BILL ANALYSIS Ó
AB 1211
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Date of Hearing: April 25, 2011
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 1211 (Silva) - As Introduced: February 18, 2011
SUBJECT : Not-for-profit corporations.
SUMMARY : Seeks to make technical, clarifying and
non-controversial changes to various sections of the
Corporations Code pertaining to the organization and operation
of nonprofit corporations and unincorporated associations.
Specifically, this bill :
1)Provides that nonincumbency of a director excuses requiring
the presence of a specified director to establish a quorum.
2)Revises definition of an "interested director."
3)Excludes common directors under specified circumstances from
the directors required to consent in order to take action
without a meeting.
4)Allows directors who have only one vote on any action at a
meeting and prohibits a director from voting by proxy at a
meeting to apply this standard as well with unanimous consent
in lieu of a meeting.
5)Exempts specified public benefit corporations from obtaining a
waiver from the Attorney General's office in order to file
dissolution documents that are not otherwise subject to the
supervisory authority of the Attorney General.
6)Allows a corporation to furnish to its members a copy of a
report filed with the Attorney General in lieu of an annual
report.
7)Makes other nonsubstantive and conforming changes.
EXISTING LAW establishes the Corporations Code to provide the
fundamental terms and provisions for the governance of nonprofit
corporations and unincorporated associations. Sections 5000 -
10841 of the Corporations Code comprise the Nonprofit
Corporation Law. Sections 12220 - 120704 comprise the Consumer
Cooperative Corporation Law. Sections 18000-24001.5 comprise the
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Unincorporated Associations Law.
FISCAL EFFECT : Unknown
COMMENTS :
The sponsor, the Business Law Section, Nonprofit and
Unincorporated Organizations Committee of the California State
Bar, states this bill is needed to clarify various sections of
the Corporations Code so that nonprofit corporations and
unincorporated associations may have more certainty in their
operations.
The amendments clarify when an interested director is not
required for unanimous written consent and when a specified
director is no longer necessary for a quorum. It also clarifies
the Attorney General's supervisory authority with respect to
Ballot Measure Committees and the types of return that need to
be filed on dissolution. AB 1211 provides cross-references to
unincorporated associations with respect to mergers, to
charitable trust provisions in the Government Code, to removal
of directors by the court, to health facilities provisions in
the Nonprofit Public Benefit Corporation Law, to the Civil Code
in the Consumer Cooperative Corporation Law, and to the Uniform
Prudent Management of Institutional Funds Act in the Probate
Code to alert nonprofit corporations and unincorporated
associations to applicant related code sections.
Specified Director for a Quorum, Directors with a Conflict, and
Director Voting
AB 1211 would amend Corporations Code Sections 5211(a) (7),
7211(a) (7), 9211(a) (7), and 12351(a) (7) to substitute
"nonincumbency" for "death" to encompass all the situations
where it would not be appropriate to require the presence of a
specified director for a quorum.
AB 1211 would amend Corporations Code Sections 5211(b), 7211(b)
and 9211(b), dealing with the unanimous written consent of the
directors without the consent of an interested director. It
would eliminate ambiguity regarding the definition of
"interested director."
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It is important to remove this ambiguity because a consent
presumably will not be valid unless a director who appears to be
excused from signing it and does not do so actually falls within
the correct definition.
Sections 5211(c), 7211(c), 9211(c), and 12351(c) are amended to
clarify that the one vote and proxy rules apply, not only at
meetings, but also to unanimous written consents.
Finally, the phrase "members of the board" and "member" have
been changed to "director" or "directors", both for simplicity
and to not confuse them with members as defined in Section 5056.
Parallel Structure Revisions
AB 1211 makes the following changes so that the language is
consistent in parallel code sections that were amended by AB
1233 (discussed below). In Sections 5213(a) and 7213(a), the
language is changed from "chair of its board" to "chair of the
board" to be consistent with Section 9213(a). Section 7213(a)
and 9213(a) are changed to allow for both a chief financial
officer and treasurer, like Section 5213(a). Section 9213(a) is
amended to add "chairperson of the board" and to replace "such"
with "any". Sections 9213(a) and 12353(a) are amended to place
"unless otherwise specified in the articles or bylaws" at the
front of the third sentence like Sections 5213(a) and 7213(a).
