Friday, October 30, 2009

SB 218 - CA Law Affecting State University and College Related Nonprofits Vetoed

SB 218 was a bill that would have amended the California Education and Government Codes to treat certain nonprofit auxiliary organizations, such as alumni groups, student associations, faculty organizations, and supporting organizations associated with the University of California (UC), the California State University (CSU), and the California Community Colleges (CCC), as state and local agencies under the California Public Records Act (CPRA), Government Code section 6250 et seq. The legislative intent was to reject court interpretation of state law regarding the application of CPRA to auxiliary organizations, in particular CSU Fresno Association, at issue in California State University, Fresno Assn., Inc. v. Superior Court (2001) 90 Cal.App.4th 810, which excluded these organizations from CPRA requirements.The bill was vetoed by the Governor because he felt it would "result in a loss of private donations and volunteer activities supporting California public institutions of higher education."

CA Nonprofit Law Changes - AB 404 - Exemption Application and Determination by FTB

The Governor also recently signed AB 404, which is another a bill affecting nonprofit organizations. Click here for the text of the bill.:

The purpose of AB 404 was to clarify the process for applying for tax exemption as a charitable organization under Revenue and Taxation Code Section 23701d using the streamlined Form 3500A that was introduced by the FTB two years ago. AB 404 amends the Code so that:

  • An organization, including a subordinate organization under a group ruling, can receive the exemption upon submission of a copy of the relevant IRS determination letter or ruling recognizing the organization's exemption from federal income tax as an Internal Revenue Code (IRC) Section 501(c)(3) Organization;
  • The effective date of an organization's exemption from state income tax shall be no later than the effective date of the organization's recognition of exemption from federal income tax;
  • If the FTB suspends or revokes an organization's exemption, the exemption shall only be reinstated upon a more detailed determination by FTB, regardless of whether the organization can establish exemption under the Form 3500A process; and
  • Documents submitted to the Franchise Tax Board to verify the exemption, and the acknowledgment letter or other document issued by the Franchise Tax Board, are required to be made open to public inspection.

Changes to CA Nonprofit Law - AB 1233

Among the bills signed into law by Governor Schwarzenegger this past month was AB 1233. (Click here for the complete text of the bill.)  This bill makes many changes to the California Corporations Code as applied to nonprofit and cooperative corporations, notably:
  • The term "director," as currently defined in the Code includes a natural person, designated in the articles or bylaws or elected by the incorporators, as well as natural persons designated, elected or appointed by any other name or title to act as members of the governing body of the corporation.  AB 1233 clarifies that a person who does not have authority to act as a member of that governing body is not a director, but if the articles or bylaws provide that a natural person is a director or a member of the governing body because he or she occupies a certain position, then that person is a director for all purposes.  
  • The Code currently authorizes the articles of incorporation and bylaws of nonprofit corporations and consumer cooperatives to contain a provision requiring that an amendment or repeal of those articles or bylaws be approved in writing by a specified person or persons other than the board. The Code also authorizes the articles or bylaws to provide for the designation or selection of directors by a specified person or persons rather than by election by a member or members and similarly to authorize a specified person or persons to remove a designated or selected director. AB 1233 specifies that these approval requirements and designation and selection and removal entitlements are inapplicable or cease in those circumstances when the specified designator has died or ceased to exist, the office or status that created the right or entitlement has ceased to exist, or in certain cases, when the corporation has attempted and failed to obtain approval from the specified person or persons
  • Under the Code, a majority of the number of directors, authorized in the articles or bylaws, constitutes a quorum for the transaction of business of a nonprofit corporation or a consumer cooperative. AB 1233 authorizes the articles or bylaws to require the presence of one or more specified directors in order to constitute a quorum of the board to transact business, subject to certain specifications.
  •  The Code currently authorizes a board of a nonprofit corporation or a consumer cooperative to form one or more committees consisting of 2 or more directors to serve at the pleasure of the board and provides that these committees have the authority of the board.  AB 1233 prohibits a committee exercising the authority of the board from including, as members, persons who are not directors; however, it authorizes the board to create other committees with nondirectors that do not exercise the authority of the board.
  •  The Code required a nonprofit corporation or consumer cooperative to have a chairman or a president or both, a secretary, a chief financial officer, and other officers as provided in the bylaws or determined by the board.    AB 1233 requires such a corporation to have a chair, defined as to include a “chairman,” “chairwoman,” “chairperson” or “chair” of the board, or a president or both, a secretary, a treasurer or a chief financial officer or both, and other officers as provided in the bylaws or determined by the board. The bill also specifies that if there is no chief financial officer, the treasurer is the chief financial officer.
  •  The Code authorizes a nonprofit corporation or consumer cooperative to elect to voluntarily wind up and dissolve by approval of a majority of the members, as defined, or by approval of the board and approval of the members, as defined.   AB 1233 authorizes such a corporation meeting certain requirements, including the lack of a quorum, to elect to voluntarily wind up and dissolve.
  • Under the current Code, certain public benefit corporations deemed to be private foundations, as defined, are subject to certain requirements. This bill would make those requirements also applicable to nonprofit religious corporations deemed to be  private foundations.
  • The Corporations Code prohibited a cause of action for monetary damages from arising against any director or officer of a nonprofit corporation or a nonprofit medical association, who serves without compensation, on account of any specified negligent act or omission if the nonprofit corporation or nonprofit medical association has a general liability insurance policy in a specified amount that is in force both at the time of the injury and at the time the claim is made. AB 1233 instead prohibits those causes of action if these corporations or associations maintain a liability insurance policy that is applicable to the claim.
  •   Finally, the Code regulates unincorporated associations and authorizes an unincorporated association to merge into a specified corporation, limited partnership, general partnership, or limited liability company.   AB 1233 authorizes an unincorporated association to merge with one of these entities.

Friday, October 2, 2009

2008 Consumer Product Safety Improvement Act (CPSIA) and Charitable Resale Stores

The 2008 Consumer Product Safety Improvement Act (CPSIA) was signed into law just over a year ago on August 14, 2008. This law was noteworthy in setting new limits for lead content in children’s products, including children’s toys, clothing and books. Selling any recalled products (for adults or children) is now unlawful. Additionally, certain chemicals found in plastics (phthalates) are prohibited in certain toys and child care articles. New products that comply with the new standards must now be certified and labeled accordingly in order to verify products that are CPSIA compliant.

It is important to note that the CPSIA also prohibits the sale of products that exceed the law’s new standards, including products manufactured long before the CPSIA was enacted. Although the Consumer Product Safety Commission (CPSC) has confirmed that the law’s testing requirements do not apply to resellers, a reseller cannot knowingly sell products that do not meet the CPSIA standards. The CPSIA applies to all “resellers,” which include nonprofit social service providers that support their mission by selling donated goods in thrift stores.

A current effort by the CPSC, the “Resale Round-up,” is aimed particularly at enforcing the prohibition on the sale of recalled products. As part of this effort, the Commission recently issued a Handbook for Resale Stores and Product Resellers (pdf) in order to help resale and thrift stores and charities that operate them comply with the CPSIA. There is also copious information on the Consumer Product Safety Commission’s website (, including further details of what can't be sold by resale stores under the new law.

Walter Olsen at Overlawyered has been critical of the many impractical and burdensome aspects of the CPSIA and has extensively blogged on the issue.