11/11/2023
SHOULD A LOCAL CHURCH INCORPORATE?
(By Atty Olan Zagada)
If a church is not registered with the Securities and Exchange Commission, is it an illegal church?
Is there a need for a local church to register with the government as a church or religious organization particularly with the SEC so that it can legally operate as a church or engage in religious activities such as evangelism, worship, discipleship and mission?
Answer: Under Art 109 of the New Corporation Code on Religious Corporations, it is stated:
SECTION 109. Classes of religious corporations. — Religious corporations may be incorporated by one or more persons. Such corporations may be classified into corporations sole and religious societies.
Religious corporations shall be governed by this Chapter and by the general provisions on non-stock corporations insofar as they may be applicable.
It is very clear in that provision that the law uses the word “MAYBE” which in its legal interpretation is not MANDATORY but DISCRETIONARY in character. It is NOT mandated or required by our Corporation Code that religious organization or group or church should register with the SEC so that it can operate as a church. Such registration depends upon the sound discretion or decision of the church or board of elders, or pastor.
In other words, you can establish, organize or plant a church or churches in the country without going to the government offices for the purpose of seeking a permit or clearance to do it. Why? It is because it is our constitutional right as citizens of the Philippines to freely exercise and enjoy our religious profession and worship in accordance with Art 3, Sec. 5 of the Constitution.
"Section 5. No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religious test shall be required for the exercise of civil or political rights."
This religious exercise shall be forever be allowed, without discrimination or preference. Our government should not discriminate or prefer one religion over the other because of the Separation of Church and State. The state should be neutral and should not give preferential attention to others while disparaging the other.
This religious profession or worship has two fold aspect: (1) THE FREEDOM TO BELIEVE and (2) THE FREEDOM TO ACT ON ONE’S BELIEF.
The freedom to believe is ABSOLUTE as long as it is confined in the realm of one’s thought. Any person can believe or disbelieve God. He may worship any god he wishes, he may accept or reject a religion, or he can believe Satan over God if he wants to. No matter how absurd his religious beliefs maybe to others, even if it is hostile to majority, he has a full freedom to believe.
On the other hand. A FREEDOM TO ACT ON ONE’S BELIEF is subject to the regulation by the State or government when such belief is translated into external acts that will affect the public welfare.
Be careful with the exercise of your own belief because if it affects or disturbs other people, you may have a legal problem later on. This is just a reminder to our pastors that while we have the right to hold fellowships at anytime in our church or bible study in any place but if we intrude into the right of privacy of another by causing loud noise that affects the tranquility and peace of others, they have also the right to restrain us in our freedom to act on our own beliefs.
Going back to the issue of whether it is legally necessary to register or incorporate as a church? Our answer is, IT IS NOT REQUIRED BY LAW FOR THE CHURCH TO EXIST AS A CHURCH.
But there are however LEGAL BENEFITS and ADVANTAGES for such registration or incorporation as a local church with the SEC.
I will explain later the benefits and advantages but I will also explain the DISADAVANTAGES if your local church is incorporated with the SEC.
FORMS OF RELIGIOUS ORGANIZATION:
1. Religious corporation may only be formed or organized as non-stock corporation.
Essential requisites for non-stock are as follows:
(1) There is no capital stock dividend divided into shares; and
(2) No part of its income maybe distributed as dividends to its members.
A religious corporation cannot register as stock corporations like San Miguel Corp, etc. where they are allowed to sell shares of stocks to its stockholders. Why? Church is not a business enterprise. Its activity is to propagate its faith. Yes, as a church, we can require members to give contribution in the form of tithes and lover offerings, or donations but those contributions cannot be distributed to members in the form of shares but should be used only for the needs and operations of the church in the propagation of its faith.
CLASSES OF RELIGIOUS CORPORATION:
2. There are two (2) classes of religious corporation by which it can be organized:
a) Corporation Sole (Sec. 108, Corporation Code)
b) Religious society (Sec. 116, Corporation Code)
DISTINCTION: Religious Sole and Religious Society.
Corporation Sole – is incorporated by “one” person only. It is a special form of corporation usually associated with a clergy; whereas, Religious Society is incorporated by “more” persons. It maybe incorporated with members of the board of not less than 5 but not more than 15 trustees are elected from their registered members. (Sec. 116, par. 6)
Do not call the member of the board as Board of Directors for it pertains to stock corporation but board of trustees. But the religious society may use other word equivalent to trustees such as ELDERS, REGENTS, GOVERNORS, etc.
In Corporation Sole – it can be formed by a bishop, minister or presiding elder of the church as one person. The position, property and power of the Corporation sole are handed over to one named successor on death, or retirement or for any other reason; whereas, the Religious Society – can be formed by an incorporating trustees nor less than 5 but not more than 15 with the written consent of 2/3 of its membership who have voted to incorporate.
In Corporation Sole - the administration and management of the affairs, properties and temporalities of any religious denomination or church is governed by the concerned bishop, minister or presiding elder as a TRUSTEE of the church. In Religious Society – it is governed by the elected board of trustees duly elected by the membership. There is no board of trustees in Corporation Sole.
