BILL ANALYSIS                                                                                                                                                                                                    






                  SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
                             Senator Juan Vargas, Chair


          AB 1211 (Silva)                         Hearing Date:  June 29, 
          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 




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              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 




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                 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.   
          





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          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