BILL ANALYSIS                                                                                                                                                                                                    Ó





                             SENATE JUDICIARY COMMITTEE
                         Senator Hannah-Beth Jackson, Chair
                            2015 - 2016  Regular  Session


          SB 351 (Committee on Banking and Financial Institutions)
          Version: April 6, 2015
          Hearing Date:  April 21, 2015
          Fiscal: Yes
          Urgency: No
          RD


                                        SUBJECT
                                           
                                    Corporations

                                      DESCRIPTION  

          Existing laws authorize corporations, nonprofit public benefit  
          corporations, nonprofit mutual benefit corporations, and  
          nonprofit religious corporations to take certain actions during  
          an emergency and develop emergency bylaws, as specified.   This  
          bill would add the same emergency powers and emergency bylaws  
          provisions to the Consumer Cooperative Corporations Law to also  
          allow a consumer cooperative corporation to take certain actions  
          during an emergency and develop emergency bylaws, as specified.   
            

          This bill would add a new provision to the Corporations Code to  
          specify that a corporation shall have a chairperson of the board  
          who may be given the title of chair of the board, chairperson of  
          the board, chairman of the board, or chairwoman of the board,  
          and would make conforming changes to standardize references to  
          chairperson of the board in the Corporations Code.  In specified  
          provisions that set forth permissible titles for "chair of the  
          board," the bill would also permit the use of "chair,"  
          "chairperson," "chairman," and "chairwoman" without reference to  
          "of the board."    

          This bill would expressly authorize registered dental hygienists  
          in alternative practice (RDHAPs) to incorporate under the  
          Corporations Code and would authorize an RDHAP to include dental  
          assistants, licensed dentists, registered dental hygienists, and  
          registered dental hygienists in extended functions as  








          SB 351 (Committee on Banking and Financial Institutions)
          Page 2 of ? 

          shareholders, officers, directors, or professional employees of  
          the corporation.

          (This analysis includes author's amendments to be taken in  
          Committee.) 

                                      BACKGROUND  

          In 1984, the American Bar Association's Committee on Corporate  
          Laws promulgated the revised Model Business Corporations Act  
          (hereinafter MBCA).  That act includes two relevant sections for  
          the purposes of this bill covering emergency powers (Section  
          3.03) and emergency bylaws (Section 2.07).   First, the  
          emergency powers section authorizes the board of directors of a  
          corporation to take certain specified actions in anticipation of  
          or during an emergency, which is determined to exist "if a  
          quorum of the corporation's directors cannot be readily  
          assembled because of some catastrophic event."  Corporate action  
          taken in good faith during an emergency in compliance with the  
          section to further the ordinary business affairs of the  
          corporation binds the corporation and may not be used to impose  
          liability on a corporate director, officer, employee, or agent.   
          Second, the emergency bylaw section of the MBCA is optional, but  
          permits a corporation's board of directors to adopt bylaws  
          (subject to amendment or repeal by the shareholders), including  
          procedures for calling a meeting of the board of directors,  
          quorum requirements for the meeting, and designation of  
          additional or substitute directors.  These bylaws would be  
          effective only in an emergency, which shares the same definition  
          as the emergency powers section.  As with the emergency powers  
          section, the emergency bylaws section makes clear that corporate  
          action taken in good faith in accordance with the emergency  
          bylaws binds the corporation and may not be used to impose  
          liability on a corporate director, officer, employee, or agent.

          In 2013, AB 491 (Torres, Ch. 255, Stats. 2013) was enacted to  
          incorporate the emergency powers and emergency bylaws sections  
          of the MBCA into existing California Corporations Code sections  
          relating to the powers and bylaws of corporations, nonprofit  
          public benefit corporations, nonprofit mutual benefit  
          corporations, and nonprofit religious corporations.  

          This bill, as sponsored by the Corporations Committee and the  
          Nonprofit Associations Committee of the Business Law Section of  
          the State Bar of California, would: (1) expand the emergency  







          SB 351 (Committee on Banking and Financial Institutions)
          Page 3 of ? 

          powers and bylaws sections to consumer cooperative corporations;  
          and (2) enact provisions and make changes throughout the  
          Corporations Code in relation to the use of the terms  
          "chairperson" or "chairperson of the board" and variations  
          thereof.  The bill also would contain a provision, sponsored by  
          the California Dental Hygienists' Association, to expressly  
          authorize the incorporation of an RDHAP (which is already  
          envisioned under the Business and Professions Code) and allow an  
          RDHAP to include certain licensed dental professionals as  
          shareholders, officers, directors, or professional employees of  
          the professional corporation.  

