BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 918| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 918 Author: Anderson (R) Amended: 4/13/11 Vote: 21 SENATE BANKING & FINANCIAL INST. COMMITTEE : 7-0, 4/6/11 AYES: Vargas, Blakeslee, Evans, Kehoe, Liu, Padilla, Walters SUBJECT : Mutual water companies: boards of directors SOURCE : Farm Mutual Water Company DIGEST : This bill authorizes mutual water companies to elect directors to serve staggered four-year terms, if authorized in their articles of incorporation or bylaws. Upon the initial election of directors to staggered terms, the elected directors shall determine by lot who among them shall serve initial two-year terms and who among them shall serve four-year terms. Prior to any election in which the terms of elected directors shall be determined by lot, the mutual water company shall notify its shareholders that the terms of the directors elected shall be determined among those directors by lot. ANALYSIS : Existing law: 1. Authorizes the formation of mutual water companies under CONTINUED SB 918 Page 2 the General Corporation Law, as specified, and under the Nonprofit Mutual Benefit Corporation Law, as specified. 2. Like other corporations organized under the General Corporation Law, mutual water companies organized under the General Corporation Law must elect their directors annually, at their annual shareholder meeting, unless the company's articles of incorporation specify a shorter term. The General Corporation Law also provides that each director shall hold office until the expiration of the term for which he or she is elected, and until a successor has been elected and qualified. 3. Like other nonprofits authorized under the Nonprofit Mutual Benefit Corporation Law, mutual water companies organized under the Nonprofit Mutual Benefit Corporation Law are required to elect their directors to terms not exceeding four years, as specified in the corporation's articles of incorporation or bylaws. The articles or bylaws may provide for staggering the terms by dividing the total number of directors into groups of one or more directors. 4. Existing law regarding municipal water districts also authorizes four-year terms for directors. Water Code Section 71000 et seq. authorizes the formation of municipal water districts, and provides that each director of a municipal water district shall hold office for a term of four years. The Water Code establishes a procedure to be followed by municipal water districts upon their formation, in which the elected directors classify themselves by lot; two of them serve until the next general district election, and three serve until the second succeeding general district. Comments This bill, sponsored by the Farm Mutual Water Company, is intended to provide administrative flexibility for private mutual water companies that are organized under the General Corporation Law. Under existing law, any corporation formed under the General Corporation Law must hold annual elections for their boards of directors. CONTINUED SB 918 Page 3 The Farm Mutual Water Company states that compulsory annual elections have created confusion and inconsistency among some mutual water companies. Electing all five members of their boards of directors at each annual shareholder meeting has created high turnover and instability among boards, staff, and shareholders. This bill gives California mutual water companies organized under the General Corporation Law the flexibility to elect the members of their boards of directors to staggered four-year terms every two years, in lieu of the annual elections currently required of these companies. The sponsor states that the proposal for staggered four-year terms is consistent with election practices for public water agencies throughout California. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 4/12/11) Farm Mutual Water Company (source) DLW:do 4/12/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED