BILL ANALYSIS �
AB 491
Page 1
Date of Hearing: April 8, 2013
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Roger Dickinson, Chair
AB 491 (Torres) - As Introduced: February 19, 2013
SUBJECT : Corporations: bylaws.
SUMMARY : Allows a corporation to take actions necessary to
conduct the corporation's ordinary business during an emergency.
Specifically, this bill :
1)Actions taken in advance of, or during an emergency can
include:
a) Modifying lines of succession to accommodate the
incapacity of any director, officer, employee, or agent
resulting from the emergency;
b) Relocating the principal office;
c) Giving notice to a director or directors in any
practical manner under the circumstances, including, but
not limited to, by publication and radio;
d) Deeming that one or more officers of the corporation
present at a board meeting is a director, as necessary to
achieve a quorum;
2)Prohibits the board during an emergency from taking any action
that requires the vote of the shareholders or an action that
is outside the corporation's ordinary course of business,
unless the required voted was obtained prior to the emergency.
3)Provides any action taken in good faith during an emergency
binds the corporation and may not be used to impose liability
on a corporate director, office, employee, or agent.
4)Defines "emergency" as any of the following:
a) A natural catastrophe, including, but not limited to, a
hurricane, tornado, storm, high water, wind-driven water,
tidal wave, tsunami, earthquake, volcanic eruption,
landslide, mudslide, snowstorm, or drought, or; regardless
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of cause, any fire, flood, or explosion.
b) An attack on this state or nation by an enemy of the
United States of America, or upon receipt by this state of
a warning from the federal government indicating that an
enemy attack is probable or imminent.
c) An act of terrorism or other man-made disaster that
results in extraordinary levels of casualties or damage or
disruption severely affecting the infrastructure,
environment, economy, government functions, or population,
including, but not limited to, mass evacuations.
d) A state of emergency proclaimed by the Governor.
5)Authorizes a corporation to adopt bylaws to further direct the
operations of the corporation during an emergency.
EXISTING LAW
1)Establishes the Corporations Code to provide the fundamental
terms and provisions for the governance of corporations.
Section 200-213 relates to corporations organization and
bylaws.
2)Defines three conditions or degrees of emergency:
a) "State of war emergency" means the condition which
exists immediately, with or without a proclamation thereof
by the Governor, whenever this state or nation is attacked
by an enemy of the United States, or upon receipt by the
state of a warning from the federal government indicating
that such an enemy attack is probable or imminent.
b) "State of emergency" means the duly proclaimed existence
of conditions of disaster or of extreme peril to the safety
of persons and property within the state caused by such
conditions as air pollution, fire, flood, storm, epidemic,
riot, drought, sudden and severe energy shortage, plant or
animal infestation or disease, the Governor's warning of an
earthquake or volcanic prediction, or an earthquake, or
other conditions, other than conditions resulting from a
labor controversy or conditions causing a "state of war
emergency," which, by reason of their magnitude, are or are
likely to be beyond the control of the services, personnel,
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equipment, and facilities of any single county, city and
county, or city and require the combined forces of a mutual
aid region or regions to combat, or with respect to
regulated energy utilities, a sudden and severe energy
shortage requires extraordinary measures beyond the
authority vested in the California Public Utilities
Commission.
c) "Local emergency" means the duly proclaimed existence of
conditions of disaster or of extreme peril to the safety of
persons and property within the territorial limits of a
county, city and county, or city, caused by such conditions
as air pollution, fire, flood, storm, epidemic, riot,
drought, sudden and severe energy shortage, plant or animal
infestation or disease, the Governor's warning of an
earthquake or volcanic prediction, or an earthquake, or
other conditions, other than conditions resulting from a
labor controversy, which are or are likely to be beyond the
control of the services, personnel, equipment, and
facilities of that political subdivision and require the
combined forces of other political subdivisions to combat,
or with respect to regulated energy utilities, a sudden and
severe energy shortage requires extraordinary measures
beyond the authority vested in the California Public
Utilities Commission. (Government Code, Section 8558)
FISCAL EFFECT : None.
COMMENTS :
According to the sponsor, State Bar of California, Business Law
Section, Corporations Committee, "Although there is no ready
example of a corporation facing managerial setbacks because of
an emergency, the possibility of catastrophic events effectively
disabling boards cannot be ignored. Recent acts of terrorism,
earthquakes, tsunamis and nuclear disasters are timely reminders
of the vulnerability of the ordinary course of business in the
face of large-scale emergencies."
AB 491 would enact two provisions in California's Corporations
Code, one implementing emergency powers and one implementing
emergency bylaws. Currently, California corporations do not
have any emergency provisions in place. In case of an
emergency, this bill would allow corporations to take certain
actions it might not otherwise be able to take, as well as,
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adopt provisions not conflicting with the articles necessary to
manage business.
AB 491 is based off the Model Business Corporation Act (MBCA)
which contains both a provision on emergency bylaws and
emergency powers. The MBCA is a model set of laws prepared by
the Committee on Corporate Laws of the Section of Business Law
of the American Bar Association (ABA). This bill closely
mirrors both provisions of the MBCA sections 2.07, emergency
bylaws, and sections 3.03, emergency powers. AB 491 did stray
from the MBCA in terms of the emergency definition but the
definition in the bill combines elements from California
Emergencies Services Act, Government Code 8558 and federal
National Emergencies Act, 50 U.S.C. 1601.
Thirty-eight of 52 U.S. jurisdictions have adopted emergency
powers provisions for for-profit corporations. Twenty-eight
jurisdictions have adopted both an emergency powers provision
and emergency bylaws provisions.
An example of California law that expanded authority during a
disaster can be seen through domestic insurers. Under Insurance
Code 688, "the Legislature declares that it is desirable for the
general welfare and in particular for the welfare of insurance
beneficiaries, policyholders, injured claimants and others that
the business of domestic insurers be continued notwithstanding
the event of a national emergency."
Since California corporations seem to have functioned
appropriately without these statutes during a number of known
California emergencies including earthquakes, mudslides,
tsunamis, etc., the current need for the bill is unclear. The
better question may be, if enacted, do these provisions carry
any drawbacks or consequences? In addition, considering most
states have enacted provisions to ensure corporations can
conduct necessary business during a catastrophe, why has
California lagged behind in implementing what seems like
important provisions?
The sponsor states, "Without emergency powers and/or bylaws, a
corporation may be unable to continue its business or risk a
challenge to any actions taken with a lesser quorum, during an
emergency. Additionally, an emergency could prevent the
officers from conducting the corporation's ordinary business
operations. Providing the board with the necessary powers to
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act in lieu of the officers or to elect temporary officers to
act would be critical."
RECOMMENDED AMENDMENTS :
The non-profit committee of the California State Bar would like
to see the bill expanded to include non-profits; therefore, the
language in the bill will also be included in Corporation Code
Sections, 5140, 7140 and 9140, and Sections 5151, 7151 and 9151.
This expansion seems reasonable and a number of states also
provide these provisions for non-profits. Should the bill move
forward, including non-profits is a positive move.
REGISTERED SUPPORT / OPPOSITION :
Support
State Bar of California, Business Law Section, Corporations
Committee
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081