                                CHANGES TO EXISTING LAW
           
           1.Existing law  , with respect to corporations, nonprofit public  
            benefit corporations, nonprofit mutual benefit corporations,  
            and nonprofit religious corporations, provides that unless the  
            corporations' emergency bylaws provide otherwise, a consumer  
            cooperative corporation may, in anticipation of or during an  
            emergency:
                 modify lines of succession to accommodate the incapacity  
               of any director, officer, employee, or agent resulting from  
               the emergency; and/or
                 relocate the principal office, designate alternative  
               principal offices or regional offices, or authorize the  
               officers to do so.  (Corp. Code Secs. 207(i)(1),  
               5140(n)(1), 7140(m)(1), 9140(n)(1).)

             Existing law  provides that, unless the emergency bylaws  
            provide otherwise, the corporation may, during an emergency:
                 give notice to a director or directors in any  
               practicable manner under the circumstances, including, but  
               not limited to, by publication and radio, when notice of a  
               meeting of the board cannot be given to that director or  
               directors in the manner prescribed by the bylaws or  
               pursuant to specified law; and/or
                 deem that one or more officers of the corporation  
               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.  (Corp.  
               Code Secs. 207(i)(2), 5140(n)(2), 7140(m)(2), 9140(n)(2).)
            
             Existing law  authorizes corporations to adopt emergency bylaws  
            allowing any actions not in conflict with the articles to  
            manage the corporation during an emergency, including, but not  







          SB 351 (Committee on Banking and Financial Institutions)
          Page 4 of ? 

            limited to, procedures for calling a board meeting, quorum  
            requirements for a board meeting, and designation of  
            additional or substitute directors. (Corp. Code Secs. 212(c),  
            5151(g), 7151(g), 9151(g).)

             Existing law  specifies that all provisions of the regular  
            bylaws consistent with the emergency bylaws shall remain  
            effective during the emergency, and the emergency bylaws shall  
            not be effective after the emergency ends.  (Corp. Code Secs.  
            212(c)(3), 5151(g)(3), 7151(g)(3), 9151(g)(3).)
            
             Existing law  prohibits a board from taking any action during  
            an emergency that requires the vote of the members or  
            shareholders or is not in the corporation's ordinary course of  
            business, unless the required vote of the members or  
            shareholders was obtained prior to the emergency.  (Corp. Code  
            Secs. 212(c)(2), 5151(g)(2), 7151(g)(2), 9151(g)(2).)

             Existing law  provides that any actions taken in good faith in  
            anticipation of or during an emergency under this subdivision  
            bind the corporation and may not be used to impose liability  
            on a corporate director, officer, employee, or agent.  (Corp.  
            Code Secs. 207(i)(4), 5140(n)(4), 7140(m)(4), 9140(n)(4).)

             Existing law  provides that corporate actions taken in good  
            faith in accordance with the emergency bylaws binds the  
            corporation, and may not be used to impose liability on a  
            corporate director, officer, employee, or agent. (Corp. Code  
            Secs. 212(c)(4), 5151(g)(4), 7151(g)(4), 9151(g)(4).)
            
             Existing law  defines "emergency" as any of the following  
            events or circumstances as a result of which, and only so long  
            as, a quorum of the corporation's board of directors cannot be  
            readily convened for action:
                 a natural catastrophe, including, but not limited to, a  
               hurricane, tornado, storm, high water, wind-driven water,  
               tidal wave, tsunami, earthquake, volcanic eruption,  
               landslide, mudslide, snowstorm, or drought, or, regardless  
               of cause, any fire, flood, or explosion;
                 an attack on this state or nation by an enemy of the  
               United States of America, or upon receipt by this state of  
               a warning from the federal government indicating 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  







          SB 351 (Committee on Banking and Financial Institutions)
          Page 5 of ? 

               disruption severely affecting the infrastructure,  
               environment, economy, government functions, or population,  
               including, but not limited to, mass evacuations; or
                 a state of emergency proclaimed by a governor or by the  
               President.  (Corp. Code Secs. 207(i)(5), 5140(n)(5),  
               7140(m)(5), 9140(n)(5).)

