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AB 663 – Provides Additional Flexibility To Educational Institutions That Are Nonprofit Corporations On Conducting Business During An Emergency Such As A Pandemic
Assembly Bill 663 (AB 663) was adopted to address constraints in existing corporate governance laws (identified in the wake of COVID-19) that prevented corporations, including nonprofit corporations, from flexibly responding to the pandemic. For example, under existing law, corporations are allowed to modify their governance procedures, but only to the extent needed to engage in “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. Other areas of existing law prevent nonprofit corporations with members from conducting meetings solely through remote technologies like Zoom, if one member objects to not having the option for physical attendance at the meeting.
To address these constraints, AB 663 includes a number of provisions intended to provide corporations with greater flexibility to respond to emergencies, including COVID-19, and to take greater advantage of modern technologies, like Zoom, in conducting meetings.
Of particular importance for educational institutions that are nonprofit corporations (including either as public benefit nonprofit corporations or religious nonprofit corporations) are the following changes made by AB 663:
- The definition of emergency was expanded to include an “epidemic, pandemic, or disease outbreak,” a state of emergency proclaimed by the President of the United States, and an attack within the state on public security. Already included in the definition are natural disasters (e.g., fires), emergency proclamations of the Governor, and manmade disasters (e.g., terrorist attacks), and attacks from outside the state.
- In the event of an emergency, now a nonprofit corporation may (subject to the provision of any emergency bylaw provisions) “take any action that [the nonprofit’s board of trustees] 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,” except, if the nonprofit corporation has statutory members, the board may not unilaterally take any action that would require the vote of the members, unless the required vote of the members was obtained prior to the emergency.
- For nonprofit corporations with statutory members, AB 663 allows the corporation to send the members a notice about a membership meeting or send the members a report using any electronic communication (e.g., email) if “the board determines it is necessary or appropriate because of any emergency,” even if the nonprofit has not obtained written consent from any or all of the members to communicate with the members using electronic communications.
- Finally, for nonprofit corporations with statutory members, AB 663 states that a corporation may conduct a membership meeting solely by electronic transmission, electronic video screen communication, conference telephone, or other means of remote communication (e.g., Zoom) if (a) all the members consent, or (b) the board determines it is necessary or appropriate because of an emergency as defined under the Corporations Code.
(Amends Sections 207, 212, 600, 601, 5140, 5151, 5152, 5510, 5511, 7140, 7151, 7152, 7510, 7511, 7511, 9140, 9151, 9152, 9411, 12320 12331, 12332, 12460, and 12461 of the Corporations Code.)