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The following legal glossary is provide free as part of our useful legal information. To access the entire library of resources – become a CLG member today to receive this and numerous other benefits. Click here to become a client member. New resources are added monthly to provide comprehensive information to our Church Law Group Client Members.
Affiliation: A membership or cooperation between two distinct legal
organizations, usually on a voluntary basis.
Articles of Incorporation: These are the documents that are drafted
and filed with the
government to create a nonprofit corporation. They are sometimes
called Articles of Formation in some jurisdictions.
Assumption of Risk: Usually in the context of a contract, this phrase
assigns the responsibility for a particular outcome, good or bad,
to a particular party. This phrase has also been used in negligence
liability cases where an injured party is said to have assumed the
risk that led to his/her injury, but that concept is being replaced
in many jurisdictions with a concept of comparative negligence.
Attorney General (for each state): In every state jurisdiction, the
Attorney General is the top law enforcement official. One of the
functions of the office is to examine claims of irregularities or
abuse in nonprofit corporations.
Audited Financial Statement: This is an end of fiscal year summary
of the financial activity of the Church that has been reviewed by
an outside Certified Public Accountant. It is the position of the
IRS that every church should have such an audit.
Authorization: This refers to permission or consent to engage in
certain conduct or activities. Authorization to act in a certain
manner should be documented in written form. For the nonprofit corporation
it may refer to the authority of certain officers or employees to
act in a certain way on behalf of the Church.
Board of Directors: Every nonprofit corporation is required to have
a governing body that has ultimate management authority. The organization
can usually allow this board to delegate some of its authority. Some
organizations are calling their board by a different name to denote
a different philosophy of management such as “Executive Leadership
Team.”
Bylaws: These are the documents that a nonprofit corporation has
that describe the governance and management of the corporation. They
are not filed with the government, but may be required to be shown
to interested parties under certain circumstances.
Certificate of Formation: This is a document from the state government
that proves the
existence of the nonprofit corporation.
Charitable Immunity: In most jurisdictions, the employees and volunteers
or a church
organization are protected from personal liability associated with
their activities with or on behalf of the church. These immunities
are not absolute and there are usually exceptions if the conduct
in question was done recklessly or involved operation of a motor
vehicle. Some of the protections do not apply unless the church maintains
a certain level of liability insurance. The statutes usually only
protect the individual employees or volunteers and not the nonprofit
corporation.
Church: A religious nonprofit organization that is operated in a
way that promotes religious
worship. While the IRS does not define the word “church”, it has
adopted a 14- point test to
determine if it will recognize a particular organization as being
a “church.” This definition only
relates to the word in the context of tax and business purposes and
makes no judgment as to the
religious or spiritual nature of a “church”.
Clergy-Penitent Privilege: Based upon centuries of cultural custom
and as a matter of public
policy, communications made between a member of the clergy and a
penitent (someone seeking
the clergy’s advice and support) are privileged. This means that
neither party can be forced to
disclose what was discussed unless the privilege is waived by the
penitent or in the event the
privilege has been found to be waived by disclosure to a third-party.
In recent years, exceptions
to this privilege have been recognized particularly related to a
requirement to report suspected
child abuse.
Compensation: Nonprofit organizations including churches may not
just pay their employees
whatever they want. Payment must be reasonable based upon the nature
of the position and the
resources of the Church. Compensation is given the broadest possible
meaning by the IRS to
include anything of value such as salary, housing allowance, auto
allowance, and any other thing
of value.
Conflict of Interest: Church employees, officers, and directors owe
the Church a fiduciary duty,
meaning to always act in the sole and best interests of the Church.
If such a person stands to
make money based upon a transaction with the Church, there is a conflict
of interest. Conflicts of
interest should be fully disclosed to the governing body of the Church
and the transaction in
question not allowed to proceed unless it is in the best interests
of the Church.
Congregational Government: A church that has a congregational type
of government is not
subordinate to a higher tribunal or organization and makes all of
its own management and
governance decisions. Whether or not your church is hierarchical
or congregational will have a
big impact in the event of disputes over control of the Church.
Consent: This refers to getting agreement from corporate officers
to take certain actions on
behalf of the Church.
Copyright: A copyright is the exclusive property right to control
the use of a particular work that has been reduced to a tangible
format or medium. The medium does not have to be permanent, but must
be capable of being perceived, reproduced or otherwise communicated
for more than a temporary amount of time.
Director: A person elected to help manage the affairs of a nonprofit
corporation. The Directors duties and powers will usually be described
in the Church’s bylaws.