             This bill  would incorporate the provisions above into the  
            Consumer Cooperative Corporations law to similarly authorize  
            consumer cooperative corporations to take certain actions  
            during an emergency and develop emergency bylaws, as  
            specified.   

           1.Existing law  , the Nonprofit Corporation Law, and the Consumer  
            Cooperatives Law, provide that the term "chair" includes  
            "chairperson," "chairman," and "chairwoman" and that all  
            references in those laws to "chairman" shall be deemed to  
            refer to "chair." (Corp. Code Secs. 5039.5, 12228.5.)

             This bill  would instead provide that for the purposes of these  
            laws, all references to "chairman of the board," except as  
            specified, shall be deemed to refer to all permissible titles  
            for a chair of the board, as permitted under the law.  This  
            bill would add to those permissible titles (which currently  
            include chair of the board, chairperson of the board, chairman  
            of the board, or chairwoman of the board) the following:  
            chair, chairperson, chairman, and chairwoman.

             This bill  would add a provision to the Corporations Code to  
            require that all references in the General Corporation Law to  
            "chairperson of the board" be deemed to refer to all  
            permissible titles for the chairperson of the board. This bill  
            would specify that permissible titles for "chairperson of the  
            board" include chair of the board, chairperson of the board,  
            chairman of the board, or chairwoman of the board.  This bill  
            would replace references to "chair of the board" or "chairman  
            of the board," with "chairperson of the board" in various  
            provisions. 
           
          3.    Existing law  , the Moscone-Knox Professional Corporation  
            Act, provides for the organization of a corporation under  
            specified law for the purposes of qualifying as a professional  
            corporation under that act and rendering professional  
            services.  (Corp. Code Sec. 13401 et seq.; see Corp. Code Sec.  
            13404.)  Existing law authorizes specified healing arts  







          SB 351 (Committee on Banking and Financial Institutions)
          Page 6 of ? 

            practitioners to be shareholders, officers, directors, or  
            professional employees of a designated professional  
            corporation, subject to certain limitations relating to  
            ownership of shares.  (Corp. Code Sec. 13401.5.)

             This bill  would authorize registered dental hygienists in  
            alternative practice (RDHAPs) to incorporate and would add  
            dental assistants, licensed dentists, registered dental  
            hygienists, and registered dental hygienists in extended  
            functions to the list of healing arts practitioners who may be  
            shareholders, officers, or directors of a registered dental  
            hygienist in alternative practice corporation.

                                        COMMENT
           
          1.    Stated need for the bill  

          According to the author, "SB 351 includes three separate  
          Corporations Code cleanup proposals, all three of which are  
          intended to be technical and noncontroversial.  The first two  
          proposals are sponsored by the Nonprofit Organizations Committee  
          and the Corporations Committee of the Business Law Section of  
          the California State Bar.  The third proposal is sponsored by  
          the California Dental Hygienists' Association."  

          The California Dental Hygienists' Association, the sponsor of  
          the section of the bill relating to registered dental hygienists  
          in alternative practices (RDHAPs), writes in support of the bill  
          that: 

            RDHAPs take dental hygiene care to the patient. RDHAPs work in  
            skilled nursing facilities, homes of the disabled or elderly  
            homebound, in schools or in Dental Health Professional  
            Shortage Areas (DHPSAs). RDHAPs can have offices or mobile  
            units. RDHAPs are recognized dental providers and have their  
            own National Provider Identification (NPI) number. DentiCal  
            recognizes RDHAPs as billable providers.

            The Legislature passed SB 853 (Perata, Ch. 31, Stats. 2008)  
            that created the Dental Hygiene Committee of California and  
            B&P Code Section 1962 allowing RDHAPs to incorporate. However,  
            when the provisions were added to the [Business and  
            Professions] Code that allow RDHAPs to incorporate,  
            corresponding changes were not made to the Corporations Code.  
            Without correcting this oversight by amending the Corporations  







          SB 351 (Committee on Banking and Financial Institutions)
          Page 7 of ? 

