California Nonprofits: New Changes to the Corporate Laws

California nonprofit corporations should be aware of Assembly Bill 663 (AB 663) that was signed into law on October 5, 2021. AB 663 deals with electronic transmissions (including emails) during emergencies (including pandemics). The changes may seem minor to many nonprofits, but I agree with the recommendation of the Corporations Committee and Nonprofit Organizations Committee, Business Law Section, California Lawyers Association, that these are necessary updates to the Corporations Code to provide greater flexibility during emergencies and to allow corporations to take advantage of technological efficiencies during nonemergency times.

According to the Legislative Counsel’s Digest that describes the Bill:

This bill … authorize[s] the board, in anticipation of or during an emergency, to take any action that it determines to be necessary or appropriate to respond to the emergency, mitigate the effects of the emergency, or comply with lawful federal and state government orders, but would prohibit action that requires the vote of the … members, unless the required … member approval was obtained prior to the emergency, and would make conforming changes regarding corporate bylaws.This bill … revise[s] the … provision [defining emergencies] to specifically refer to an attack on or within this state or on the public security of its residents by an enemy of this state or on the nation by an enemy of the United States. The bill … specif[ies] that “emergency” includes an epidemic, pandemic, or disease outbreak. The bill remove[s] references to the corporation’s “ordinary” business operations and affairs to instead refer to the corporation’s business operations and affairs.This bill … authorize[s] shareholders or members, if specified conditions are met, to also participate, be deemed present, and vote in … member meetings by conference telephone or other remote communications, in accordance with certain procedures.This bill … remove[s] the provision specifying that delegates may only act personally at a meeting or by written ballot and instead authorizes the bylaws to set forth the manner in which delegates may participate in meetings of delegates, as provided. The bill … also state[s] that each delegate has one vote on each matter presented for action.

Comments from the Assembly Floor Analysis

Existing law related to corporate governance authorizes corporations to adopt different procedures during an emergency. For example, corporations may adopt emergency bylaws governing matters such as the timing and notice requirements for board meetings, establishing a quorum, and appointing temporary or substitute members of the board. These provisions, however, are constrained by a requirement that board actions be limited to those that are part of ordinary business operations or affairs, even though the very nature of an emergency may cause a corporation to engage in activities outside its normal course of business.

Additionally, in regards to remote participation in meetings, existing law allows any one shareholder to withhold consent for a fully virtual meeting, even during emergencies, thus causing the corporation to be required to hold a hybrid meeting with an option for physical attendance. 

This bill updates current law to provide additional flexibility to corporations in emergency situations by removing the “ordinary course of business” constraints. This bill also updates the remote participation options for shareholder or member meetings, which allow for fully virtual meetings if certain conditions are met. 

Changes to the Statutes

For California nonprofit public benefit corporations, the following Sections of the Nonprofit Public Benefit Corporation Law, among others, have changed:

Section 5151(g)(1) The bylaws may contain any provision, not in conflict with the articles, to manage and conduct the ordinary  business affairs of the corporation effective only in an emergency as defined in Section 5140, including, but not limited to, procedures for calling a board meeting, quorum requirements for a board meeting, and designation of additional or substitute directors.

Section 5151(g)(2) During an emergency, the board may take any action that it determines to be necessary or appropriate to respond to the emergency, mitigate the effects of the emergency, or comply with lawful federal and state government orders, but shall  not take any action that requires the vote of the members or otherwise is not in the corporation’s ordinary course of business,  members,  unless the required vote of the members was obtained prior to the emergency.

Section 5510(f)(2) … A corporation shall not  conduct a meeting of members solely  by electronic transmission by and to the corporation, shall include a notice that absent consent of the member pursuant to clause (b) of Section 20, the meeting shall be held at a physical location in accordance with subdivision (a). electronic video screen communication, conference telephone, or other means of remote communication unless: (A) all of the members consent; or (B) the board determines it is necessary or appropriate because of an emergency, as defined in paragraph (5) of subdivision (n) of Section 5140.

Section 5511 (b) (1) Notice of a members’ meeting or any report shall be given personally, by electronic transmission by the corporation, or by mail or other means of written communication, addressed to the member at the address of such member appearing on the books of the corporation or given by the member to the corporation for purpose of notice,  or if no such address appears or is given, at the place where the principal office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal office is located. Notwithstanding the foregoing, the notice of a members’ meeting or any report may be sent by electronic communication or other means of remote communication if the board determines it is necessary or appropriate because of an emergency, as defined in paragraph (5) of subdivision (n) of Section 5140.  An affidavit of giving of any notice or report as permitted because of an emergency or otherwise  in accordance with the provisions of this part, executed by the secretary, assistant secretary,  or any transfer agent, shall be prima facie evidence of the giving of the notice or report.

Related Articles

Responses

Your email address will not be published. Required fields are marked *