BILL ANALYSIS Ó
AB 1211
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Date of Hearing: May 3, 2011
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1211 (Silva) - As Introduced: February 18, 2011
PROPOSED CONSENT
SUBJECT : NOT-FOR-PROFIT CORPORATIONS
KEY ISSUE : SHOULD VARIOUS TECHNICAL AND CLARIFYING CHANGES BE
MADE TO SECTIONS OF THE CORPORATIONS CODE PERTAINING TO
NONPROFIT CORPORATIONS AND UNINCORPORATED ASSOCIATIONS, SO THAT
THOSE ENTITIES MAY HAVE MORE CERTAINTY IN THEIR OPERATIONS?
FISCAL EFFECT : As currently in print this bill is keyed
fiscal.
SYNOPSIS
This non-controversial bill, sponsored by the Business Law
Section of the California State Bar, seeks to clarify and
improve the application of existing Corporations Code sections
for the benefit of nonprofit corporations and unincorporated
associations so that these organizations may have more certainty
in their operations. Among other things, this bill would
clarify existing law as to when the vote of an interested
director is not required for a unanimous written consent and
when a quorum of directors is necessary, or not, in order for a
board to act by written consent. The bill also would exempt
ballot measure committees from the Attorney General's
supervision upon dissolution, consistent with current law
generally exempting them from the Attorney General's
supervision, since they are already subject to supervision of
the California Fair Practices Commission. It would also clarify
that all types of returns required by the Revenue and Taxation
Code need to be filed on dissolution, not just "franchise tax
returns." Finally, the bill provides useful cross-references to
various other California Code sections in order to alert
nonprofit corporations and unincorporated associations that
these related code sections may also apply. The bill previously
passed Assembly Banking & Finance Committee on consent, and has
no known opposition.
SUMMARY : Seeks to make technical, clarifying and
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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)Revises definition of an "interested director" to clarify when
an interested director is not required for a unanimous written
consent to take action without a meeting of the board.
2)Excludes common directors under specified circumstances from
the directors required for consent to take action without a
meeting of the board.
3)Provides that non-incumbency of a director excuses the
presence of a specified director needed to establish a quorum.
4)Clarifies that rules allowing directors to have only one vote
on any action at a meeting and that prohibit a director from
voting by proxy at a meeting apply not only at meetings, but
also to unanimous written consents.
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)Adds cross-references in the Corporations Code to the
Government Code to alert charitable organizations and
unincorporated associations of important statutory obligations
and other laws that may affect them but which lie outside of
the Corporations Code.
7)Makes other technical and clarifying changes.
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EXISTING LAW establishes the Corporations Code to specify
fundamental 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 Unincorporated Associations Law.
COMMENTS : This non-controversial bill, sponsored by the
Business Law Section of the California State Bar, seeks to
clarify and improve the application of existing Corporations
Code sections for the benefit of nonprofit corporations and
unincorporated associations. These code sections concern a wide
range of topics affecting the organization and operation of
these entities, including quorum requirements, director voting,
interested directors, and dissolution of certain types of public
benefit corporations. This bill also would make a number of
cross-references to the Government Code to alert practitioners
to obligations that charitable organizations have which do not
appear in the Corporations Code.
Director Voting: Requirements for Establishing Quorum and
Unanimous Consents. This bill would amend various sections of
the Corporations Code to substitute the term "nonincumbency" for
"death," in order to encompass all the situations where it would
not be appropriate to require the presence of a specified
director for a quorum. In addition, the bill would amend those
sections of the Corporations Code dealing with the unanimous
written consent of the directors without the consent of an
interested director. The sponsor contends this would eliminate
ambiguity in the current law regarding the definition of
"interested director."
According to the sponsor, it is important to remove this
ambiguity because 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. A board
should not approve, and an interested director should not allow
approval of, a transaction by unanimous consent with or without
his or her participation except with appropriate disclosures and
other actions. This is because without them, an "interested
director" of a public benefit corporation may be exposed to
certain liabilities and the transaction may be void or voidable
if the director is a common director. Further, to protect
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validity of the transaction, a corporation needs to evidence
adequately in its records the existence of a material financial
interest and the disclosures and other actions taken, in case
either the validity of the written consent is challenged.
