BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1529
                                                                  Page  1


          ASSEMBLY THIRD READING
          AB 1529 (John A. Pérez)
          As Amended  May 1, 2014
          Majority vote 

           BANKING & FINANCE   11-0        APPROPRIATIONS      16-0        
           
           ----------------------------------------------------------------- 
          |Ayes:|Dickinson, Allen,         |Ayes:|Gatto, Bigelow,           |
          |     |Achadjian, Bonta, Chau,   |     |Bocanegra, Bradford, Ian  |
          |     |Gatto, Linder, Perea,     |     |Calderon, Campos, Eggman, |
          |     |Rodriguez, Weber,         |     |Gomez, Holden, Jones,     |
          |     |Williams                  |     |Linder, Pan, Quirk,       |
          |     |                          |     |Ridley-Thomas, Wagner,    |
          |     |                          |     |Weber                     |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY  :  Establishes an administrative dissolution process and  
          an administrative surrender process for nonprofit corporations.   
          Specifically,  this bill  :  

          1)Allows the Secretary of State (SOS) to obtain address  
            information from the Franchise Tax Board (FTB) to use in  
            providing notices to a foreign corporation, a nonprofit public  
            benefit corporation, and a nonprofit mutual benefit  
            corporation. 

          2)Provides that a nonprofit mutual benefit corporation, a  
            nonprofit public benefit corporation, a nonprofit religious  
            corporation or a foreign nonprofit corporation (all further  
            references to nonprofits unless stated otherwise) shall be  
            subject to administrative dissolution or administrative  
            surrender if at least one of the following applies:

             a)   The nonprofit corporation's corporate powers are  
               suspended or forfeited by the FTB and have been suspended  
               or forfeited by the FTB for a period of not less than 48  
               continuous months; or, 

             b)   The nonprofit corporation was incorporated in this state  
               or qualified to transact intrastate business and has not  
               filed a statement of information (SOI) with the SOS for a  
               period of not less than 48 continuous months.  








                                                                  AB 1529
                                                                  Page  2



          3)Prior to the administrative dissolution or administrative  
            surrender of a nonprofit corporation the nonprofit corporation  
            shall be notified by:

             a)   The FTB by mailing a written notice to the last known  
               address of a nonprofit corporation;

             b)   The SOS who shall provide a notice to the last known  
               address of the nonprofit corporation; and,

             c)   If the nonprofit does not have a valid address in the  
               records of the FTB or the SOS, the notice required by the  
               SOS on its Internet Web site of the pending administrative  
               dissolution or administrative surrender shall be  
               sufficient.  

          4)Requires the FTB to transmit to the SOS the names of  
            nonprofits subject to administrative dissolution or  
            administrative surrender.  

          5)Allows a nonprofit to provide the SOS and FTB with a written  
            objection and requires the FTB and SOS to notify each other if  
            a written objection is submitted. 

          6)Provides that if no objection is received by the SOS or the  
            FTB during the 60-day period the nonprofit corporation shall  
            be dissolved or surrendered.  The SOS will provide a  
            certificate as prima facie evidence. 

          7)Provides that if a written objection is received by the FTB or  
            SOS within the 60-day period then the nonprofit corporation  
            shall have another 90 days from the date of the written  
            objection to satisfy all debt and file a current SOI with the  
            SOS. 

          8)Provides that if the conditions are satisfied as described in  
            7) above then the dissolution or surrender shall be cancelled.  


          9)Provides that if the conditions are not satisfied as described  
            in 7) above the nonprofit corporation shall be dissolved or  
            surrendered 90 days after the date of the written objection. 









                                                                  AB 1529
                                                                  Page  3


          10)Allows the FTB or the SOS to extend the 90-day period for an  
            additional 90 days.  

          11)Requires the corporation's liabilities for qualified taxes,  
            interest and penalties to be abated and refunded if the  
            nonprofit corporation has been dissolved or surrendered.  

          12)Specifies that if a nonprofit corporation is dissolved or  
            surrendered that the liability to creditors is not discharged  
            as well as clarifies that the measure does not diminish or  
            adversely affect the ability of the Attorney General to  
            enforce liabilities. 

