California Adopts Nonprofit Emergency Governance Law

California Adopts Nonprofit Emergency Governance Law

11.26.2013

As a result of Hurricane Katrina, educational organizations in New Orleans suffered disastrous consequences. This prompted many colleges and universities which had not already done so to adopt policies and procedures that would take effect upon the occurrence of an emergency crippling or destroying all or a significant part of the campus. Because of the ever present threat of a major earthquake, California institutions participated in this effort.

This year, the California Legislature has enacted provisions that would enable nonprofit public benefit corporations and religious corporations to adopt governance rules that would apply in the event of an emergency and thereby relax more stringent rules that would otherwise apply. The law (AB 491) allows such corporations to take certain actions without regard to the bylaws and to adopt special bylaws in advance to manage affairs in the event of an emergency.

The law defines emergencies to include a natural disaster, an enemy attack, an act of terrorism, or a state of emergency declared by the Governor.  Among the actions permitted to such corporations during an emergency include relaxing notice requirements for board meetings, allowing officers to serve as directors to achieve a quorum, changing lines of succession and relocating a corporation’s offices. The benefit of the law is to preclude a challenge to actions taken by directors during an emergency in good faith and consistent with the new law or emergency bylaws. However, the law places some limits on the powers which can be exercised during an emergency. A nonprofit organization cannot take any action contrary to its articles of incorporation, or that would require a vote of members, or that would contravene an action for which a required vote has already been taken.

AB 491, also known as Chapter 255,  is effective January 1, 2014. Educational institutions that have adopted emergency policies and procedures may want to review AB 491 to determine if those policies and procedures should be modified or emergency bylaws adopted.  To read the bill as passed, please click here.