Unincorporated Associations

By Richard R. Hammar, J.D., LL.M., CPA

© Copyright 1991, 1998 by Church Law & Tax Report.  All rights reserved.  This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service.  If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m77

In general, any church that is not a corporation is an unincorporated association. The term unincorporated association is defined as any group “whose members share a common purpose, and . . . who function under a common name under circumstances where fairness requires the group be recognized as a legal entity.”¹ One court has observed:

A church or religious society may exist for all the purposes for which it was organized independently of any incorporation of the body . . . and, it is a matter of common knowledge that many do exist and are never incorporated. For the promotion of religion and charity, they may subserve all the purposes of their organization, and generally, need no incorporation except incidentally to further these objects.²

Traditionally, unincorporated associations had no legal existence. This fact had many important consequences. First, an association could not own or transfer property in its own name; second, an association could not enter into contracts or other legal obligations; and third, an association could not sue or be sued.

The inability to sue or be sued had many important ramifications. It meant, for example, that a church association could not sue its members. Thus, if a church member's negligence caused fire damage to a church building, neither the church nor the church's insurance company, as a subrogee of the insured church, could sue the member.³ It also meant that a church association could not be sued by its members. In one case, a church member who was injured because of the negligence of her church was denied recovery against the church on the ground that a member of an unincorporated church is engaged in a joint enterprise and may not recover from the church any damages sustained through the wrongful conduct of another member.⁴ Similarly, a Pennsylvania court ruled that a member of an unincorporated church cannot sue the church for injuries sustained on church property.⁵ A church member was injured when she slipped and fell while leaving Christmas services. She sued her church, alleging that the church board had been negligent in failing to provide adequate lighting, handrails, and stripes on the stairs where the accident occurred. In dismissing the lawsuit, the court observed:

The law in Pennsylvania is clear: the members of an unincorporated association are engaged in a joint enterprise, and the negligence of each member in the prosecution of that enterprise is imputable to each and every other member, so that the member who has suffered damages through the tortious conduct of another member of the association may not recover from the association for such damages.⁶

The court concluded:

[The victim] was a member of the association and thus any negligence of her fellow members is imputed to her and she cannot recover in tort. . . . [The victim] was a member of the church, an unincorporated association, at all times material to this case. As a member of the association . . . the decision not to place a handrail, lights, and stripes on the stairway is attributed to her. She cannot recover in tort because any negligence of the board is attributable to her.¹

A Texas court ruled that a member of an unincorporated church could not sue the church for serious injuries she sustained when she slipped and fell on a wet linoleum floor. The court observed:

[T]he law prohibits a member of an unincorporated association from bring a cause of action for negligence against the association. It has been held that members of an unincorporated association are coprincipals, and generally, such an association cannot be held liable to one of its members for the wrongful act of another member or agent of the association. The rationale for this rule is that the injured member and the association are regarded as coprincipals, and the tortfeasor as their common agent. Consequently, the wrongful conduct of the agent is imputed to the plaintiff for the purposes of his action against the association.²

The Indiana Supreme Court refused to permit a member of an unincorporated church to sue his church for damages sustained because of the negligence of another church member.³ The member had been seriously injured while repairing a church roof when he fell off of a ladder that had been negligently positioned by another member. The injured member sued the church for damages, and the church defended itself by arguing that an unincorporated church cannot be sued by one member for injuries resulting from the negligence of another member. The state supreme court agreed with the church's position, observing that the rule “followed by the majority of jurisdictions is that a member of an unincorporated association injured due to the conduct of another member cannot sue the association.” This rule, noted the court, is based on the principle that

the members of an unincorporated association are engaged in joint enterprise. The negligence of each member in the prosecution of that enterprise is imputable to each and every other member so that the member who has suffered damages through the tortious conduct of another member of the association may not recover from the association for such damage. It would be akin to the person suing himself as each member becomes both a principal and an agent as to all other members for the actions of the group itself.⁴

The court acknowledged that a few states had changed this rule with respect to “large unincorporated associations . . . having a hierarchy of structure that drastically changes the relationship of members to the association and the control that a member has in its affairs.” However, such an exception to the general rule clearly did not apply to a local church. Further, the court acknowledged that the state legislature had enacted a law providing that unincorporated associations could be sued directly. But this law, concluded the court, “did not change the general rule in Indiana, still adhered to by most jurisdictions, that members of an unincorporated association cannot sue the association for tortious acts of one or more of its members.”