Discovery: In a civil lawsuit, the parties typically
engage in “discovery”. This is where they send each other and third-parties
written questions to be answered or requesting that certain documents
be turned over. Depending upon what is being asked, the party receiving
discovery may have the right to object to the discovery. It is quite
common in lawsuits involving the church for the other party to seek
information that the church contends is confidential or proprietary
and a ruling from the court has to be obtained.
Disqualified Entity: Regarding nonprofit governance and management
decisions, there are certain persons or businesses that are considered
disqualified to participate in certain decision-making due to a
conflict of interest.
Dissolution: When a nonprofit ceases operations or its underlying
reason for being in existence has changed or been eliminated, the
nonprofit will need to wind down. After paying outstanding debt,
the nonprofit is required to send any remaining assets to another
nonprofit or make arrangements with the State Attorney General. These
procedures and processes should be agreed to and written down at
the beginning of operations.
Employment at-will: Most jurisdictions recognize at-will employment
as the rule. This means that the employer may terminate an employee
at any time for any reason and the employee may resign at any time
for any reason. This rule does not allow a termination to be for
discriminatory reasons. However, the church may discriminate on the
basis of religion.
Environmental Study: When purchasing new land for development, a
Church will usually
want to conduct an environmental study to investigate if there are
any toxic chemicals or
substances on the property for which the Church could become responsible
to clean up. An environmental study is often required by a lender
before committing to a loan. There are several different types of
studies that vary in how deep they probe into the land, what they
are looking for, and other considerations.
Exempt Organizations Division: This is the section of the Internal
Revenue Service which
develops policy and administers the law as it relates to tax-exempt
organizations. This Division has the authority to investigate churches
and to assess taxes or remove tax-exempt recognition.
FMLA: The Family and Medical Leave Act applies to churches with 50
or more employees and to private elementary and secondary schools
even if they don’t have 50 or more employees. FMLA allows an eligible
employee to have up to 12 weeks of unpaid leave because of the birth
or adoption of a child or because of the serious health condition
of the employee or the employee’s child, parent, or spouse.
Faith-based Alternative Conflict Resolution: Rather than go to court,
with the attendant loss in church time and resources, the parties
to a dispute can agree to go to a faith-based alternative conflict
resolution service. This would consist of a mediation in which the
parties would meet with a neutral third-party who would attempt to
get an agreed compromise, and failing in that an arbitration, where
the parties would submit to a decision by the neutral third-party.
Faith-based refers to reliance upon scripture and prayer as the backdrop
for resolution of the dispute.
501 (c) (3) organization: 501 (c) (3) refers to the section of the
Internal Revenue Code that describes organizations that are recognized
as being tax-exempt by the federal government.
First Amendment: The First Amendment to the United States Constitution
creates freedom of religion, freedom of speech, and freedom of association.
It is largely because of this law that churches are given certain
freedoms that other persons and businesses may not have. The First
Amendment can be a viable source of defense for claims against a
church. Every state has also adopted similar protections. In particular,
the IRS cannot examine church functions with the same autonomy as
it can with other organizations.
Governance: Every Church has some form of governance that explains
how it is managed and controlled. For a Church that has not created
its own internal documents, every state jurisdiction has standard
fall back or default laws that will control if there is a dispute.
Obviously, the Church is better served to have created its own governance
procedures.
Gross Negligence: This refers to an injury or damage that occurred
because the party in
question realized there was an extreme degree of risk involved in
his her activity, but proceeded ahead anyway, with conscious indifference
to the safety of others. A person who is found to have injured another
using gross negligence is often exposed to the risk of having to
pay punitive damages.
Hierarchical Government: A church that is part of a hierarchical
structure is subordinate to or answers to a higher tribunal or organization.
While certain day-to-day decisions are made at a local level, overall
management belongs to a regional or national authority. Whether or
not your church is hierarchical or congregational will have a big
impact in the event of disputes over control of the Church.
Hostile Work Environment: A Church that allows sexually-oriented
jokes and suggestive
behavior is allowing what is called a “hostile work environment”
which is a form of sexual
discrimination.
Indemnification: One party can agree to protect other parties from
the risk of claims or
lawsuits, agreeing to defend the parties by hiring attorneys and
to pay for any resulting judgment or settlement on behalf of those
parties. This is a contractually agreed upon right, preferably in
a written contract.
Independent Compensation Committee: Churches may only pay its employees
an amount that is reasonable based upon the job title or description
of the employee and the available resources of the Church. An independent
Compensation Committee would review all of the available data and
make a determination about what is reasonable. The IRS expects every
Church to have such a committee or process.