Current law does not clearly articulate the requirement that the
number of directors serving at the time an action is taken by
unanimous written consent must constitute a quorum. This bill
amends sections of the Corporations Code to clarify that the one
vote and proxy rules apply, not only at meetings, but also to
unanimous written consents.
Finally, the terms "members of the board" and "member," as found
in various places of the Code, are amended to "directors" or
"director", both for simplicity and so they are not confused
with members of the corporation.
Service on Board Committees. This bill seeks to clarify that
both directors and non-directors may serve on committees that do
not exercise the authority of the Board. The current law may be
misinterpreted as meaning that only nondirectors could serve on
such committees.
Parallel Structure Revisions. This bill seeks to amend current
law so that the language is consistent among the parallel
Corporations Code sections regarding nonprofit corporations,
namely the public benefit, the mutual benefit and the religious
corporations laws.
Cross References to Health Facility Provisions. Existing law
imposes specific filing requirements on corporations operating
or controlling health facilities, however, there are no
cross-references in the Nonprofit Mutual Benefit Corporation Law
or the Nonprofit Religious Corporation Law that reference these
requirements and thereby call attention to them. This bill
would add appropriate cross-references to ensure that mutual
benefit or religious corporations become aware that they are
covered and required to make these filings.
Ballot Measure Committees; Waivers for Dissolution and Final
Returns. The Attorney General's office generally has
supervisory authority over public benefit corporations in
California, as exercised by the Attorney General's Registry of
Charitable Trusts. Most public benefit corporations are
required to register with and provide substantial documentation
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to the Registry of Charitable Trusts and to submit periodic
reports and filings to the Registry of Charitable Trusts. Some
ballot measure committees, however, are formed as public benefit
corporations and are specifically exempt from the Attorney
General's supervisory authority pursuant to Government Code
Sections 12581 and 12583. They are primarily subject to the
supervisory authority of the California Fair Political Practices
Commission.
Current law requires 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. Ballot
measure committees are currently not exempt 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 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. This bill amends the Corporations Code to bring it
into conformity with Government Code Sections 12581 and 12583.
The bill also amends subdivision (a)(4) of Section 6615 in order
to clarify that returns filed by nonprofit organizations under
the Revenue and Taxation Code are not necessarily "franchise tax
returns." Instead, the bill provides more inclusively that all
"returns" of whatever type have been or will be filed by the
dissolving corporation. The same change is made to the
corresponding Section 8615.
Numerous Cross-References to Provisions in the Government Code
Applicable to Charitable Organizations. This bill provides
cross-references in the Corporations Code to alert practitioners
to important requirements contained in the Government Code
regarding committee structures, reporting obligations and
executive compensation decisions of nonprofit corporations and
unincorporated associations. These amendments aim to alert
practitioners to the existence of these 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 related sections in
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the Government Code, practitioners will be on notice that a
charitable organization may have additional obligations under
the Government Code.
The cross-references are intended to further the goal of the
Nonprofit Integrity Act of 2004 (which includes Govt. Code
Section 12586) to help assure compliance with its provisions so
that the public's confidence in the financial integrity of
charitable organizations is enhanced. The sponsor contends that
these cross-references will help practitioners avoid inadvertent
non-compliance with Section 12586, which may result in late
filing penalties (Govt. Code Section 12586.1), the suspension or
revocation of the registration of a charitable organization
(Govt. Code Section 12598(e)(1)), payment of the Attorney
General's attorneys' fees and costs (Govt. Code Section
12598(b)), and civil or criminal penalties (Govt. Code Section
12591.1).
Cross-References Relating to Merger With Unincorporated
Associations. With regard to unincorporated associations, this
bill would amend the Corporations Code to include the
appropriate cross-references consistent with the current law
allowing corporations to merge with unincorporated associations.
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.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Nonprofits (CAN)
California Society of Association Executives
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334
AB 1211
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