New California Law Aims At Clarifying Status Of Ex Officio Directors
Yesterday’s post considered the various paths to becoming a director under the California General Corporation Law. The California Nonprofit Corporation Law defines “directors” in a similar fashion but makes it clear that the articles or bylaws may designate that a natural person is a director by reason of occupying a specified position within or outside the corporation. Cal. Corp. Code § 5047. Unfortunately, this provision as been a source of confusion for many non-profit corporations with ex officio directors or directors emeriti.
A few years ago, the legislature tried to clarify just who was and who wasn’t a director under the Nonprofit Corporation Law. AB 1233 (Silva) amended Section 1047 to specify that a person who does not have authority to act as a member of the governing body of the corporation, including through voting rights as a member of the governing body, is not a director as that term is used in the Nonprofit Corporation Law. Apparently, the clarification wasn’t clear because some nonprofit corporations and their lawyers continued to take the position that a designated director does not have a vote.
The legislature has taken another stab at lucidity by enacting AB 2755 (Bocanegra). This bill, signed into law by Governor Brown this week, amends Section 5047 to provide:
Except where otherwise expressly provided, “directors” means natural persons, designated in the articles or bylaws or elected by the incorporators, and their successors and natural persons designated, elected or appointed by any other name or title to act as members of the governing body of the corporation. If the articles or bylaws designate that a natural person is a director or a member of the governing body of the corporation by reason of occupying a specified position within the corporation or outside the corporation, without limiting that person’s right to vote as a member of the governing body, that person shall be a director for all purposes and shall have the same rights and obligations, including voting rights, as the other directors. A person who does not have authority to vote as a member of the governing body of the corporation, is not a director as that term is used in this division regardless of title.
There seems to be two points here. First, the right to vote is the sine qua non of director status. Without the right to vote, a person is not a director under the Nonprofit Corporation Law, whatever her title may be. The second point is that if the articles or bylaws designate a natural person as a director by reason of her position (i.e., an ex officio member), then that person is a director for all purposes under the Nonprofit Corporation Law unless her right to vote is limited by the articles or bylaws. Thus the notion that ex officio members do not vote will in many cases be incorrect.
Both AB 1233 and AB 2755 were sponsored by the Nonprofit Organizations Committee of the Business Law Section of the California State Bar.