This year, the Lindsay and Matt Moroun Religious Liberty Clinic advised several Catholic dioceses as they work to reorganize their corporate structures to separately incorporate individual parishes. Dioceses in the United States historically placed all their assets, including parishes, into a single entity called a corporation sole to ensure ecclesiastical property transfers automatically to a bishop’s successor rather than to the bishop’s personal heirs. But this structure creates significant risk by placing all diocesan assets into one entity.
To mitigate this risk, the Vatican has long requested that U.S. dioceses replace the corporation sole with separate parish corporations wherever state law allows churches to incorporate. Today, all U.S. jurisdictions permit churches to incorporate—but some dioceses remain corporations sole.
“It almost always makes sense for dioceses to move away from a corporation sole model where all diocesan assets are held in one entity and into a more diffuse operating model where the diocese, its parishes, and its other ministries each hold title to their own assets or where their assets are held in trust,” said adjunct professor of law Brendan Wilson, who oversees the Clinic’s transactional practice. “This more diffuse operating model is consistent with modern corporate practice, reflects the Catholic understanding of subsidiarity, and helps to protect the temporal goods of the Church.”
Separately incorporating parishes offers several critical advantages:
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Alignment of Civil and Canon Law: Under a corporation sole, the bishop civilly owns individual parish assets. But canon law understands parishes as separate juridic persons with their own assets. Separate incorporation under civil law better reflects that canonical understanding by allowing parishes to maintain their assets.
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Good Governance: Individual parish corporations promote good governance. Nonprofit corporations are governed by officers and boards of directors or their members, who must ensure that the nonprofit like a parish complies with relevant federal and state laws—for example, those that require restricted gifts to be used according to donor intent. Although the law distributes governance responsibilities in nonprofit corporations, bishops may retain individual control of parish corporations by serving as the sole member and appointing each parish’s directors and officers.
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Asset Protection: Nonprofit corporations generally cannot be involuntarily included in a bankruptcy estate. Unlike corporations sole, which expose all parish assets to creditors because they legally belong to the diocese, separate parish corporations protect individual parish assets from a bankruptcy proceeding against the diocese.
Dioceses across the country should strongly consider restructuring their organizations to separately incorporate individual parishes.
The Diocese of Kalamazoo is in the early stages of its restructuring. To support this process, the Clinic’s students reviewed diocesan property records and identified and cataloged those documents necessary to transfer properties from the corporation sole to parish corporations.
Fr. Kenneth W. Schmidt, the diocese’s Judicial Vicar and coordinator for the restructuring, said, “I am so pleased with the work of the Religious Liberty Clinic. The work its students have done will have a major impact on the future of our Diocese when the process is completed.”
Fr. Schmidt highlighted the benefit of ensuring the diocese’s civil structure reflects its canonical significance: “The alignment of civil and canonical ownership will simplify tasks in the future while properly recognizing that the properties belong to individual parishes and not the bishop.”
The Clinic also advised the Diocese of Toledo as it approaches the end of its restructuring process. After incorporating its more than 120 parishes, the diocese sought the Clinic’s guidance on how to educate pastors and other parish administrators about operating parishes as nonprofit corporations. Students advised on a variety of issues, including general corporate governance and financial, contractual, and employment law matters.
Thomas Antonini '85, '88 J.D., General Counsel and Director of Risk Management for the Diocese of Toledo, explained, “I am essentially a ‘one-man shop’ and, like many mid-size dioceses, have a very limited budget. The students filled the gap, and did most of the heavy lifting to create an incorporation best practices manual that will be shared with pastors, business managers, and other parish leaders. The work product was excellent, and the team did an excellent job balancing tensions that can exist between civil law and canon law.”
“It was a true joy to work with such enthusiastic young legal professionals,” Antonini added. “They reflect well all that is unique and special about Notre Dame Law School.”
“We are grateful for the opportunity to work with dioceses engaged in restructuring efforts,” said Wilson. “Our students benefit from having the opportunity to work with diocesan leaders on these complex legal matters, and we trust that our diocesan clients benefit from having the support of the Religious Liberty Clinic.”
About the Notre Dame Law School Religious Liberty Clinic
The Lindsay and Matt Moroun Religious Liberty Clinic is a teaching law practice that educates, forms, and prepares Notre Dame law students to become the rising generation of religious liberty leaders by training students in the practice of the law as they defend religious freedom for all people.
Under the guidance of Law School faculty and staff, students work on a broad variety of legal matters to promote religious freedom on behalf of individuals and organizations of all beliefs—both domestically and abroad. The Clinic represents clients from all faith traditions to promote not only the freedom for people to hold religious beliefs but also their fundamental right to express those beliefs and to live according to them. Learn more about the work of the Clinic here.