There’s a common misconception in the church world that if the church is incorporated, its Pastor, Officers and Lay Leaders are protected from lawsuits.

And while that protection does generally exist, there are instances where that protection can be removed:

1. When the church is not acting like the Nonprofit Corporation it is according to its own bylaws, (not following the bylaws), its leaders are open to personal lawsuits.

2. The church may or may not be following all its bylaws, but there’s no evidence either way. The evidence is meeting minutes of the elder board, the finance team, the personnel team, and minutes of church business conferences, etc.

So if the church is not following its bylaws and/or doesn’t keep adequate records of “corporate” meetings and decisions made – its not one. Since its not a corporation, there’s no corporation to sue.

This is known as Piercing the Corporate Veil.

In the event of a lawsuit, the first thing the court/judge will ask for is the Corporate Docs. The second thing asked for will be the Meeting Minutes. (As a side note, in the event of IRS audit, they will start at the same place).

 

How to ensure your church’s Pastor and People are protected:

1. Incorporate if you’re not already.

2. If your bylaws are outdated, get them updated to reflect current actual polity. This could prove to be a lengthy process culminating with a church vote to ratify the new bylaws.

3. Get your meeting minutes in order. Print and have them all in a book.

These minutes don’t have to be detailed in that they record everything discussed at length, they just need to record what matters were discussed (agenda), when, the decisions made and who was present. Further, the decisions made must be shown to benefit the church, not the decision makers (not an alter ego of the Pastor or the Board). If it can be proven the decisions made are just an alter ego of Pastor or Board, the corporate veil can be pierced as well.

If you haven’t recorded meeting minutes or there are some missing, go back as far you can and rewrite them. Review past agendas, notes made by you and others in the meetings, then compile and publish. If need be, get the board or committees back together to go over past meeting agendas and decisions made.

3 other crucial steps:

1. When signing docs on behalf of the corporation, its officers should sign their name and title along with the phrase “on behalf of {corporate name}” and stamp these docs with the corporate seal.

2. Have your 501(c)(3) approval letter on hand.

3. Have your internal controls documented and make sure they’re being followed.

You may be one of those churches described above and things ‘have been fine for years’. However, its not a problem until it becomes one. It will in the event someone sues.

In this litigious culture we are in, it’s prudent to be prepared. According to an article I read on a nonprofit attorney’s site, one thousand churches are sued every month. I believe that will only be increasing in the coming days.

As always, consult an attorney when preparing/updating your corporate docs.