          13)Allows the following related to nonprofit public benefit  
            corporations, nonprofit mutual benefit corporations, and  
            nonprofit religious corporations:

             a)   A corporation can dissolve when the corporation has not  
               issued any membership if all of the following are verified  
               on a certificate:

               i)     Certificate must be filed within 24 months from the  
                 date that the articles of incorporation (AOI) was filed. 

               ii)    The corporation does not have any debts or  
                 liabilities. 

               iii)   The tax liability shall be satisfied on a taxes-paid  
                 basis.  

               iv)    A final franchise tax return.

               v)     The corporation was created in error. 

               vi)    Distribution of assets.

               vii)   No issuance of membership.

               viii)  That the corporation is dissolved.  

             b)   Requires the certificate of dissolution signed and  
               verified to be filed with the SOS.  Requires the SOS to  
               notify the FTB of the dissolution.  









                                                                  AB 1529
                                                                  Page  4


             c)   Provides that once the certificate is filed the  
               corporation shall be dissolved.  

             d)   Specifies that the dissolution does not relieve  
               liability to creditors.  

          14)Requires the FTB to abate upon written request by a qualified  
            corporation, unpaid taxes, interest, and penalties for the  
            taxable years the nonprofit corporation certifies under  
            penalty of perjury that it was not doing business.  

             a)   Defines "qualified corporation" as a nonprofit mutual  
               benefit corporation, a nonprofit public benefit  
               corporation,  and a nonprofit religious corporation  
               incorporated in California or a nonprofit foreign  
               corporation that satisfies any of the following:

               i)     Was operating and previously obtained tax-exempt  
                 status with the FTB but had the tax-exempt status  
                 revoked. 

               ii)    Was operating and previously obtained tax-exempt  
                 status with the Internal Revenue Service (IRS) but had  
                 tax-exempt status revoked.

               iii)   Never did business in California at any time after  
                 the time of its incorporation.  

             b)   Defines "qualified taxes, interest, and penalties" as a  
               tax imposed and associated interest and penalties but does  
               not include taxes imposed under Revenue and Taxation Code  
               Section 23731 or associated interest or penalties.  

             c)   Requires the qualified corporation to show that it has  
               ceased all business operations at the time of the filing  
               request for abatement.  

             d)   Provides that the abatement of unpaid qualified tax,  
               interest, and penalties is conditioned on the dissolution  
               of the qualified corporation within 12 months from the date  
               of filing the request for abatement.  

             e)   Specifies that if a qualified corporation is not  
               dissolved with 12 months from the date of filing the  








                                                                  AB 1529
                                                                  Page  5


               request for abatement or restarts business operations, then  
               the abatement of qualified tax, interest, and penalties  
               shall be cancelled and treated as if the abatement never  
               occurred.  

             f)   Allows the FTB to prescribe rules and regulations as  
               necessary.  

          15)Makes findings and declarations.

           EXISTING LAW  

          1)Requires foreign corporations to file within 90 days and  
            annually thereafter during the applicable filing period a  
            statement containing specified information.  [Corporations  
            Code, Section 2117]

          2)Requires nonprofit public benefit corporations and nonprofit  
            mutual benefit corporations to file within 90 days and  
            biennially thereafter a statement of information.   
            [Corporations Code Sections 6210 and 8210]

          3)Establishes the process for voluntary windup and dissolution  
            for nonprofit corporations which is initiated by an election  
            to dissolve which may be made by the vote or written consent  
            of a majority of all the members of the corporation or, if  
            there are no members, by the board of directors.  Following  
            the election the corporation must file documents with the SOS  
            such as a certificate of election to wind up and dissolve  
            prior to or together with a certificate of dissolution.  In  
            addition dissolution documents can be filed only if the status  
            of the corporation is active on the records of the SOS.  Upon  
            filing of the certificate of dissolution by the SOS, the  
            corporation will be completely dissolved and its corporate  
            existence will cease in California.  [Corporation Code  
            Sections 6611, 6615, 8611, 8615, 9680, 12631 and 12625]