Although it is not necessary for a local church to incorporate but these are the following advantages of an incorporation:
ADVANTAGES OF INCORPORATION and DISADVANTAGES OF AN INCORPORATED CHURCH
1. ACQUISITION OF LEGAL OR JURIDICAL PERSONALITY. This is merely a fiction created by the law giving an corporate entity of all the rights and privileges like a person. This means that a corporation once incorporated has a separate legal entity from its members in transacting the purpose for which it is incorporated and managing the affairs, properties and funds of the church. Its personality is separate from its members constituting it. When a religious organization has a juridical or separate legally personality, it can perform the following acts:
a) It can acquire properties under its corporate name.
This is the principal reason why some local churches incorporate because they want the properties purchased by them or donated to them to be under the name of the local church and not of the mother church or individual person or the pastor. An incorporated church may purchase and hold real estate and personal property under its name and may receive bequests or gifts for such purposes.
If you want the title of the real property registered in the name of the local church, it is necessary that the local church must acquire a separate legal personality. Thus, it is required for the local church to apply for registration or incorporation with the SEC.
If your local church is not incorporated and you want to acquire a real property (church land and building) or receive donation, do not put it under the name of the pastor or chairman of the board of elders or any person in the church because if that happens, the Pastor may claim exclusive ownership thereof when he leaves or resigns from the church or when he dies, this heirs may claim ownership thereof as inheritance. It may result to a court battle to prove ownership.
b) It can enter into contracts in the name of the organization such as sale, lease, mortgage, loan, etc.
If your local church is not incorporated, you cannot enter into a contract as a local church. Or else the pastor or an elder will be forced to enter into a contract in behalf of the church and may sue or be sued in his personal capacity if the church becomes involved in a litigation.
c) It can sue or be sued as an organization. This means that legal action maybe prosecuted and defended in the name of the incorporation not in the name of the bishop, minister or pastor of the church.
In case an unincorporated church would like to sue, it cannot sue under its name but under the name of its pastor or presiding elder. Likewise, in case an unincorporated church or religious Organization is sued, they cannot sue the name of the church. The person answerable to the legal problem of the church is the bishop or the leader of the church or the pastor. You can just imagine the name of the pastor being dragged in a legal suit in behalf of the church. His liability is personal.
d) It can maintain bank accounts under its corporate name since banking practice requires submission of Articles of Incorporation and By Laws duly approved by SEC.
An unregistered church cannot maintain a bank accounts under its name. As we know, church receives its funds through its TITHES and LOVE OFFERINGS, donations and gifts from its members. If your church is not incorporated, in what account name are you going to deposit the church funds? Certainly, since you cannot use the name of the church because you will be required by the bank to submit SEC Cert of Registration, the bank account will be opened in the name of the pastor and perhaps the treasurer of the church. This is a very risky and tempting proposition if the bank accounts will be placed in the name of individual members of the church. Donors of the church might also hesitate to do so because he will name the pastor as the donee. The donee cannot also claim exemption of donor’s tax. Worse, if the pastor as donee dies later, the church property will be part of the pastor’s personal estate.
e) It can issue official receipts when required because only registered corporations, partnership and single proprietorship can be registered with the BIR.
f) It is exempted from taxations for donations and real property taxes. Under the Internal Revenue Code, the donor, to claim for exemption, religious corporation must be registered as non-stock and non-profit with the SEC.
Tithes and love offerings and contributions are not taxable as income of the church. It is also exempt. As a church, we do not pay income tax returns for the church. But if the church hires a full time workers, that is no longer within the coverage of tax exemption because the worker will be taxed for that salary or wages received in accordance with the NIRC as employee of the church. The church has the right to withhold the tax and other fees to be paid to the government.
2. Right of PERPETUAL EXISTENCE and SUCCESSION. This means that even if the leaders or persons constituting the corporation die or become incapacitated, the religious corporation continues to exist. Why? because an incorporated entity derives its life from the charter and not from the person that incorporates it. Its existence is not affected by the death, retirement of a leader or change in the leadership.
DISADVANTAGES OF INCORPORATED RELIGIOUS ORGANIZATION. This is also the advantage of non-incorporated organization:
Corporations are subject to many legal controls and restrictions and requirements by the Corporation Code. Your articles of incorporation and by laws must not violate the provisions of the corporation code for non-stock corporations and religious society.
You are required by the SEC to submit annual reportorial requirements such as General Information Sheet and Financial Statement. If you fail to do this, there is a penalty that maybe imposed against your church. If you continuously fail to do this, your registration maybe revoked.
Also always update at the SEC the list of members. There is a red book that can be purchased in the SEC where you can update the list of your members and delist those who are no longer active and they are the members eligible to attend in your corporation meeting to vote and be voted upon as officers or trustees.
LEGAL REQUIREMENTS OF THE CHURCH TO THE SEC:
IF the CHURCH IS DULY REGISTERED WITH THE SEC, it has to comply with the following:
1. Submission of the reportorial requirements such as the General Information Sheet every year and financial statement.
2. Update the membership list and report to the SEC every year as indicated in the General Information Sheet regarding new set of officers and members.
3. Conduct the election as mandated by your By-laws.
4. If your church has employees, withhold their taxes, pay their SSS and Pagibig, etc.
God bless you.
