Nonprofit Church Law Ministry

By Robert Showers, Esq. July 29, 2011

I. INTRODUCTION

Fifty years ago, very few people—especially members of the church—would have dreamed of suing the church, but the legal climate today has changed dramatically and lawsuits against churches are increasingly more common. Fortunately, every state now permits churches to incorporate, which was not always the case. In 2003, West Virginia became the last state to remove the ban on church incorporation following the Western District of Virginia federal court’s decision to strike down the same ban in Virginia in Falwell v. Miller in 2002.[1]

The ability to incorporate serves as a powerful tool for churches and member non-profit organizations in protecting itself from litigation and legal liability. However, church and nonprofit Incorporation is an involved and somewhat complex process, and one of the requirements when applying to become a corporation is to create and submit a set of Articles to the state and bylaws that comport with the articles as the high level operations manual. This memorandum focuses on why every church and non-profit organization should not only adopt well drafted 21^st century bylaws, but also adhere to its bylaws, as well as suggestions in creating effective bylaws based on the author’s legal experience in having guided numerous churches through the incorporation process. Bylaws should be drafted for times of crisis and dispute and answer all the critical questions to successfully navigate through the difficult times without resorting to courts or people voting with their feet due to confusion and disagreements.  Bylaws should be drafted to be legally compliant with state corporate and IRS provisions, bring the written operations into conformity with the actual way the church is governed and apply best practices and risk management to protect the church and its ministries for the 21^st century in which live and minister.

II. DISCUSSION

Churches and other member non-profit organizations are subject to the provisions and guidelines contained in their governing documents, which generally include the Articles of Incorporation, Bylaws, Constitution(although not legally required), and a Policies and Procedures manual or similar variation.[2] The Articles of Incorporation, which is commonly referred to as the corporate charter, is filed with the secretary of state, and typically sets forth details such as the church or organization’s official name, purpose, and directors.[3] The Articles along with the bylaws are required by both the IRS and the state in the incorporation process.

The constitution of a church is generally he supreme body of rules that govern the church and hence it is logical that it contain the theological aspects of the church. Since the Articles and bylaws contain the operational details of the church as a corporation, it may be appropriate for the church to spell out its beliefs, values, and practices in its constitution such as ordination procedures, members covenant and other theological points. Whereas bylaws define routine operational items that may be easily amended, a constitution must be a theological document that is difficult to change and requires much thought and prayer before amending. This is because a group of voters should not be able to overturn a church’s theological doctrine without significant time and discussion about such suggested changes after much thought and prayer. Therefore, the author recommends that whenever a constitutional amendment is brought for a vote, a longer notice period should be given to the members than a vote for a change in bylaws, and a larger majority to approve the amendment should be required.

The policies and procedures of the church is more of a manual that outlines the specifics in a church’s day-to-day operations. These can be changed by the church board, and does not necessarily require a membership-wide vote or notice, and is also expected to change as the needs and size of the church evolve over time. Whereas the bylaws can be thought of as an aerial (bird’s eye) view of the church governing structure, the policies and procedures of the church should be the zoomed-in (worm’s eye) detailed instructions for those serving in the church.

Bylaws refer to the rules of internal government adopted by the Articles under the theological premises of the Constitution and is a broad sweep of the operational structure of the organization.[4] However, unlike in a business corporation where the individual who owns the most stock in the organization controls it, “the Bylaws of a nonprofit corporation spell out the essential relationships of the participants. [Bylaws] are the power document of the organization.”[5]

There are three important reasons why every church or member non-profit organization should adopt and abide by a well drafted and current set of agreed upon bylaws. First, as a matter of law, for any church that is incorporated or seeks to incorporate, bylaws are mandated by the state and IRS. However, even if a church is not incorporated, it would still be prudent to adopt bylaws. In fact, it may be even more urgent for unincorporated churches since they do not have the benefit of the legal protections that are offered to incorporated churches and non-profit organizations.

Second, bylaws are a helpful way to update the text of the document with the actual practices of a church or organization in the twenty-first century. Moreover, the bylaws should match the church’s theological views as expressed in the constitution. Bylaws should not exist as a mere formality, but should be a “living” governing document that encompasses the church’s history and theology while providing current and ongoing structure. Therefore, it is necessary that it be practical, useful, and applicable.[6] In order to prevent bylaws from becoming archaic and outdated, it is helpful to make them easier to amend (than amending the constitution). When voting on changes to the bylaws, a short notice to the members and a requirement for a simple majority for passage is sufficient. This will ensure that they remain current and also consistent to the operations and actual practices of the church.