          4)Requires that nonprofit public benefit corporations and  
            nonprofit religious corporations provide a letter from the  
            Attorney General's office that either waives objections to the  
            distribution of the corporation's assets or confirms that the  
            corporation has no assets accompanied with the certificate of  
            dissolution. [Corporations Code Sections 6615 and 9680]









                                                                  AB 1529
                                                                  Page  6


          5)Requires nonprofit mutual benefit corporations if holding  
            assets in a charitable trust, the distribution of those assets  
            must be approved by the Attorney General or be made by decree  
            of a superior court.  [Corporations Code Section 8716]

           FISCAL EFFECT  :   According to the Assembly Appropriations  
          Committee, one-time General Fund costs of approximately $750,000  
          to the FTB and SOS to update systems and implement new  
          processes; potential long-term savings from no longer having to  
          track and issue notices to defunct nonprofit businesses, and no  
          impact to state income tax revenues.

           COMMENTS  :  The findings and declarations in AB 1529 state:  

          1)There are more than 144,000 nonprofit corporations in  
            California that provide a variety of programs and services in  
            areas as diverse as education, recreation, health care, legal,  
            job training, and housing to millions of Californians.  These  
            organizations, depending on their formation status, are  
            required to register with the office of the SOS, the FTB, and  
            the office of the Attorney General.

          2)Every year, hundreds of nonprofit corporations seek  
            administrative changes to expand their mission or alter their  
            tax status, and, in some cases, to even go out of existence.   
            This dissolution process, which involves the winding down of  
            the nonprofit corporation's affairs, is very cumbersome and  
            protracted.

          3)In order to more effectively analyze and monitor the status,  
            finances, and activities of a nonprofit corporation, it is in  
            the public's interest to establish a streamlined process to  
            efficiently dissolve a nonprofit corporation.  The act of  
            dissolving the nonprofit corporation and abating unpaid taxes,  
            interest, and penalties serves a statewide public purpose by  
            ensuring that nonprofit corporations that have been suspended  
            or forfeited tax exempt status are no longer able to do  
            business in the state, which will relieve the citizens of  
            California from unknowingly donating to a nonprofit  
            corporation that is not complying with the laws of the state,  
            and does not constitute a gift of public funds within the  
            meaning of the California Constitution Article XVI Section 6.

          The goal of this bill is to streamline the dissolution process  








                                                                  AB 1529
                                                                  Page  7


          for nonprofit corporations.  According to the Speaker of the  
          Assembly, "the new process will allow FTB and SOS to dissolve  
          nonprofits that have been sitting inactive on the 'books' for  
          quite some time.  For many of these nonprofits their Board of  
          Directors disbanded years earlier but never took the proper  
          steps to dissolve the entity, thus causing years of fees and  
          fines to build up and inordinate amounts of time spent by FTB  
          and SOS staff to proceed through the dissolutions process.  By  
          streamlining the process to dissolve defunct nonprofits, AB 1529  
          will help FTB and SOS administratively clear away the backlog of  
          inactive nonprofit corporations at both entities."

          This bill allows the FTB to waive delinquent taxes, penalties  
          and interest under specified conditions.  This bill establishes  
          a process for involuntary administrative dissolution for a  
          nonprofit corporation, if the entity has been suspended or  
          forfeited by the FTB or the SOS for not less than 48 months.  In  
          addition, the measure allows SOS to use the corporation address  
          information obtained from the FTB and allows a nonprofit that  
          was incorporated in error to use a short dissolution process  
          that is currently available to for-profit corporations.  

          As pointed out in the measure's findings, a number of nonprofits  
          have disbanded but do not take the proper steps to dissolve thus  
          incur taxes, penalties and interest unnecessarily.  This bill  
          will put together a process that will allow inactive nonprofits  
          to cease to exist in a more streamlined approach.  
           

          Analysis Prepared by  :    Kathleen O'Malley / B. & F. / (916)  
          319-3081 


                                                                FN: 0003629