BILL ANALYSIS �
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
SB 918 (Anderson) Hearing Date: April 6,
2011
As Introduced: February 18, 2011
Fiscal: No
Urgency: No
SUMMARY Would authorize mutual water companies to elect
directors to serve staggered four-year terms, if authorized in
their articles of incorporation or bylaws.
DESCRIPTION
1. Would provide that, notwithstanding Section 301 of the
Corporations Code, a mutual water company organized under
provisions of the General Corporation Law may elect
directors to serve staggered four-year terms, if authorized
in the corporation's articles of incorporation or bylaws.
2. Would provide that, upon the initial election of directors
to staggered terms, the elected directors shall determine by
lot who among them shall serve initial two-year terms, and
who among them shall serve four-year terms.
EXISTING LAW
3. Authorizes the formation of mutual water companies under
the General Corporation Law, as specified (Corporations Code
Section 100 et seq.), and under the Nonprofit Mutual
Benefit Corporation Law, as specified (Corporations Code
Section 7110 et seq.).
4. Like other corporations organized under the General
Corporation Law, mutual water companies organized under the
General Corporation Law must elect their directors annually,
at their annual shareholder meeting, unless the company's
articles of incorporation specify a shorter term
(Corporations Code Section 301). The General Corporation
Law also provides that each director shall hold office until
the expiration of the term for which he or she is elected,
and until a successor has been elected and qualified
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(Corporations Code Section 301).
5. Like other nonprofits authorized under the Nonprofit Mutual
Benefit Corporation Law, mutual water companies organized
under the Nonprofit Mutual Benefit Corporation Law are
required to elect their directors to terms not exceeding
four years, as specified in the corporation's articles of
incorporation or bylaws. The articles or bylaws may provide
for staggering the terms by dividing the total number of
directors into groups of one or more directors (Corporations
Code Section 7220).
6. Existing law regarding municipal water districts also
authorizes four-year terms for directors. Water Code
Section 71000 et seq. authorizes the formation of municipal
water districts, and provides that each director of a
municipal water district shall hold office for a term of
four years (Water Code Section 71252). The Water Code
establishes a procedure to be followed by municipal water
districts upon their formation, in which the elected
directors classify themselves by lot; two of them serve
until the next general district election, and three serve
until the second succeeding general district election (Water
Code Section 71251).
COMMENTS
1. Background and Discussion: This bill is sponsored by the
Farm Mutual Water Company, and is intended to provide
administrative flexibility for private mutual water
companies that are organized under the General Corporation
Law. Under existing law, any corporation formed under the
General Corporation Law must hold annual elections for their
boards of directors.
The Farm Mutual Water Company, sponsor of this bill, states that
compulsory annual elections have created confusion and
inconsistency among some mutual water companies. Electing
all five members of their boards of directors at each annual
shareholder meeting has created high turnover and
instability among boards, staff, and shareholders.
SB 918 would give California mutual water companies organized
under the General Corporation Law the flexibility to elect
the members of their boards of directors to staggered
four-year terms every two years, in lieu of the annual
SB 918 (Anderson), Page 3
elections currently required of these companies. The
sponsor states that the proposal for staggered four-year
terms is consistent with election practices for public water
agencies throughout California.
2. Summary of Arguments in Support: Farm Mutual Water Company
is sponsoring SB 918 for the reasons stated immediately
above.
3. Summary of Arguments in Opposition: None received.
4. Amendments:
a. This bill would provide that, upon the initial
election of directors of a mutual water company to
staggered terms, the elected directors shall determine by
lot who among them shall serve initial two-year terms,
and who among them shall serve four-year terms.
Staff suggests an amendment requiring voters in a mutual
water company election in which the term length of
elected directors will be determined by lot to be
informed of this fact prior to the election. Absent this
notification, voters could be misled into thinking they
were voting an individual into office for four years,
only to learn after the election that the individual
would only be serving for two years. This prior notice
is unlikely to impact the results of any elections, but
it would serve to better educate voters about the rules
of the election.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Farm Mutual Water Company (sponsor)
Opposition
None received
Consultant: Eileen Newhall (916) 651-4102
SB 918 (Anderson), Page 4