Law Defining Nonprofit Directors’ Voting Rights to Take Effect in January
The bylaws of many California nonprofit corporations refer to “ex officio” directors, typically by reference to the chief executive, the executive director, or sometimes a representative of another entity. The term “ex officio” is not, however, defined in the California nonprofit corporation law. New language signed into law by the Governor in September makes it easier to determine the voting rights of those persons who serve “by reason of occupying a specified position within the corporation or outside the corporation.” Unless the Articles of Incorporation or Bylaws specifically limit the person’s right to vote as a member of the governing body, under the new rule the person so designated will be a director for all purposes. The revised provision applies to public benefit, mutual benefit and religious corporations.
The new language is helpful in that it provides a default rule for a term that has been ambiguous. However, some organizations will need to amend their governing documents before the law becomes effective, on January 1, 2015. Organizations that do not want such “ex officio” directors to be voting members of the governing body will need to revise their documents unless the Articles or Bylaws already specifically provide that the person does not have voting rights.
Here is the specific language of new Section 5047:
5047. 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.
If your organization’s governing documents designate a person as an “ex officio” director, or designate a person by reason of a specified position within the entity or some other entity, take a look to be sure that the new law will not change your governance structure. If you need help with determining the effect of the new law or amending your documents, feel free to contact any member of the Farella Braun + Martel Exempt Organizations practice.