BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      AB 557


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          CONCURRENCE IN SENATE AMENDMENTS


          AB  
          557 (Irwin)


          As Amended  August 17, 2015


          Majority vote


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          |ASSEMBLY:  | 78-0 |(June 2, 2015) |SENATE: | 38-0 |(August 20,      |
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          Original Committee Reference:  B. & F.




          SUMMARY:  Establishes an administrative dissolution process and  
          an administrative surrender process for nonprofit and foreign  
          corporations.  Specifically, this bill:  
          1)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 the nonprofit corporation's corporate powers are  
            suspended or forfeited by the Franchise Tax Board (FTB) and  
            have been suspended or forfeited by the FTB for a period of not  
            less than 48 continuous months; or, 
          2)Prior to the administrative dissolution or administrative  
            surrender of a nonprofit or foreign corporation the nonprofit  
            corporation shall be notified by:









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             a)   The FTB by mailing a written notice to the last known  
               address of a nonprofit corporation;
             b)   If the nonprofit does not have a valid address in the  
               records of the FTB or the Secretary of State (SOS), the  
               notice required by the SOS on its Internet Web site of the  
               pending administrative dissolution or administrative  
               surrender shall be sufficient.  


          3)Requires the FTB to transmit to the SOS and the Attorney  
            General's Registry of Charitable Trusts and the names and SOS  
            file numbers of nonprofit and foreign corporations subject to  
            administrative dissolution or administrative surrender.  
          4)Allows a nonprofit or foreign nonprofit to provide FTB with a  
            written objection.


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


          6)Provides that if a written objection is received by the FTB  
            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 statement of information  
            (SOI) with the SOS. 


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


          8)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.  


          9)Specifies that if a nonprofit corporation is dissolved or  
            surrendered that the liability to creditors is not discharged  








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            as well as clarifies that the measure does not diminish or  
            adversely affect the ability of the Attorney General to enforce  
            liabilities. 


          10)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; and


               viii)  That the corporation is dissolved.  
             b)   Provides that once the certificate is filed the  
               corporation shall be dissolved.  
             c)   Specifies that the dissolution does not relieve liability  
               to creditors.  










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          11)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


               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.  









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


          The Senate amendments require the notice of dissolution to be  
          sent to the Attorney General's Registry of Charitable Trusts and  
          made other technical changes.


          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  








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            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:  According to the Assembly Appropriations  
          Committee, this bill will have one-time General Fund costs of  
          approximately $150,000 to SOS to update systems and implement new  
          processes; minor costs to FTB, likely absorbable; potential  
          long-term savings from no longer having to track and issue  
          notices to defunct nonprofit businesses.  No impact to state  
          income tax revenues.


          COMMENTS:  The goal of this bill is to streamline the dissolution  
          process for nonprofit and foreign corporations.  According to the  
          author's office:


            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. 









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            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'.  


          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:                                             
                          Mark Farouk / B. & F. / (916) 319-3081  FN:  
          0001473