Case Study: Improper Incorporation of a Church

A local group had used an accountant to incorporate a new church. The accountant used a corporate formation service to handle the incorporation process. The non-attorney service prepared a certificate of incorporation under not-for-profit law and filed it with the County Clerk. Several years later, as the church was in the process of leasing space in their church to another church group, it was discovered that the church was not anywhere listed as an entity on the State Corporate records.

The accountant and pastor came to our office to research the matter. Upon receipt of the supposed certificate of incorporation, the issue was immediately apparent to Tracy Jong. Churches that have a place of worship in New York must be incorporated under Religious Corporations Law. Although a document was filed at the County Clerk, it would be ineffective to properly incorporate a church. Certificates of Incorporation for a not for profit corporation can only be filed with the Division of Corporations in Albany. If the not-for-profit is a religious corporation, it cannot have a place of worship in New York to use this procedure.

The accountant and pastor were surprised to learn that the County Clerk takes a fee to file a document, but does not pass on its validity as a legal matter. The County Clerk does not have any obligation to advise a filer that a document is improper; its job is only to file and record the document. After operating several years, the church leadership learned they were not legally incorporated. This affected liability of the church leaders and raised issues with the validity of a contract they planned to make. An entity that did not legally exist could not enter a contract.

Our office quickly prepared the necessary paper work to properly incorporate the church and met with the pastor to outline the procedure they would follow over the next 2-3 weeks. The error would be corrected in about 16 days, in time for the lease to proceed. Properly incorporated, the personal liability of church leaders was no longer an issue.

Not for profits can have complex issues and mistakes may not be discovered until there is a crisis. Working with an experienced attorney can help give you peace of mind that you won’t have with a do-it-yourself or internet service provider. Experience matters.