Business Law

Governor Newsom Signs AB 663 Providing Added Flexibility for Corporate Governance in Both Emergency and Non-emergency Circumstances

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The Corporations Committee and the Nonprofit Organizations Committee of the Business Law Section of the California Lawyers Association are pleased to announce that, on October 5, 2021, Governor Newsom signed their sponsored corporations and nonprofits governance bill, AB 663 (Assemblymember Chen).

Restrictions imposed on group and travel activity as a result of the COVID-19 pandemic have revealed that certain provisions of the Corporations Code relating to the governance of California corporations have not kept up with technological advances, even in the absence of an emergency.

This bill amends the General Corporation Law and the Corporations Code provisions relating to Nonprofit Public Benefit, Mutual Benefit and Religious Corporations and Cooperative Corporations. It will allow California corporations the opportunity in non-emergency circumstances to achieve efficiencies of resources and time when conducting shareholder or member meetings using current technology by permitting remote participation (including telephonic participation), while preserving the ability of shareholders and members to attend a meeting in person if they want to do so by requiring a meeting to be “hybrid” (i.e., also have a physical location) unless all shareholders or members consent to a “virtual” meeting. The bill also provides delegates the ability to conduct virtual meetings.

When an emergency does arise, the corporation may use available technology for conducting shareholder or member meetings solely in a “virtual” venue (without the requirement for unanimous shareholder or member consent) when that is the only realistic means available to the corporation for doing so. In any such situation, a corporation opting for a “hybrid” or “virtual” meeting will be required to provide remotely participating shareholders, proxyholders, or members a reasonable opportunity to participate in and vote at the meeting; to record votes taken by remote communication; and to verify that persons participating in the meeting are shareholders, proxyholders, or members. The definition of an “emergency” has also been expanded, and the board of directors has been provided greater leeway in governing during an emergency.

This bill updates current law to provide needed flexibility to corporations in both emergency and non-emergency circumstances.

This e-Bulletin was prepared by Saul Bercovitch, California Lawyers Association Director of Governmental Affairs, Darren Nunn, Corporations Committee Co-Chair, and Joel Corwin, Nonprofit Organizations Committee Vice-Chair Legislation.

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