New Laws Assist Non-Profits

  • Jan 10 2014

By Roy Schneider, Esq.

Effective January 1, 2014, non-profit organizations exempt from taxation under Sections 501(c) (4), (5), (6) or (7) of the Internal Revenue Code (IRC) provisions may now apply for state exemption in California using short Form 3500A, rather than the lengthy Form 3500. Those non-profit entities primarily benefitting from the new legislation include civic leagues, social welfare organizations and local associations of employees (exempt under 501(c)(4)), labor, agricultural and horticultural organizations (exempt under 501(c)(5)), business leagues, chambers of commerce, and real estate boards (exempt under 501(c)(6)) and social and recreational clubs (exempt under 501(c)(7)). Assembly Bill 1173 amends California Revenue and Taxation Code Sections 23701 and 23701d. Because organizations qualified as tax exempt under IRC Section 501(c) (3) have enjoyed this efficiency since 2008, it is expected that the new provision will result in increased expediency on the part of the Franchise Tax Board in processing applications for state exemption for these non-profits without delay. Since it is now relatively easy for most non-profit organizations with a federal exemption to obtain their California exemption, non-profit start-up organizations should be careful not to neglect to obtain their state exemption, and avoid the risk of being subject to administrative hurdles and unfavorable tax consequences.

Assembly Bill 491, also effective January 1, 2014, provides authorization for corporate activities during emergencies and the adoption of emergency bylaws. Applicable to both non-profit and for-profit corporations, it validates actions taken in good faith in anticipation of or during an “emergency”, and shields corporate directors, officers and employees from liability arising from said actions. “Emergency” is defined as a natural catastrophe, an attack on the state or nation by an enemy of the United States, a warning from the federal government that an attack is imminent, an act of terrorism or other manmade disaster resulting in extraordinary damage or disruption, or a state of emergency proclaimed by the Governor or the President, and in any case, only so long as a quorum of the board of directors cannot be readily convened. Emergency bylaws may contain provisions to manage and conduct the ordinary business affairs of the corporation effective in an emergency, including, but not limited to, procedures for calling a board meeting, quorum requirements, and designation of additional or substitute directors. The new law provides that unless the bylaws specify otherwise, in anticipation of or during an emergency, lines of succession may be modified to accommodate incapacity resulting from emergency, and principal corporate offices may be relocated or an alternate office designated. Notice to directors may be given in any practicable manner under the circumstances, and one or more officers of the corporations present at a board meeting may be deemed “director(s)” in order of rank and seniority, as necessary to achieve a quorum for that meeting. Finally, no action may be taken during an emergency not in the ordinary course of business, unless the required vote of shareholders and/or members, if any, was taken prior to emergency. 

As part of their disaster preparedness planning, corporate clients may consider adding a provision to their bylaws referencing the new emergency provisions in the Corporations Code as a means of increasing organizational efficiency during emergencies. For more information on the either of these new laws, contact a knowledgeable business attorney at Schneiders & Associates, LLP.

Posted in: Homeowners Associations & Non-Profits

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