BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 2755
Author: Bocanegra (D)
Amended: 5/13/14 in Assembly
Vote: 21
SENATE JUDICIARY COMMITTEE : 6-0, 6/17/14
AYES: Jackson, Corbett, Lara, Leno, Monning, Vidak
NO VOTE RECORDED: Anderson
ASSEMBLY FLOOR : 62-7, 5/19/14 - See last page for vote
SUBJECT : Nonprofit corporations: directors
SOURCE : Nonprofit Organizations Committee of the Business
Law Section of
the State Bar of California
DIGEST : This bill modifies the current definition of
directors for the purposes of the Nonprofit Corporation Law to
clarify that: (1) if the articles or bylaws designate that a
natural person is a director or a member of the governing body
of the corporation by reason of occupying a specified position
within the corporation or outside the corporation (i.e. "ex
officio directors"), without limiting that person's right to
vote as a member of the governing body, that person shall be a
director for all purposes and shall have the same rights and
obligations, including voting rights, as the other directors;
and (2) that the term "director" does not include a person who
does not have authority to vote as a member of the governing
body of the corporation, regardless of title.
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ANALYSIS : Existing law, the Nonprofit Corporation Law,
provides generally that, except where otherwise expressly
provided, "directors" means natural persons, designated in the
articles or bylaws or elected by the incorporators, and their
successors and natural persons designated, elected or appointed
by any other name or title to act as members of the governing
body of the corporation. A person who does not have authority to
act as a member of the governing body of the corporation,
including through voting rights as a member of the governing
body, is not a director, regardless of title. However, if the
articles or bylaws designate that a natural person is a director
or a member of the governing body of the corporation by reason
of occupying a specified position within or outside the
corporation, that person shall be a director for all purposes
and shall have the same rights and obligations, including voting
rights, as the other directors.
This bill retains the general definition of "directors" but,
instead, provides that if the articles or bylaws designate that
a natural person is a director or a member of the governing body
of the corporation by reason of occupying a specified position
within the corporation or outside the corporation, without
limiting that person's right to vote as a member of the
governing body, that person shall be a director for all purposes
and shall have the same rights and obligations, including voting
rights, as the other directors. A person who does not have
authority to vote as a member of the governing body of the
corporation, is not a director as that term is used in this
division regardless of title.
Background
California Nonprofit Corporation Law defines the term "director"
for the purposes of various laws governing nonprofit public
benefit corporations, mutual benefit corporations, religious
corporations, and unincorporated nonprofit associations. The
current definition is the result of 2009 legislation that sought
to clarify the former definition with respect to use of that
term for persons who are not necessarily given the same rights
and obligations as directors, chief among them, voting rights.
(AB 1233, Silva, Ch. 631, Stats. 2009). Specifically, AB 1233
added language to the definitions of "directors" for both
nonprofit corporations and consumer cooperative associations in
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an effort to clarify that: (1) a person who does not have
authority to act as a member of the governing body of the
corporation or association is not a director for purposes of
these laws, regardless of title; and (2) a natural person
designated by the articles or bylaws of the organization as a
director or member occupying a specified position within or
outside the corporation or association is a director for all
purposes and has the same rights and obligations, including
voting rights, as other directors or members.
This bill, sponsored by the Nonprofit Organizations Committee of
the Business Law Section of the State Bar of California, seeks
to further clarify the definition of a director with respect to
nonprofit corporations to emphasize that the position of
director, as a matter of law, requires that the person have
voting rights in the governing board.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 6/17/14)
Nonprofit Organizations Committee of the Business Law Section of
the State Bar of California (source)
ARGUMENTS IN SUPPORT : According to the author:
AB 2755 clarifies 1) that a person is only a director if
the person has the right to vote as a member of the
governing body and 2) that a person who is a director by
virtue of occupying a special position, in or outside of
the corporation, can only be a director if that person has
the right to vote as a member of the governing body.
There have been issues among non-profits arising from the
current language of Corps Code Section 5047. Despite
changes that were made effective January 1, 2010, many
nonprofit practitioners, members of the Nonprofit
Organizations Committee of the State Bar and constituents
of the Committee, have reported that nonprofit clients, and
those advising nonprofit clients, are still misinterpreting
the law. Specifically, the Nonprofit Organization
Committee members and constituents have reported that many
nonprofit clients and their advisers believe that if
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someone is an ex officio director, one who is designated a
director by reason of occupying a specified position or
office, that person does not have a vote.
This misinterpretation of the law is due, in part, to the
fact that old habits die hard. Many in the nonprofit world
still believe that an organization can have a non-voting
director. That is not the case[,] but remains an issue.
Although existing law provides that a director must be able
to act of the governing body, it does not state, with
enough clarity, that a person must have voting rights in
order to be a director. Instead, it explains that a person
who does not have the right to act as a member of the
governing body is not a director. The language in AB 2755
makes that clarification by specifically referencing the
right to vote as a requirement to the position of a
director. Specifically, AB 2755 provides that "a person
who does not have authority to vote as a member of the
governing body of the corporation, is not a director as
that term is used in this division regardless of title."
ASSEMBLY FLOOR : 62-7, 5/19/14
AYES: Achadjian, Alejo, Ammiano, Bloom, Bocanegra, Bonilla,
Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau,
Chesbro, Cooley, Dababneh, Daly, Dickinson, Eggman, Fong, Fox,
Frazier, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray,
Hagman, Hall, Roger Hernández, Holden, Jones-Sawyer, Levine,
Linder, Lowenthal, Maienschein, Medina, Mullin, Muratsuchi,
Olsen, Pan, Perea, John A. Pérez, V. Manuel Pérez, Quirk,
Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner,
Stone, Ting, Waldron, Weber, Wieckowski, Wilk, Williams,
Yamada, Atkins
NOES: Bigelow, Chávez, Conway, Donnelly, Grove, Harkey, Jones
NO VOTE RECORDED: Allen, Dahle, Beth Gaines, Logue, Mansoor,
Melendez, Nazarian, Nestande, Patterson, Wagner, Vacancy
JA:nl 6/19/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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