Insights
Publications

AB 491 Gives Nonprofits Flexibility During an Emergency

9/19/2013 Articles

The California Legislature recently passed AB 491, giving corporations, including nonprofits, flexibility to conduct ordinary business during an emergency such as a natural catastrophe, an enemy attack, an act of terrorism, or a state of emergency declared by the Governor. The new Bill provides certainty to nonprofits that actions taken in good faith during an emergency will be binding and will not give rise to liability.  Additionally, the Bill allows California nonprofits to adopt emergency bylaws in advance to manage the ordinary business of the nonprofit during an emergency.  This is a good time and opportunity for California nonprofits of all types (public benefit, mutual benefit, and religious corporations) to take a fresh look at their governance provisions and what might happen in an emergency, whether the default provisions of the new law are desirable or helpful, and whether any other emergency provisions are more appropriate for their circumstances.   

Actions Permitted
Even without the adoption of emergency bylaws, the Bill provides protections for a nonprofit to permit it to continue its ordinary business during an emergency.  Previously, during an emergency, a nonprofit board might be unable to act, or would risk a challenge if it acted during an emergency without the approval of the minimum number of required directors. Under AB 491, the board of directors may:

  • Relax notice requirements for a board meeting,
  • Permit officers to serve as directors to achieve a quorum,
  • Modify lines of succession, and
  • Relocate the nonprofit’s principal business office.

Importantly, AB 491 provides that actions taken by the board in good faith during an emergency are binding and may not be used to impose liability on a director, officer, employee, or agent.

However, the Bill does not allow a nonprofit to take any action that would require a vote of members, or that would thwart actions for which the required vote has already been taken. The nonprofit also cannot take any action not in its ordinary course of business, or exercise emergency powers after the emergency has ended, though, interestingly, the Bill does not specify how to determine when the emergency has ended.

Adoption of Bylaws
AB 491 authorizes a nonprofit to adopt bylaws to manage its ordinary business during an emergency, so long as they do not conflict with its Articles of Incorporation.  These bylaws can specify procedures for calling a board meeting, quorum requirements for a board meeting, and designation of additional or substitute directors.  Corporate action taken in good faith in accordance with the emergency bylaws will bind the nonprofit, and may not be used to impose liability.  Alternatively, a nonprofit may choose to adopt emergency bylaws that require it to conform to the same procedures in effect in the absence of an emergency.  In other words, some organizations may want to override the new default emergency powers.

Unanswered Questions
AB 491 raises interesting questions about how these provisions interact with existing provisions directed specifically at nonprofits.  For example:

  • Does this supersede the requirement that no more than 49% of directors may be interested persons?
  • How does this interact with IRS requirements relating to board composition for certain types of organizations?
  • Do the emergency bylaws supersede existing bylaws regarding qualifications for directors?  Should they?
  • Would actions taken under emergency bylaws be effective if an insider transaction is approved in a manner that does not meet the Treasury Regulations governing compensation of insiders?

Nonprofits should pay careful attention to these issues when drafting emergency bylaws to ensure that actions taken during an emergency will be binding.

Firm Highlights

Publication

I Always Feel Like AI Is Watching Me: Artificial Intelligence and Privacy

ChatGPT got the early press, and every day we learn of new generative artificial intelligence products that can create new and creative visual and text responses to human input. Following on ChatGPT’s fame, Google’s...

Read More
News

Aviva Gilbert Named a Leadership Council on Legal Diversity Fellow

Aviva Gilbert Headshot at Farella Braun + Martel
Read More
Event

23rd Annual Wine Industry Conference

Farella Braun + Martel is a Presenting Partner of the  North Bay Business Journal' s 23rd Annual Wine Industry Conference. The conference will explore new trends and challenges to the wine industry in the North Bay. Farella's Richard...

Read More
News

Profile in Women Leadership - Mary McCutcheon

Mary McCutcheon Headshot
Read More
Event

The Fine Print: A Litigator’s Perspective on Boilerplate Contract and Insurance Provisions

Join Carly Alameda and Amy Briggs in the discussion on "The Fine Print: A Litigator’s Perspective on Boilerplate Contract and Insurance Provisions" to the ACC Bay Area Chapter. Corporate counsel are often tasked with negotiating...

Read More
Publication

Hot Topic: UPMIFA in the Context of Financial System Instability

Welcome to  EO Radio Show – Your Nonprofit Legal Resource . A really hot topic this week is the duty of care for directors and trustees of charities in a time of volatility in...

Read More
Event

The Fine Print: A Litigator’s Perspective on Boilerplate Contract and Insurance Provisions

Join Carly Alameda and Amy Briggs for the ACC Bay Area Chapter program "The Fine Print: A Litigator’s Perspective on Boilerplate Contract and Insurance Provisions."  Corporate counsel are often tasked with negotiating, finalizing, and managing...

Read More
Publication

Nonprofit Basics: Conflict of Interest Policies and Best Practices for Approving Insider Compensation

Welcome to  EO Radio Show – Your Nonprofit Legal Resource . This episode is the second in a series discussing insider transactions. In episode 32, I gave a general overview of the federal laws...

Read More
Publication

Nonprofit Basics: Best Practices for Approving Insider Compensation Decisions

Welcome to  EO Radio Show – Your Nonprofit Legal Resource . This episode is the third in a series discussing insider transactions by exempt organizations. In this episode, I'll look closely at best practices...

Read More
News

WhatsApp and Facebook Take the NSO Group to Court

Kyle McLorg was interviewed for the  Shoot The Messenger: Espionage, Murder, & Pegasus Spyware  investigative podcast episode “WhatsApp and Facebook Take the NSO Group to Court” produced by Exile Media in collaboration with The...

Read More