Church Merger and Consolidation
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: m84
Although the terms merger and consolidation frequently are used interchangeably, they have separate legal meanings. In a merger, one corporation absorbs the other and remains in existence while the other is dissolved, whereas in a consolidation a new corporation is created and the consolidating corporations are extinguished.
It has been held that the decision whether to merge or consolidate is a religious question that should be of concern to no one other than the congregations involved, that the choice is one to be made by the respective members in the exercise of their religious beliefs, and that their freedom to make this choice is guaranteed by the first amendment against federal or state interference.1
Although the state may not interfere with a church's decision to merge or consolidate, a church must nevertheless follow those procedures in its own internal regulations or in applicable state corporation law for a valid merger or consolidation to occur. It must be stressed that state corporation laws governing mergers and consolidations may be separate and distinct. Thus, a church seeking to merge with another church may not employ a state law governing consolidations, and two churches desiring to consolidate may not use a state law governing mergers. State corporation laws occasionally do contain a single procedure governing both mergers and consolidations, but this must not be assumed. The Model Nonprofit Corporation Act contains separate procedures, and this is the norm.
Unincorporated congregational churches generally are not restricted by state corporation law, and thus they may merge or consolidate whenever the respective congregations of the merging or consolidating churches so desire, provided that applicable provisions in each church's bylaws are followed. However, an unincorporated church and an incorporated church will not be permitted to merge under a state nonprofit law requiring that both of the merging churches be incorporated.2
Incorporated churches, like any other form of corporation, derive their corporate existence and powers from the state. It follows that an incorporated church has the power to merge or consolidate only if such power is expressly delegated by state corporation law. Most religious and nonprofit corporation laws do grant churches the power to merge or consolidate. Such laws typically prescribe the following procedure:
1. The board of directors of each church desiring to merge or consolidate adopts a resolution approving of the proposed plan and submits it to a vote of members having voting rights at a general or special meeting.
2. Written notice of the proposed plan is given to each member eligible to vote.
3. The proposed plan is adopted if at least two--thirds of the votes cast approve of the plan.
4. Upon approval of the plan by the voting members, each corporation executes either articles of merger or articles of consolidation on a form prescribed by the secretary of state. This document sets forth the plan of merger or consolidation, the date of the meeting at which the plan was approved, a statement that a quorum was present and that the plan received at least two--thirds voter approval. The articles of merger or articles of consolidation are filed with the secretary of state.3
Church charters or bylaws may impose further requirements that must be followed.4
If a proposed merger or consolidation would alter the doctrines of a church, it is essential to the validity of such a merger or consolidation that the church congregation possess the authority to change its doctrine and that the required number of members assent to the change.1 Church corporations affiliated with religious hierarchies must of course comply with applicable procedures in the constitution or bylaws of the parent ecclesiastical body.
The legal effect of a merger or consolidation generally is determined by state corporation law and the terms of the merger or consolidation agreement. State corporation law typically stipulates that all the properties of a church corporation that merges with another congregation belong to the surviving corporation. Similarly, the properties of two consolidating churches belong to the new corporation resulting from the consolidation. The surviving corporation in the case of a merger or the new corporation in the case of a consolidation is responsible for all the liabilities and obligations of each of the corporations so merged or consolidated. Thus, neither the rights of creditors nor any liens upon the property of such corporations is affected by a merger or consolidation.
For related information on this topic see the following articles:Reporting Requirements for Churches
Church Officers, Directors, and Trustees