Assembly Bill 491, effective January 1, 2014, amends several provisions of the California Corporations Code to allow both nonprofit and for-profit California corporations to take certain actions in anticipation of or during an emergency in order to conduct the corporation’s ordinary business operations and affairs. We strongly encourage all our clients that have corporations, whether non-profit or for profit, to adopt the following types of emergency provisions in their bylaws.
Under AB 491, emergency provisions may include (i) the ability to modify lines of succession to accommodate the incapacity of a director, officer, employee or agent resulting from the emergency; (ii) relocation of the principal office; (iii) designation of alternative principal offices or regional offices or authorization of officers to do so; (iv) giving board meeting notices in any practicable manner under the circumstances, including by publication or radio; (v) deeming that one or more officers of the corporation present at a board meeting is a director to achieve a quorum for that meeting; and (vi) adopting bylaws to manage and conduct ordinary business affairs of the corporation effective only in an emergency.
While AB 491 gives the corporation wide latitude in adopting such emergency powers, the board is specifically prohibited from taking any action that requires the vote of the members or shareholders or otherwise is not in the corporation’s ordinary course of business, unless the required vote of the members or shareholders was obtained prior to the emergency.
The Corporations Code is amended to define an “emergency” for purposes of these provisions as specific events which include anything from natural catastrophes to acts of terrorism or other manmade disaster or a state of emergency proclaimed by a governor or the President. For more information on what will constitute an “emergency” under the Corporations Code, as amended, please see the full text of Assembly Bill 491 here.
Any actions taken in good faith in anticipation of or during an emergency will bind the corporation and may not be used to impose liability on a corporate director, officer, employee, or agent. This effectively applies the business judgment rule to the actions of the directors and officers during any emergency.
Nonprofit and for-profit corporations are encouraged to adopt the following types of emergency provisions in their bylaws:
1. A definition of “emergency” that follows the definition in the Corporations Code and a statement that the emergency powers are only accessible during the pendency of the emergency. Once the emergency ends, these emergency powers cease to be effective.
2. How a quorum may be achieved, including that a quorum may be achieved by either (a) allowing the board to elect officers present to the board, or (b) reducing the quorum to a lower number of board members.
3. How to give notice of a meeting during an emergency, which can include publication or on the radio.
4. The types of emergency actions that may be taken, such as modifying lines of succession to accommodate an incapacity brought about by the emergency, or relocating the principal office, or authorizing officers to do so.
5. The limitations on actions that may be taken under “emergency” conditions, such as actions that require member or shareholder approval or that are not “in the ordinary course of business.”
6. Last but not least, a statement that any corporate action taken in good faith in accordance with the emergency bylaws provisions is binding on the corporation, and may not be used to impose liability on a corporate director, officer, employee, or agent.
For more information about AB 491, or other related topics, and/or for assistance with amending your bylaws to adopt such emergency provisions, please contact Fred Whitaker at email@example.com or Erick Willens at firstname.lastname@example.org or call (949) 852-1800.