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.