitly describe internal governance and organizational practices for churches, the NFPCA offers a range of governance rules that churches can apply within their organizations.
The NFPCA’s governance provisions address membership interests and rights, the election of the organization’s leadership, and recommended actions in case of significant corporate changes like mergers or dissolution. Certain governance rules may be affirmatively overridden by a church through its bylaws, giving churches adequate flexibility to adapt these rules according to their needs.
Are RCA churches required to incorporate under the NFPCA?
Churches that were incorporated under the RCA are not required to be converted to a corporation under the NFPCA. While the RCA is considered an outdated piece of legislation, some churches—such as those that maintain well-established hierarchical structures—still prefer it for its simplicity.
However, a church formed under the RCA may realize the need to amend its corporate form under the NFPCA in order to gain the latter’s advantages when it comes to commercial transactions.
In this case, it is important for the church to avoid ending up with a “parallel corporation” status. This happens when a church formed under the RCA inadvertently files for a second corporation under the NFPCA. Having a parallel corporation status will lead to serious legal problems.
The proper way to facilitate the transformation of a church’s corporate status is by filing a “Corporate Resolution to Make Election,” based on Section 101.75 of the NFPCA. Through this resolution, the church elects to become an Illinois not-for-profit corporation.
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