BILL ANALYSIS Ó
AB 557
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Date of Hearing: April 13, 2015
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
AB 557
(Irwin) - As Introduced February 23, 2015
SUBJECT: Nonprofit corporations: abatement: dissolution:
surrender
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,
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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.
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
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SOS.
8)Provides that if the conditions are satisfied as described in
#7, then the dissolution or surrender shall be cancelled.
9)Provides that if the conditions are not satisfied as described
in #7, the nonprofit corporation shall be dissolved or
surrendered 90 days after the date of the written objection.
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;
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iv) A final franchise tax return;
v) The corporation was created in error;
vi) Distribution of assets;
vii) No issuance of membership; and
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.
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; or
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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
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
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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, Section 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]
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 : Unknown.
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COMMENTS :
The findings and declarations in AB 557 state:
There are more than 150,000 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.
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.
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 do not constitute a gift of public funds within the
meaning of Section 6 of Article XVI of the California
Constitution.
The goal of AB 557 is to streamline the dissolution process for
nonprofit corporations. According to the author's office,
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There is a significant problem with non-profit corporations
filing incorporation papers with the Secretary of State, and
then failing to launch or continue operations and remain up to
date and filing and tax requirements. These inactive
non-profits never go through the formal dissolution process
and become a hindrance to the state. The Secretary of State
(SOS), Franchise Tax Board (FTB), and Attorney General are
responsible for regulating nonprofit corporations and spend a
significant amount of resources and time attempting to
register, tax, and audit nonprofits that no longer exist. The
SOS and FTB estimate that there are close to 60,000 nonprofits
currently in their systems that would be eligible for the
administrative dissolution process established under AB 557.
AB 557 creates a streamlined administrative dissolution
process for nonprofits that have been suspended for at least
48 continuous months after proper notice has been served.
This new process will allow FTB and SOS to dissolved
non-profits that have been sitting inactive on the 'books'.
AB 557 allows the FTB to waive delinquent taxes, penalties and
interest under specified conditions. AB 557 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. AB 557 will
put together a process that will allow inactive nonprofits to
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cease to exist in a more streamlined approach.
As noted below an identical bill to AB 557 was vetoed last year.
There is no indication that the Governor's concerns regarding
AB 1529 (Pérez) have been addressed or that he will sign AB 557.
Previous Legislation
AB 1529 (Pérez) of 2014 was substantially similar to AB 557 and
passed Assembly Banking Committee 11-0. It was vetoed by the
Governor with the following message:
This bill would make it easier to dissolve a nonprofit
corporation.
Implementing this bill, however, will require expensive
reprogramming of an obsolescent computer system that will soon
be replaced. It would be better to make this change when the
new computer system is being designed.
REGISTERED SUPPORT / OPPOSITION:
Support
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California Society of Enrolled Agents (CSEA)
Opposition
None on file.
Analysis Prepared by:Mark Farouk / B. & F. / (916) 319-3081