Independent Contractor: This person provides services to the Church,
but does so under his or her own discretion, with little or no direct
supervision from church employees. There is often a dispute as to
whether or not a particular person is an employee or independent
contractor because a contractor is not subject to the same employment
laws or taxes as an employee. There are various tests that have been
developed to make a determination as to whether or not a person is
an employee or independent contractor.
Integrated Auxiliary: This is an organization that is a tax-exempt
charitable entity which is affiliated with a church or a convention
or association of churches and is internally supported. Affiliation
means that the integrated auxiliary is covered under the group exemption
letter that recognizes the supporting church or association as being
exempt.
Intellectual Property: Intellectual Property refers to ownership
of nonphysical property rights in creative thought or works that
has basically been recorded or reduced to written form. Common examples
for the Church are creative works that constitute copyrights and
trademarks.
Inurement: This term refers to financial benefit that represents
a transfer or payment of the organization’s financial resources to
an individual solely by virtue of the individual’s
relationship with the organization, and without regard to accomplishing
exempt purposes. Private inurement is prohibited and the IRS will
seek return of all such payments or benefits as well as significant
penalties to those persons involved in the transaction.
Joint and Several Liability: When there is more
than one potential responsible party to an injury or damage, it is
possible that all responsible parties could be found responsible
for the resulting injury even if one party was more responsible than
another. It is also possible for a claimant in such situations to
obtain all of his or her recovery from one defendant even though
that defendant was only partly responsible for the injury.
Kindred: Under some state's probate codes, all relatives
of a deceased person.
Key Man Insurance: many churches and ministries buy an insurance
policy to protect them on the death or disability of an important
or "key" employee such as a founder or senior leader.
Knowing: some laws require that a person alleged
to have not followed a contract, committed an injury, or engaged
in a crime did so "knowingly",
that is, with a intent or desire to engage in the conduct in question.
License: A license is an agreement to allow certain activities to
occur in exchange for a fee or other benefit. A pastor may grant
his or her church a license to republish his sermons or commentaries
for some kind of negotiated fee.
Members: Most nonprofit laws allow an organization to
have members or not have members. For organizations that do have members,
the next question is whether the members can vote on governance and management
issues. Since nonprofits do not typically issue stock, each member’s
voting rights are usually tied to having one vote per each member.
Merger: It is possible for two or more nonprofits to join
together or consolidate their entities into one. Each jurisdiction has
certain rules that have to be followed and notices that have to be provided.
There will usually also need to be a prior understanding about who
will manage the combined organizations.
Minutes: A corporation should have a written record whenever
its governing body meets to document major decisions and policies that
are approved or discussed.
Negligence: This is the legal standard by which most civil
claims or lawsuits are made against the Church. Negligence means failing
to exercise the degree of reasonable care that other churches would
have exercised under the same or similar circumstances. In most jurisdictions
in order to make a recovery, a person bringing a claim has to show
that it is more probable than not that the Church was negligent in
a certain situation that led to an injury.
Negligent Selection and Negligent Supervision: Whenever
a church employee or volunteer is accused of abusing a child, it
is common that a claim be made not only against that person, but
the Church as well. Common allegations are that the Church did not properly
investigate the accused’s background or that the Church did not adequately
train or supervise his/her activities.
Nondisclosure Agreement: Because the Church is expected
to maintain confidential and
private information, a written agreement can be made with employees
and contractors to protect
such information or describe the times when the confidences do not
apply.
Nonprofit: This refers to certain organizations that are
operated for a religious or charitable purpose such that the state or federal
government does not require them to pay taxes. Nonprofits can and
do pay for administrative costs including reasonable compensation
to their employees.
Officer: A corporate manager who deals with the day-to-day
operations of the organization.
Pastoral Counseling: Unlike psychologists and psychiatrists,
the clergy can meet with people in need of counseling without obtaining
a counseling license. The counseling must be pastoral, meaning of
a spiritual nature. It is a good idea to have certain internal rules
and procedures in place if a Church is offering such counseling.
Ponzi Scheme: In recent years, many churches have been
targeted and fallen victim to Ponzi schemes. This is where a promoter claims
to have developed an investment strategy that has resulted in above-market
average returns. In reality, the promoter is taking money from new
investors and using it to pay older investors while keeping a large
portion of the funds for himself, usually making large lifestyle
purchases like a big house or an airplane. This type of scheme is
illegal and any “profits” realized from it are usually ordered to
be returned.
Principal Office: Every nonprofit corporation is required
to have a physical address where it can be found and to receive official
notices. This is usually in the home state of the corporation, but
can be moved by agreement of the governing body.
Proxy: Some jurisdictions allow the persons responsible
for voting on governance and
management issues to give a written authorization for another person
to vote on their behalf.