            Code, RDHAPs cannot establish a corporation.

          Co-sponsors Nonprofit Corporations Committee and the  
          Corporations Committee of the Business Law Section of the State  
          Bar of California (which do not take a position on the RDHAP  
          section of the bill) write that the proposed statutory  
          amendments in reference to "chairperson of the board" would  
          "clean up inconsistencies in the General Corporation Law,  
          provide more flexibility to corporations in their choice of  
          titles that are acceptable for filings, and allow for gender  
          neutral terms."  Relatedly, the committees argue that the  
          changes "[w]hile the current Nonprofit Corporation Law and  
          Consumer Cooperative Corporation Law allow for the use of a  
          'chair of the board' title and others, they do not allow for use  
          of the term 'chair,' which many nonprofit organizations use to  
          refer to their chairperson.  [As such, f]ilings with the  
          California Secretary of State are returned to the filer if the  
          term 'chair' is used for a signatory for the filing."  

          2.    Bill suggests cleanup proposal that would extend existing  
            emergency powers to consumer cooperative corporations and  
            would make other technical and nonsubstantive changes relating  
            to specific terminology in the Corporations Code  
           
          As noted above, this bill seeks to make technical and  
          noncontroversial changes to the Corporations Code to bring  
          consistency to terminology used in reference to corporations'  
          chairpersons and to bring added conformity with respect to the  
          powers of corporations during emergencies. 

          First, with respect to the use of terminology relating to  
          "chairperson," or variations thereof (i.e. chair, chairman,  
          chairwoman), the bill would amend the Corporations Code to  
          specify that a corporation must have a "chairperson of the  
          board" who may be given any of the following titles:  chair of  
          the board, chairperson of the board, chairman of the board or  
          chairwoman of the board.  Relatedly, the bill would replace  
          references to "chair of the board" or "chairman of the board"  
          with "chairperson of the board" throughout the Corporations Code  
          and make other conforming changes, thereby bringing consistency  
          throughout the Code in its use of this terminology.   In certain  
          specified provisions, however, the bill also recognizes the term  
          "chair," "chairperson," "chairman" and "chairwoman" without  
          reference to the modifier "of the board."  As described by the  
          author, there is a need to expressly authorize the terms  







          SB 351 (Committee on Banking and Financial Institutions)
          Page 8 of ? 

          "chair," "chairperson," "chairman," or "chairwoman" in statute  
          to avoid issues in corporate filings.  Specifically, the author  
          asserts that "[b]ecause these titles are not expressly  
          authorized in statute, corporate filings submitted to the  
          California Secretary of State's office are returned to the filer  
          if the term "chair" (rather than "chair of the board") or  
          "chairman" (rather than "chairman of the board") is used for a  
          signatory for the filing.  Updating and clarifying the  
          Corporations Code to allow chairs to be referenced in multiple  
          ways will eliminate these sorts of returned filings."  

          Second, the bill would extend to consumer cooperative  
          corporations the emergency powers and emergency bylaws  
          provisions that already apply to corporations, nonprofit public  
          benefit corporations, nonprofit mutual benefit corporations, and  
          nonprofit religious corporations.  These provisions were added  
          by AB 491 (Torres, Ch. 255, Stats. 2013) which arguably should  
          have added those same provisions to the consumer cooperatives  
          law.  As a matter of public policy, to the extent there is a  
          need for a corporation to have specific authority to be able to  
          adopt emergency bylaws and take action in emergencies (such as  
          catastrophic events like earthquakes, hurricanes, etc.), that  
          same need arguably would exist for consumer cooperative  
          corporations as well.  In other words, there does not appear to  
          be anything specific to the nature and operation of consumer  
          cooperative corporations that would suggest a reason to deny  
          them the same authority given to other types of corporations.   
          To this end, the author asserts that the exclusion of consumer  
          cooperatives from the original legislation authorizing emergency  
          powers and bylaws was a "drafting oversight" and accordingly,  
          this bill "would correct that drafting oversight by adding the  
          language contained in AB 491 to the Consumer Cooperative Law."  

