BILL ANALYSIS Ó
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
AB 1211 (Silva) Hearing Date: June 15,
2011
As Introduced: February 18, 2011
Fiscal: Yes
Urgency: No
SUMMARY Would enact a variety of technical and clarifying
changes to the laws governing nonprofit corporations and
unincorporated associations.
DESCRIPTION
1. Would more clearly specify the rules governing actions
taken by boards of directors without a meeting (i.e., the
rules for written consent). Under these revised rules, an
action by written consent may be taken without the
participation of interested directors, as defined, and
common directors, as defined, when the facts governing the
abstention or nonparticipation of those directors is
specified in writing prior to the vote, in accordance with
specified provisions of the Corporations Code, and when
those participating in the written consent approve the
action by a vote that is sufficient, without counting the
votes of the nonparticipating interested directors or common
directors.
2. Would clarify that a quorum is necessary to approve an
action by written consent.
3. Would strike references to "members of the board" and
"members" in the portions of the Corporations Code relating
to nonprofits and unincorporated associations and replace
them with references to directors; and would strike
references to "death" and replace them with "nonincumbency."
4. Would add references to the Corporations Code, citing
requirements in other codes with which nonprofits and
unincorporated associations must comply.
5. Would exempt nonprofit public benefit ballot measure
AB 1211 (Silva), Page 2
corporations from the requirement to obtain a waiver from
the Attorney General's office prior to filing dissolution
documents with the Secretary of State.
6. Would clarify that both directors and nondirectors may
serve on committees that do not exercise the authority of
the board of directors of a nonprofit corporation.
7. Would clarify that a dissolving nonprofit corporation must
file all final returns required under the Revenue and
Taxation Code, prior to dissolving.
EXISTING LAW authorizes the formation of a variety of nonprofit
corporations (mutual benefit; public benefit; religious;
medical, hospital, and legal services; and others) and
unincorporated associations, and prescribes the rules under
which these entities must operate (Corporations Code Section
5000 et seq.)
COMMENTS
1. Background and Discussion: This bill is sponsored by the
Nonprofit and Unincorporated Organizations Committee of the
Business Law Section of the California State Bar, to clarify
the laws applicable to nonprofit corporations and
unincorporated associations, and to provide these entities
with more certainty as to when their actions are consistent
with the code. A brief description of each of the bill's
four major provisions immediately follows.
a. First, AB 1211 would clarify when the vote of an
interested director is not required for unanimous written
consent and when a quorum of directors is, and is not,
necessary, for a board to act by written consent.
The bill also substitutes the term "nonincumbency" for
"death," to clarify all of the situations in which it
would be in appropriate to require the presence of a
specified director for a quorum. AB 1211 would also
resolve ambiguity in current law regarding the definition
of an "interested director." The sponsor states that
removing this ambiguity is important, because a consent
may be held invalid if a director who appears to be
excused from signing a written consent fails to fall
within the correct definition of one who may be excused.
AB 1211 (Silva), Page 3
In the same vein, existing law does not clearly articulate
that the number of directors serving at the time an
action is taken by unanimous written consent must
constitute a quorum. This bill clarifies that point, and
also clarifies 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" are amended to "directors" or "director," both
for simplicity, and to ensure that directors are not
confused with members of the corporation.
b. Second, AB 1211 would exempt public benefit ballot
measure corporations from requirements that are both
onerous and unnecessary.
The Attorney General's office generally has supervisory
authority over public benefit corporations in California.
Most public benefit corporations are required to
register with and provide substantial documentation to
the Attorney General's 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. These entities are primarily
subject to the supervisory authority of the California
Fair Political Practices Commission.
Current law requires all public benefit corporations to
obtain waivers from the Attorney General's office in
order to file dissolution documents with the Secretary of
State. Ballot measure committees are not currently
exempt from this requirement. For that reason, public
benefit ballot measure corporations must submit
substantial documentation to the Attorney General's
office at the end of their existence, to obtain the
waiver necessary to file dissolution documents with the
Secretary of State. According to this bill's sponsor,
the issuance of these waiver letters to public benefit
ballot measure corporations involves a needless waste of
time, resources, attention, and money by both the
Attorney General's office and the dissolving public
benefit ballot measure corporation. AB 1211 would exempt
public benefit ballot measure corporations from this
AB 1211 (Silva), Page 4
unnecessary filing requirement.
c. Third, AB 1211 clarifies that all types of returns
required by the Revenue and Taxation Code must be filed
by nonprofit corporations upon dissolution, not just
franchise tax returns. Some sections of existing law
seems to suggest that only the franchise tax return must
be filed upon dissolution, while other sections of law
clearly require the submission of all returns required by
the Revenue and Taxation Code. This bill updates the
misleading sections to more clearly reflect the
requirement that multiple types of returns must be filed
upon dissolution.
d. Finally, AB 1211 adds cross-references to various
other California code sections, to alert nonprofit
corporations and unincorporated associations that these
related code sections may also apply to them.
2. Summary of Arguments in Support: The Nonprofit and
Unincorporated Organizations Committee of the Business Law
Section of the California State Bar is sponsoring SB 1211
for the reasons stated above.
The California Association of Nonprofits and the California
Society of Association Executives also support AB 1211. In
a time of great financial stress for nonprofits, any change
that will enhance clarity and consistency in the law is
welcome and will help make nonprofit operations more
efficient and certain. AB 1211 builds upon the foundation
laid by an earlier bill, AB 1233 from 2009.
3. Summary of Arguments in Opposition: None received.
4. Prior and Related Legislation:
a. AB 1233 (Silva), Chapter 631, Statutes of 2009:
Made various modernizing and clarifying changes to the
laws governing nonprofit public benefit corporations,
mutual benefit corporations, consumer cooperative
corporations, religious corporations, and unincorporated
nonprofit associations. Sponsored by the Nonprofit and
Unincorporated Organizations Committee of the Business
Law Section of the California State Bar.
AB 1211 (Silva), Page 5
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Nonprofit and Unincorporated Organizations Committee of the
Business Law Section of
the California State Bar (sponsor)
California Association of Nonprofits
California Society of Association Executives
Opposition
None received
Consultant: Eileen Newhall (916) 651-4102