Sections 5213(a) and 9213(a) are also rewritten to clarify that
certain officers cannot serve concurrently. In Sections 9211(a)
(7) and 12351(a) (7), "in order", which is present in the other
two parallel sections, was omitted. In Section 12352, "or
pursuant to" and "however" were omitted. These words have been
added to the respective sections.
Board Committees
AB 1211 amends Sections 5212(b), 7212(b), 9212(b), and 12352(b)
to clarify that both directors and nondirectors may serve on
committees that do not exercise the authority of the Board. The
prior language could have been misinterpreted to mean that only
nondirectors could serve on such committees.
Reference to Applicable Provisions in the Government Code
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AB 1211 provides cross-references in the Corporations Code to
alert practitioners to important requirements contained in
Government Code Section 12586 substantially affecting governance
of nonprofit corporations and unincorporated associations.
Amendments to do this are made as to nonprofit corporations to
Sections 5212, 5213, 5235, 6321, 6324, 7213, 8324, 9212, and
9213, and as to unincorporated associations to Section 18300.
AB 1211 aims to alert practitioners to the existence of these
significant laws affecting the organization, governance and
reporting obligations of charitable organizations that are
within the subject matter scope of existing sections of the
Corporations Code but which were codified in the Government
Code. By including cross-references in pertinent Corporations
Code sections to the related section in the Government Code,
practitioners will receive notice that a charitable organization
may have additional obligations, stated in the Government Code,
regarding committee structures, reporting obligations and
executive compensation decisions.
Providing these cross-references in the Corporations Code to the
Government Code will enhance practitioners' level of
professional service to their clients by assuring they are aware
of significant obligations of charitable organizations which do
not appear in the Corporations Code. The cross-references will
also contribute to the goal of the Nonprofit Integrity Act of
2004, of which Section 12586 is a part, to help assure
compliance with its provisions so that the public's confidence
in the financial integrity of charitable organizations is
enhanced. Finally, the Proposal seeks to avoid inadvertent
non-compliance with Section 12586, which may result in late
filing penalties (Section 12586.1 of the Government Code), the
suspension or revocation of the registration of a charitable
organization (Government Code Section 12598(e)(1)), payment of
the Attorney General's attorneys' fees and costs (Government
Code Section 12598(b)), and civil or criminal penalties
(Government Code Section 12591.1).
Reference to Removal by Court
Section 5222(d) provides that except as provided in Sections
5222, 5221, and 5223 a director may not be removed prior to the
expiration of the director's term of office. Section 5227(c)
provides a further exception, namely that if a corporation has
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too many "interested directors", a court could among other
things order removal of directors. AB 1211 would add a
reference in Section 5222(d) and (e) to Section 5227(c).
References to Health Facility Provisions
Corporations Code Sections 5914 et seq. impose specific filing
requirements on corporations operating or controlling health
facilities. These sections include religious corporations and
mutual benefit corporations as well as public benefit
corporations -- they cover "any nonprofit corporation that is
defined in Corp. Code § 5046" (which defines public benefit,
mutual benefit and religious corporations) that owns or controls
certain health facilities. However, there are no
cross-references in the Nonprofit Mutual Benefit Corporation Law
or the Nonprofit Religious Corporation Law that would
incorporate these sections by reference and thereby call
attention to them. Also, apparently, Sections 5915 through 5919
appear to apply only to public benefit corporations and Section
5920 through 5924 appear to apply to all three types of
corporations (rather duplicative as to public benefit
corporations).
AB 1211 adds the cross-references in new Sections 7914 and 9634.
The cross-references are necessary; otherwise a mutual benefit
or religious corporation might not even know that it is covered,
and possibly fail to make required filings.