Such rulings may leave members of unincorporated churches without a legal remedy for injuries sustained because of the negligence of other members. This certainly is a matter that should be considered seriously by any church wishing to remain unincorporated. Such churches should apprise their members that if they are injured during any church activity because of the actions of another member, they may have no legal right to compensation or damages from the church or other members.

Since an association could not sue or be sued, it generally was held that an association's members were personally responsible for the acts of other members or agents of the association committed in the course of the association's business.⁵ One court stated the general rule as follows:

[T]he members of an unincorporated association are engaged in a joint enterprise, and the negligence of each member in the prosecution of that enterprise is imputable to each and every other member, so that the member who has suffered damages to his person, property, or reputation through the tortious conduct of another member of the association may not recover from the association for such damage although he may recover individually from the member actually guilty of the tort.⁶

These legal disabilities, particularly the potential personal liability of every member for the acts of other members in the course of the association's activities, rendered the unincorporated association form of organization highly undesirable for churches and most other nonprofit organizations. Many states have enacted laws that remove some or all of these traditional disabilities.⁷ Thus, while most states still prohibit an association from owning or transferring title to property in its own name, many states do permit an association to hold or transfer title to property in the name of “trustees” acting on behalf of the association.⁸ Some states permit unincorporated associations to sue and be sued in the association name.⁹ Other states permit some members of an association to bring suit as representatives of the entire membership.¹⁰ Some courts, under limited circumstances, permit an association to bring suit in its own name as representative of its members. One court has held that a church association may bring suit on behalf of its members when “(a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization's purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.”¹¹ Finally, a number of states permit associations to enter into contracts.

Nevertheless, unless state law provides otherwise, unincorporated associations remain incapable of suing or being sued, holding or transferring title to property, and entering into contracts and other legal obligations. In those states where some or all of the traditional legal disabilities persist, an association generally may act only through its membership.¹²

It is also important to observe that most if not all states still hold that members of an unincorporated association are personally responsible for the acts of other members or agents of the association, at least if the acts occur in the course of association activities or if the members knew or should have known of the acts and thus by implication approved them. This potential legal liability of each member is doubtless the principal disadvantage of the association form of organization.

It is interesting to observe that although the Internal Revenue Code restricts tax--exempt status to corporations, community chests, funds, and foundations organized and operated exclusively for religious and other charitable purposes,¹³ the IRS construes the term corporations to include unincorporated associations.¹⁴ The inclusion of unincorporated associations within the definition of the term corporations is a well--established principle of federal tax law. Section 7701(a)(3) of the Internal Revenue Code defines corporation to include associations, and the federal courts for many years have held that associations possessing at least three of the four principal corporate characteristics of centralized control, continuity, limited personal liability, and transferability of beneficial interests are to be treated as corporations.¹⁵ The exemption available to religious and charitable corporations under the Internal Revenue Code accordingly should be available to most unincorporated associations that meet all of the other conditions for exempt status.

In general, an unincorporated association is created by the voluntary association of two or more individuals under a common name for a particular purpose. The creation of an unincorporated association ordinarily does not require compliance with state laws, although several states have enacted laws allowing associations to organize in a more formal way.¹⁶ Such laws typically confer many of the rights and privileges enjoyed by corporations upon associations that choose to formally organize.

It is customary and desirable for the members of an unincorporated association to adopt rules for the internal management of the affairs of the association. Although these rules usually are called bylaws, they occasionally are called articles of association, constitution, or charter. Such terminology is not important.¹⁷ In this article, the rules and regulations of an unincorporated association will be referred to as bylaws. The bylaws of an unincorporated association typically contain provisions dealing with meetings; election, qualification, and tenure of officers and trustees; qualification and acceptance of members; the acquisition and transfer of property; the status of property upon the dissolution of the association; and the rights and duties of members between themselves and with the association.

It is well--settled that the bylaws of an unincorporated association constitute a contract between the association and its members, and that the rights and duties of members, as between themselves and in their relation to the association in all matters affecting its internal government and the management of its affairs, are measured by the terms of such bylaws.¹⁸ By becoming a member an individual agrees to be bound by the association's bylaws, and to have his rights and duties determined by them.¹⁹

The members of an unincorporated association may vote to incorporate their organization and transfer title to all properties to the new corporation. A minority of the unincorporated association's members are without authority to block such a transfer.²⁰

Corporations

Church Records

Reporting Requirements for Churches

Church Names

Church Officers, Directors, and Trustees

Church Members

Church Business Meetings

Removing Disruptive Individuals

Powers of a Local Church

Church Merger and Consolidation

Dissolution of a Church