California has given broad oversight 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 an organization’s assets are used for that intended purpose.
Religious Organizations and the Attorney General
Religious corporations classified as religious by the Secretary of State are automatically exempt from registration and are not required to register or file annual reports with the Attorney General’s Registry of Charitable Trusts. However, the Attorney General still maintains oversight over religious organizations, though its power is limited by the California Corporations Code. As such, the Attorney General does not have the legal authority to file derivative actions on behalf of a religious corporation, but does have authority to bring an action against directors, officers, employees, and agents who knowingly make, prepare, issue, or publish false financial statements, books, minutes, or other corporate records.
Raffles and Attorney General Oversight
Only eligible private, tax-exempt nonprofit organizations qualified to conduct business in California for at least one year prior to conducting a raffle may hold raffles to raise funds for the organization and for charitable or beneficial purposes in California. To be eligible, a religious organization must: use the raffle funds in California for the purpose for which it was established, have been qualified to conduct business in California for at least one year prior to conducting the raffle, and have been granted tax-exempt status by the California Franchise Tax Board.
Although religious nonprofit organizations are exempt from the registration and reporting requirements of California Penal Code Section 320.5, they must still comply with all other provisions of that Penal Code section. Most importantly, at least 90 percent of the gross receipts from these raffles must go directly to beneficial or charitable purposes in California.
Mergers and Attorney General Approval
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, a public benefit corporation, a foreign nonprofit corporation, or an unincorporated association whose governing documents provide that its assets are irrevocably dedicated to charitable, religious, or public purposes. This notice requirement to the Attorney General runs at least 20 days before the merger, under Corporations Code Section 6010.
A California nonprofit corporation providing notice of a proposed merger, or seeking the Attorney General’s approval of one, should include a letter signed by an attorney or director describing the proposed action, a copy of the merger agreement with board minutes and resolutions authorizing it, a copy of the corporation’s current financial statement, and a copy of its articles of incorporation.
Sale of Assets and Attorney General Notice
A religious corporation must give written notice to the Attorney General at least 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 a written waiver as to the proposed transaction. This requirement is set out in Corporations Code Section 5913. That notice must include a letter signed by an attorney or director describing the action, a copy of the board resolution authorizing it, a copy of the corporation’s current financial statement, and a copy of its articles of incorporation. The Attorney General may also require an independent appraisal or other evidence that the sale price and terms are fair to the corporation.
Assembly Bill 900, effective July 1, 2022, closed a gap in this reporting requirement, and the Attorney General published implementing regulation Section 328.1 in June 2023 to clarify how it applies. A church or religious nonprofit planning any sale, lease, or transfer of substantially all its assets should confirm compliance under this updated regulation before moving forward, since the reporting obligation now reaches transactions that older guidance may not have clearly addressed.
Voluntary Dissolution and the Attorney General
Although we do not advocate the closing of a church, a religious corporation may elect to dissolve and no longer conduct business. In doing so, its organizational and operational documents must be followed; the bylaws will often require a majority vote of the active members. Voluntary dissolution notice to the Attorney General is governed by Corporations Code Sections 6615 and 6716.
In such instances, the religious corporation may not dispose of its assets upon dissolution without submitting the transaction to the Attorney General or seeking court approval. The Attorney General requires that a certificate of dissolution be filed with the Secretary of State, along with 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 change the appropriate course of action or conclusion. Laws vary between federal, state, county, and municipal jurisdictions. This information is general in nature and is not intended as legal advice, a legal opinion, or professional services. You should consult a qualified professional regarding your particular situation.