Ballot Measure Committees and Final Returns
The Attorney General's office generally has supervisory
authority over public benefit corporations in California. This
authority is exercised by the Attorney General's Registry of
Charitable Trusts in accordance with the Supervision of Trustees
and Fundraisers for Charitable Purposes Act (Government Code
Sections 12580-12599.7). Public benefit corporations are
required to register with and provide substantial documentation
to the Registry of Charitable Trusts and to submit periodic
reports and filings to the Registry of Charitable Trusts.
However, with respect to public benefit corporations that are
registered with the Secretary of State and which file campaign
reports as ballot measure committees, such Attorney General's
supervisory authority does not apply. Public benefit ballot
measure corporations are specifically exempt from the Attorney
General's supervisory authority pursuant to Government Code
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Sections 12581 and 12583. They are primarily subject to the
supervisory authority of the California Fair Political Practices
Commission, as well as to the authority of various enforcement
and filing officials in California. They file various reports
pursuant to and are subject to the California Political Reform
Act and regulations promulgated by the Fair Political Practices
Commission.
Several years ago, the Legislature amended Corporations Code
Section 6615 to require all public benefit corporations to
obtain a waiver from the Attorney General's office in order to
file dissolution documents with the Secretary of State. The
Legislature did not exempt public benefit ballot measure
corporations, consistent with Government Code Sections 12581 and
12583, from this requirement. The result has been that public
benefit ballot measure corporations, at the end of their
existence, must submit substantial documentation to the Attorney
General's office, just as a public benefit corporation must do
at the beginning of their existence, in order to obtain the
waiver letter. The issuance of the letter, which is essentially
a pro forma formality, needlessly involves a waste of time,
resources, attention, and money by the Attorney General's office
and the dissolving public benefit ballot measure corporation
that could be spent on more beneficial activities.
AB 1211 would amend Corporations Code Section 6615 and related
Code Sections 5913, 6010, and 6716 to bring those sections into
conformity with Government Code Sections 12581 and 12583.
Changes to subdivision (a) (4) of Section 6615 clarify that
returns filed by nonprofit organizations under the Revenue and
Taxation Code are not necessarily "franchise tax returns." The
section now provides more inclusively that all "returns" of
whatever type have been or will be filed by the dissolving
corporation. The same change has been made to the corresponding
Section 8615.
Reference to Repealed Code Section
There is an incorrect cross-reference in Section 12311(b) of the
Consumer Cooperative Corporation Law. That section lists a
number of prohibited names, including limited-equity housing
cooperative "as defined in Section 33007.5 of the Health &
Safety Code." That section has been repealed and the term is now
defined in Civil Code Section 817. AB 1211 amends Section
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12311(b) correcting the cross-reference.
Reference to Uniform Management of Institutional Funds Act
(UMIFA))
Probate Code Section 18508 as it read until January 1, 2009,
provided that "nothing in this part alters the status of
governing boards, or the duties and liabilities of directors,
under other laws of this state." This brought into play not
only Corporations Code Sections 5231 and 5240, applicable to
public benefit corporations, but also Corporations Code Sections
9241 and 9250, applicable to religious corporations. UPMIFA
eliminated this section. SB 1329 (Harman) of 2008, which
enacted UPMIFA in California, also amended Corporations Code
Section 5240, but nothing was done about religious corporations.
To remedy this, the Proposal amends Section 9250 to add a
subsection (b), which mirrors Section 5240.
PREVIOUS LEGISLATION:
AB 1233 (Silva) (Chapter 631, Statutes of 2009) made technical,
clarifying and non-controversial changes to various sections of
the Corporations Code pertaining to the organization and
operation of nonprofit and consumer cooperative corporations.
SB 1329 (Harman) (Chapter 715, Statutes of 2008) Repeals the
UMIFA and enacts the Uniform Prudent Management of Institutional
Funds Act (UPMIFA).
REGISTERED SUPPORT / OPPOSITION :
Support
The Nonprofit and Unincorporated Organizations Committee of the
Business Law Section of the State Bar of California (Sponsor)
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
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