Punitive Damages: Under certain circumstances, many jurisdictions
allow a judge or jury to award punitive damages when a party if found
to be responsible for an injury. Punitive means as a punishment and
refers to money that must be paid in addition to other regular damages.
There usually needs to be a showing that the responsible party was
not just negligent, but also reckless in causing the injury.
Quasi-Governmental: An agency or administrative group
that has certain governmental functions but is not entirely or officially
a part of the government.
Quid Pro Quo Harassment: This is a form of sexual harassment
where certain benefits or advancement are offered in exchange for
sexual relations.
Quorum: Every governing body has a certain number or percentage
of members who must be present at a meeting in order for resulting votes
or actions to be binding on the organization. Many bylaws require
there to be a majority, fifty per cent or more, to be present in
order to have a quorum.
Records: State and federal government requires the nonprofit
to create and maintain certain written records and to keep them for a several
year period.
Registered Agent: Every nonprofit is expected to have
a person designated to receive official notices, claims, subpoenas, or
other business on behalf of the organization.
Release: It is possible to get parties to enter into a
written agreement where they excuse or agree not to act upon any claim
that the other party caused damage or injury. This could be in a contract
with outside vendors and it could be between the Church and its employees
and volunteers.
Resolution: This is a written statement of corporate policy.
Royalty: A payment that is made from profits based upon
use of another party’s goods or services. It should be in writing. This
is a common arrangement for the sale of books and records.
Separation Agreement: The Church can enter into a written
agreement with a parting
employee, whether the employee was terminated or resigned, that sets
out certain terms and conditions to try and satisfy both parties.
Subpoena: A written order requiring the party receiving
it to be at a court or administrative
hearing on a particular date and time and often requiring that certain
documents be brought
along. This commonly occurs in family law hearings where church donation
records or
attendance are at issue and in criminal law hearings where the accused
wants someone from the
church to be a character witness.
Title Insurance: When purchasing new property, a Church
can purchase title insurance that will
protect it if there were a dispute regarding the validity of the
real estate purchase. If the Church is
entering into a financed purchase, most lenders will require that
title insurance be obtained.
Title VII: This is the section of federal law that deals
with discrimination claims. The Church
cannot discriminate in its hiring or employment practices because
of such things as race, sex, and
country of origin. However, unlike other employers, it can discriminate
on the basis of religion
and insist that employees believe in a certain creed or even a particular
denomination.
1023 Application: The process by which a nonprofit organization
seeks to get the IRS to
recognize it as a tax-exempt organization. This is different from
getting incorporated as a
nonprofit corporation with the state.
Trademark: A trademark includes any word, name, symbol,
or device, or any combination thereof used to identify and distinguish
your goods from those manufactured or sold by others and to indicate the
source of the goods. You need to file a trademark with the federal
government.
Trustee: A Trustee is usually a corporate representative
who is either an advisor to the governing authority or who may have actual
governing authority.
Unincorporated Association: This is a group of people
who come together for a common
purpose or enterprise, such as to operate a church, but who have
not adopted or created a business organization such as a corporation.
This style of government should be avoided as it creates a high personal
liability risk for everyone who claims to be a member and it tends
to leads to significant internal governance disputes.
Volunteer: A volunteer is someone who is not an employee
of the Church who provides their skills and services to help the Church
administer its various programs. The Church needs to effectively screen
and train volunteers to make sure they do not represent a threat to the
health or safety of people coming to the Church.
Whistleblower: The Church should have a process in which
a person who has reason to believe that the Church is being involved in
illegal conduct has a process to report it (“blow the whistle”) and have
the allegations investigated and, corrected if found to be accurate,
without fear of retaliation.
Work-for-hire: This is the general presumption that when
an employee authors a creative work,
such as a sermon, piece of music, or teaching material, the employee
is acting for his or her
employer and accordingly the employer, not the employee, is the owner
of the creative work.
This may not always be the intended outcome so it is a good idea
to have a written agreement one way or the other.
Written Consent: Rather than have a physical meeting of
the governing body of the Church, most jurisdictions allow the Church to
have bylaws authorizing action to be taken based upon the signature of
the church leaders.
X: a mark used as a signature by a person who is unable to otherwise affix
his or her signature. In older times, the person may have lacked
the education to sign a signature, but the common current example
is someone who is partially incapacitated. Use of an "x" to sign
a document will often create a question as to that person's intent or capacity
to sign
Year end: in accounting, the close of a fiscal period of business.
Zoning: the division of a city or town by legislative regulation into districts that only allow certain types of use. Churches may be affected by certain zoning laws.