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
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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
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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
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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
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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
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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
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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
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"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,
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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.
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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)
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