A church governance structure typically has four categories of people which should be addressed in its bylaws: 1) members, 2) officers, 3) board of directors, and 4) teams and committees. First, the bylaws should define who is a member, the requirements in becoming a member, the privileges and responsibilities of a member, voting privileges, church discipline/removal from membership and so forth. Next, officers are the day-to-day operators of the church. The state requires three officers: President, Treasurer, and Secretary. However, if the church so desires, they may have additional officers.

Third, it is critical to define the board of directors, which may be known by other comparable names in different churches (e.g., Board of Elders, Board of Deacons, Church Council, Leadership Team, etc.). How an individual becomes a member of the board, number, qualifications and terms of board members, the powers a board holds, and how he or she may be removed are some of the issues that must be clearly addressed. Furthermore, a church may consider a “staggered voting” or “rotating class” model in electing its board members. This is where a portion of the board is elected each year so as to ensure continuity in the church leadership, as well as bring in fresh ideas and perspectives through the new directors.[7]  Also meetings notice, quorum, unanimous written consent for actions without board meetings, conflict of interests and transactions with interested parties should also be addressed in this section.

Finally, teams and committees should be defined in the bylaws, but only permanent (standing) committees and teams need to be included in the bylaws. For example, it would be appropriate to define the role and responsibilities of the finance, nominating or personnel committee in the bylaws. However, a church may consider including a separate clause regarding special teams or ad hoc committees that are formed from time to time and refer the reader to the Policies and Procedures manual which would contain the specific details. Since special teams or temporary committees are not always in existence in the daily operation of the church, excluding the specific details from the bylaws yet referring the reader to the Policies and Procedures would allow the document as a whole to be applicable and relevant.

The third reason as to why a church should adopt and abide by well crafted bylaws is to manage the church’s exposure to risk in times of crisis or dispute. While a church should always operate in accordance with its bylaws, it is unfortunately often the case where members do not refer to the document until conflict arises.[8] Hence, it is paramount that the bylaws clearly establish the procedures and practices in preparation for such a time. Three procedures will assist in the developing of efficient protocol for such situations.

The first step is to simply outline how the procedures for meetings or elections will operate. For example, many organizations and corporations utilize the Roberts Rules of Order.[9] Though a seemingly minor detail, it is often the minor technicalities such as the improper calling of a membership meeting or an error in voting protocols that can cause further dissension and disruption in a church. Therefore, it is recommended that from the beginning, the church include a clear and standard method of operation in its bylaws.

Second, a church or organization should categorize and define the processes for discipline. Two categories that are commonly identified as demanding discipline by a church body are biblical heresy and instances of moral and biblical misconduct. The categories a church chooses to discipline is their discretion, however, once established, the church must then describe the process by which the discipline will be carried out in its bylaws so as to avoid any confusion should it need to be utilized. Stating who will provide the discipline, how it will be announced to the general congregation, what privileges will be revoked, and what penalties will be incurred are just a few of the topics that a church must consider. Yet, because an incorporated church is unlike a typical business corporation, discipline must be addressed with the church’s theology in mind. Thus, all churches should establish its disciplinary practices with the goal of repentence, reconciliation with the church and rehabilitation of the individual rather than simply punishment. However, the law requires that basic due process(what the member is charged with and process to be heard to defend oneself before a board of its peers) should be followed before taking away a membership right of the accused person.

Finally, the third step, and one of the most effective ways for a church or organization to protect itself during times of conflict, is to build in a biblically-based Dispute Resolution clause into its bylaws. The Bible commands Christians to seek assistance from other members, especially from the pastors and elders, before turning to the civil courts.[10] Therefore, it may be prudent for a church to include in its bylaws a requirement that when disputes or disagreements arise, the individual must first seek the advice and counsel of the pastor, elder, or other members if possible. Additionally, the bylaws should indicate that all discussions regarding such matters will be sealed in confidence.[11] Protecting confidences is a sign of Christian love and respect.[12] It also discourages harmful gossip[13], invites confession[14], and encourages people to seek needed counseling[15].  According to biblical process if the personal advice and corporate mediation does not reolsve the dispute then binding arbitration with specific procedures within or outside the denomination and church should be outlined.  Often such processes are referred to in www.peacemaker.net  or similar national Christina mediation/arbitration groups but there must be a specific waiver that the right to civil courts will be forfeited for the confidential Christian mediation/arbitration process and no appeal will exist to secular authorities.

