BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 491|
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CONSENT
Bill No: AB 491
Author: Torres (D)
Amended: 6/6/13 in Senate
Vote: 21
SENATE BANKING & FINANCIAL INST. COMM. : 8-0, 6/5/13
AYES: Correa, Berryhill, Beall, Hill, Hueso, Lara, Roth,
Walters
NO VOTE RECORDED: Calderon
SENATE JUDICIARY COMMITTEE : 6-0, 6/18/13
AYES: Evans, Walters, Corbett, Jackson, Leno, Monning
NO VOTE RECORDED: Anderson
ASSEMBLY FLOOR : 70-0, 5/16/13 (Consent) - See last page for
vote
SUBJECT : Corporations: bylaws: emergency powers
SOURCE : Corporations Committee of the Business Law Section
of the
California State Bar
DIGEST : This bill authorizes a corporation, nonprofit public
benefit corporation, nonprofit mutual benefit corporation, or
nonprofit religious corporation to take actions in anticipation
of or during an emergency, as defined, and to adopt bylaws to
manage and conduct ordinary business affairs of the corporation
effective only in an emergency.
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ANALYSIS : Existing law authorizes and regulates the formation
and operation of a corporation, including, but not limited to,
the adoption and contents of corporate articles and bylaws, and
provides that a corporation shall have all the powers of a
natural person in carrying out its business activities, as
specified.
This bill:
1.Defines an "emergency" as any of the following, when, and only
for as long as, it prevents a quorum of a corporation's board
of directors from being readily convened for action: a
natural catastrophe; an attack on California or the United
States by an enemy of the United States or receipt by
California of a warning from the federal government that an
enemy attack is probable or imminent; an act of terrorism or
other manmade disaster that results in extraordinary levels of
casualties or damage or disruption; or a state of emergency
proclaimed by a governor or the President.
2.Authorizes, in anticipation of or during an emergency, general
corporations, nonprofit public benefit corporations, nonprofit
mutual benefit corporations, and nonprofit religious
corporations to take either or both of the following actions
necessary to conduct the corporations' ordinary business
operations and affairs, unless emergency bylaws provide
otherwise:
A. Modify lines of succession to accommodate the incapacity
of any director, officer, employee, or agent resulting from
the emergency.
B. Relocate the principal office, designate alternative
principal offices or regional offices, or authorize the
officers to do so.
1.Authorizes a corporation, during an emergency, to take either
or both of the following actions necessary to conduct the
corporation's ordinary business operations and affairs, unless
emergency bylaws provide otherwise:
A. Give notice to a director(s) in any practicable manner
under the circumstances, including, but not limited to, by
publication and radio, when notice of a meeting of the
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board cannot be given to that director(s) in the manner
ordinarily required.
B. Deem that one or more officers of the corporation that
are present at a board meeting is a director, in order of
rank and within the same rank in order of seniority, as
necessary to achieve a quorum for that meeting.
1.Provides that any of the actions listed above, when taken in
good faith in anticipation of or, during an emergency, bind
the corporation, and may not be used to impose liability on a
corporate director, officer, employee, or agent.
2.Prohibits a board from taking any action, in anticipation of
or during an emergency, which requires a vote of
shareholders/members or is not in the corporation's ordinary
course of business, unless the required vote of the
shareholders/members was obtained prior to the emergency.
3.Authorizes general corporations, nonprofit public benefit
corporations, nonprofit mutual benefit corporations, and
nonprofit religious corporations to include emergency bylaws
within their regular bylaws, as long as those emergency bylaws
do not conflict with the corporations' articles of
incorporation. These emergency bylaws could contain
provisions intended to allow a corporation to manage and
conduct its ordinary business affairs during an emergency.
Also provides the following, with respect to the emergency
bylaw provisions:
A. If a corporation acts pursuant to emergency bylaws
during an emergency, its board will be prohibited from
taking any action during that emergency, which requires a
vote of shareholders/members or is not in the corporation's
ordinary course of business, unless the required vote of
the shareholders/members was obtained prior to the
emergency.
B. All provisions of the regular bylaws consistent with the
emergency bylaws will remain effective during the
emergency. The emergency bylaws will cease to be effective
once the emergency ends.
C. If a corporation acts pursuant to emergency bylaws
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during an emergency, corporate action taken in good faith
in accordance with the emergency bylaws would binds that
corporation, and could not be used to impose liability on a
corporate director, officer, employee, or agent.
Comments
Existing law imposes limitations on actions that a corporation's
board of directors can take and further limits the power of the
board to take actions without a quorum. According to the author
and sponsor, existing law has no provision for relaxing any of
these limitations during an emergency. If an emergency made it
impossible for the board to convene a forum, for example, but
the pressing nature of the emergency compelled the board to act,
those actions could later be challenged. Although there are no
examples to date of a corporation being unable to act for want
of a quorum during an emergency, the author and sponsor believes
that it is important to prepare for such a possibility.
Based on the American Bar Association's Model Business
Corporation Act which most other states have already adopted,
this bill will grant emergency powers under the relevant
provisions of the California Corporations Code. In addition, it
will authorize corporations to adopt bylaws that further the
goal of operating a corporation during an emergency, so long as
the bylaws are consistent with the provisions of this bill and
other provisions of law.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (per Senate Banking and Financial Institutions
Committee analysis of 6/5/13--unable to reverify at time of
writing)
Corporations Committee of the Business Law Section of the
California State Bar (source)
California Association of Nonprofits
Civil Justice Association of California
Southern California Edison
ARGUMENTS IN SUPPORT : The Corporations Committee of the
Business Law Section of the California State Bar is sponsoring
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this bill to "promote efficiency and effectiveness in practice
by improving and modernizing relevant provisions of the Code."
The sponsor further 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
act in lieu of the officers or to elect temporary officers to
act would be critical." The sponsor points to the fact that 38
of 52 United States jurisdictions have adopted an emergency
powers statute.
The Civil Justice Association of California writes, "AB 491
would give corporations certainty that the actions taken in good
faith [in anticipation of or during an emergency] would be
binding and not subject to legal challenge."
The California Association of Nonprofits states, "Because
nonprofit corporations may play crucial roles in emergency
response, both immediately and over time, following a
catastrophic event, we feel it is of particular importance to
California's nonprofit sector to have the authority to adopt
emergency bylaws and take specific action during an emergency to
ensure the ability to operate effectively and also remain in
compliance with state laws while continuing to operate."
"As an operator of critical infrastructure and provider of a
service essential for the well-being of millions of
Californians," Southern California Edison believes that, "in
times of an emergency, when Southern California Edison is
responsible for restoring power, it is paramount that emergency
powers and/or bylaws be clearly delineated."
ASSEMBLY FLOOR : 70-0, 5/16/13
AYES: Achadjian, Alejo, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown, Ian
Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley,
Dahle, Daly, Dickinson, Donnelly, Fong, Fox, Frazier, Garcia,
Gatto, Gomez, Gordon, Gorell, Gray, Hagman, Hall, Harkey,
Roger Hernández, Jones, Jones-Sawyer, Levine, Linder, Logue,
Lowenthal, Maienschein, Mansoor, Medina, Mitchell, Mullin,
Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea,
V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner,
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Ting, Torres, Wagner, Waldron, Weber, Wieckowski, Wilk,
Williams, Yamada, John A. Pérez
NO VOTE RECORDED: Allen, Buchanan, Eggman, Beth Gaines, Grove,
Holden, Melendez, Morrell, Stone, Vacancy
MW:ej 6/19/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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