California has given great over-sight to the Attorney General’s office to regulate and protect the assets of charities, including churches and religious organizations. Since nonprofit organizations are established to perform a particular purpose, the Attorney General makes sure that the organizations assets are used for that intended purpose.
Religious corporations classified as religious by the Secretary of State are automatically exempted from registration and not required to register or file annual reports with the Attorney General’s Registry of Charitable Trusts. However, the Attorney General does maintain oversight over religious organizations, but its power is limited by the California Corporations Code
As such, the Attorney General does not have the legal authority to file derivative actions, a lawsuit brought by a shareholder on behalf of a corporation, to correct and recover damages for self-dealing transactions, improper distributions, loans, or claims of mismanagement. As such, voting members of a church, or members of the church with a reversionary, contractual, or property interest, may pursue civil litigation to correct such mismanagement.
The Attorney General will however engage in criminal enforcement. Therefore, the Attorney General may challenge the classification of a corporation as religious, and may remove a director for fraudulent acts. In addition, the Attorney General may seek redress against the corporation’s directors, officers, employees, and agents who knowingly make, prepare, issue or publish false financial statements, books, minutes, and other corporate records.
Only eligible private, tax-exempt nonprofit organizations qualified to conduct business in California for at least one year prior to conducting the raffle may conduct raffles to raise funds for the organization and charitable or beneficial purposes in California.
Eligible organizations are permitted to conduct raffles in California. To be an eligible religious organization must; (i) use the funds from the raffle in California for the purpose in which it was established; (ii) have been qualified to conduct business in California for at least one year prior to conducting the raffle; and (iii) have been granted tax-exempt status by the California Franchise Tax Board
Although nonprofit religious are exempt from the registration and reporting requirements of California Penal Code Section 320.5, they must still comply with all other provisions of Penal Code. Most importantly, at least 90 percent of the gross receipts from these raffles go directly to beneficial or charitable purposes in California.
A religious corporation may merge with any domestic corporation, foreign corporation, (outside of California’s jurisdiction) or other business entity. However, without the prior written consent of the Attorney General, a religious corporation may only merge with another religious corporation or with a public benefit corporation or a foreign nonprofit corporation or an unincorporated association, the governing documents of which provide that its assets are irrevocably dedicated to charitable, religious, or public purposes.
A California nonprofit corporation providing notice of a proposed merger or seeking approval from the Attorney General of a merger should include: (i) letter signed by an attorney or director for the corporation setting forth a description of the proposed action; (ii) copy of the merger agreement, board minutes, and resolutions authorizing the proposed action; (iii) copy of the corporation’s current financial statement; and (iv) copy of the articles of incorporation.
Sale of Substantially All Assets:
A religious corporation must give written notice to the Attorney General 20 days before it sells, leases, conveys, exchanges, transfers or otherwise disposes of all or substantially all of its assets unless the Attorney General has given the corporation a written waiver of this section as to the proposed transaction. That notice must include a: (i) letter signed by an attorney or a director of the corporation describing the proposed action; (ii) copy of the resolution of the board of directors authorizing the proposed action; (iii) copy of the corporation’s current financial statement; and (iv) copy of the corporation’s articles of incorporation. In addition, the Attorney General may require an independent appraisal or other evidence that the sale price and terms are fair to the corporation.
Although we do not advocate the closing of a church, one may elect to dissolve its corporation and no longer conduct business. In doing so, the organizational and operational documents must be followed. In the case of a religious corporation, the bylaws will often require a majority vote of the active members.
In such instances, the religious corporation may not dispose of its assets upon dissolution without submitting the transaction to the Attorney General or seeking approval of the court. The Attorney General requires that a certificate of dissolution be filed with the Secretary of State which includes a letter from the Attorney General either waiving objections to the proposed disposition of the corporation’s assets or confirming that the corporation has no assets.
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Disclaimer: Every situation is different and particular facts may vary thereby changing or altering a possible course of action or conclusion. The information contained herein is intended to be general in nature as laws vary between federal, state, counties, and municipalities and therefore may not apply to any given matter. This information is not intended to be legal advice or relied upon as a legal opinion, course of action, accounting, tax or other professional service. You should consult the proper legal or professional advisor knowledgeable in the area that pertains to your particular situation.