Further, it is recommended that churches include in its short membership covenant, or a similar document which is presented to each new member to sign, that all members agree to follow the provisions in the bylaws regarding the church’s dispute resolution procedures, church discipline and confidentiality procedures. This will ensure that members are aware of the church’s dispute resolution and discipline procedures, and moreover, shield the church from harmful litigation. These one page member’s covenant should be kept in a secure fire-proof location along with deeds and other important church documents to insure easy access if needed 10-20 years later.

III. CONCLUSION

Bylaws create greater transparency in the church by providing members a thorough explanation of how the church intends to govern itself and by establishing clear operational guidelines that reduces any potential confusion or conflict within the church. Bylaws can also prevent the misuse of authority by church leaders by establishing procedures to protect members from being disciplined or losing rights without due process and sufficient notice. In addition, it reduces the church’s exposure to legal liability by requiring that potential lawsuits first be handled by biblical mediation or arbitration before going to civil litigation.

Although the Bible provides overall guidance for Christians as to how to live and serve in community with others, it is silent on issues such as the sufficient amount of notice that should be given to church members, how long church officers should serve, or how to dispose of property in the event a church dissolves. Bylaws are intended to answer these ambiguities so that the church or non-profit organization may continue to devote itself to its purpose and mission. Moreover, no two churches or organizations’ bylaws are likely to be the same because each organization is unique with its own preferences as to what governing structure or dispute resolution model will work best for their congregation and leadership.[16] While a church can use other churches bylaws as examples, many lawsuits and horror cases have underscored that each set of bylaws must be tailored by an expert to best serve that individual church. Therefore, churches should devote significant time, thought, and prayer when drafting its bylaws as well as seek wise legal counsel to guide them through this process because once in place, the bylaws may prove to be a powerful tool in the continued existence, protection and growth of the church. Paying for expert legal advice to a church law expert who may have defended numerous churches in legal battles and written hundreds of bylaws will be well worth the effort since this document and produce great fruit in years to come.

______________________________________________________________________

[1] Falwell v. Miller, 203 F. Supp. 2d 624 (W.D. Va. 2002).

[2] Richard R. Hammar, Pastor Church & Law (3d Ed.), 278.

[3]Id.

[4] Id. at 281.

[5]  Bylaws Function as “Constitution” of Nonprofit Corporations (Spring 2006).

[6] According to Richard Hammar, Bylaws should cover details including:

(1) qualifications, selection, and expulsion of members; (2) time and place of annual business meetings; (3) the calling of special business meetings; (4) notice for annual and special meetings; (5) quorums; (6) voting rights; (7) selection, tenure, and removal of officers and directors; (8) filling of vacancies; (9) responsibilities of directors and officers; (10) method of amending bylaws;… (11) purchase and conveyance of property…. (12) adoption of a specific body of parliamentary procedure; (13) a clause requiring disputes between church members, or between a member and the church itself, to be resolved through mediation or arbitration; (14) a clause specifying how contracts and other legal documents are to be approved and signed; (15) signature authority on checks; (16) “bonding” of officers and employees who handle church funds; (17) an annual audit by independent certified public accountants; (18) an indemnification clause; (19) specification of the church’s fiscal year; and (20) “staggered voting” of directors (a portion of the board is elected each year—to ensure year-to-year continuity of leadership).

Id. at 281.

[7] Id. at 281.

[8] Ready Reference Page, Bylaws Function as “Constitution” of Nonprofit Corporations (Spring 2006).

[9] http://www.robertsrules.org

[10] See Rom. 15:14; Gal. 6; 1-2; Col. 3:16; 2 Tim. 3:16-4:2; Heb. 10:24-25; 13:17; James 5:16.

[11] Although confidentiality is to be respected as much as possible, there are times when it is appropriate to reveal certain information to others.  In particular, when the pastors and elders of this church believe it is biblically necessary, or when reporting is mandated by law such as in child abuse cases, they may disclose confidential information to appropriate people in limited circumstances.

[12] See Matt. 7:12

[13] See Prov. 16:28; 26:20

[14] See Prov. 11:13; 28:13; James 5:16

[15] See Prov. 10:19; Rom. 15:14

[16]  Bylaws Function as “Constitution” of Nonprofit Corporations (Spring 2006).