          3.    Bill includes a cleanup proposal that would authorize  
            registered dental hygienists in alternative practice to  
            incorporate  

          As noted above, this bill also includes another "clean up  
          proposal" that would expressly authorize certain dental  
          professionals to incorporate.  Specifically, the bill would  
          expressly authorize the incorporation of a registered dental  
          hygienist in alternative practice (RDHAP) and authorize an RDHAP  
          to include certain licensed persons (dental assistants, licensed  
          dentist, registered dental hygienists, and registered dental  
          hygienist in extended function) as shareholders, officer,  







          SB 351 (Committee on Banking and Financial Institutions)
          Page 9 of ? 

          directors, or professional employees of the professional  
          corporation. 

          In 2008, the Legislature enacted SB 853 (Perata, Ch. 31, Stats.  
          2008), which the proponents assert were intended to allow RDHAPs  
          to incorporate.   According to the author, RDHAPs are registered  
          dental hygienists who practice independently throughout  
          California in order to "provide care to patients who lack access  
          to a dental office, either because there is not an office in  
          their area or because they have health conditions that limit  
          their ability to travel to a dental office or cope with dental  
          treatment in a dental office setting. RDHAP patients are  
          typically the homebound elderly, developmentally disabled, and  
          those in skilled nursing facilities.  RDHAPs also establish  
          mobile dental hygiene clinics as a way to reach populations in  
          underserved areas."  Because of the "physical and emotional  
          fragility of many of their patients" the author writes that the  
          liability associated with RDHAP practice is quite high and  
          incorporation would help RDHAPs to "avoid incurring personal  
          liability for their professional actions."   According to the  
          author, while SB 853 was intended to allow RDHAPs to  
          incorporate, the authority for incorporation was only added to  
          the Business and Professions Code (Section 1962), and not the  
          Corporations Code, leaving the Dental Hygiene Committee of  
          California unable to allow RDHAPs to incorporate.  

          As a matter of public policy, it is important to ensure that  
          parties who are injured are able to seek redress for the  
          injuries they suffered from the party who negligently caused  
          them injury.  That being said, it is also an important policy  
          objective to allow these populations to receive services  
          provided by RDHAPs, without which these populations may  
          otherwise not be able to receive dental hygiene services at all.  
           It should be noted that limiting personal liability of the  
          RDHAPs corporation's shareholders, officers, directors, or  
          professional employees, would not limit liability of the  
          corporation itself, to the extent that there are assets  
          available against which to recover for damages suffered.   
          Moreover, staff notes that existing law already allows for  
          dental groups to incorporate, thereby limiting the personal  
          liability exposure of their shareholders, officers, directors  
          and professional employees-which can include RDHAPs.  (See Corp.  
          Code Sec. 13401.5(n)(7).)  Accordingly, to allow RDHAPs to  
          incorporate would appear consistent with the policy decision  
          made to allow dental groups to incorporate. 







          SB 351 (Committee on Banking and Financial Institutions)
          Page 10 of ? 


          4.    Author's technical amendments  

          This analysis reflects the following technical author's  
          amendments to address drafting errors.

             Author's amendments  : 

            On page 6, lines 31-32, strike "chair, chairperson, chairman,  
            chairwoman,"

           Support  :  None Known 

           Opposition  :  None Known

                                        HISTORY
           
           Source  :  California Dental Hygienists' Association (proposals  
          relating to specified licensed dental professionals);  
          Corporations Committee and Nonprofit Organizations Committee of  
          the Business Law Section of the California State Bar (proposals  
          relating to the use of the term chairperson and emergency  
                                           bylaws)

           Related Pending Legislation  :  AB 502 (Chau, 2015) would, among  
          other things, clarify that RDHAPs are authorized to establish  
          corporations but, in contrast to this bill, would only allow for  
          dental assistants and licensed dentists to be included as  
          shareholders, officer, directors, or professional employees of  
          the professional corporation.  That bill is scheduled to be  
          heard in the Assembly Health Committee on April 28, 2015. 

           Prior Legislation  :

          AB 491 (Torres, Ch. 255, Stats. 2013) See Background. 

          SB 853 (Perata, Ch. 31, Stats. 2008) See Comment 3. 

           Prior Vote  :  Senate Banking and Financial Institutions Committee  
          (Ayes 7, Noes 0)

                                   **************










          SB 351 (Committee on Banking and Financial Institutions)
          Page 11 of ?