Board Actions by Email - California Nonprofits

While it may be common practice for nonprofit boards to take action by email voting, this may not be permissible under the California Nonprofit Corporation Law.  Boards may take action only at a duly held meeting or by unanimous written consent. The issue then is whether an email vote meets the requirements of a duly held meeting or unanimous written consent.

A board meeting may take place via conference call or electronic video screen communication, provided that all directors participating can hear one another.  A meeting may also take place via other electronic transmission if (a) each director participating can communicate with all other directors participating concurrently, and (b) each director is provided the means of participating in all matters before the board.  Generally, an email vote would not meet such requirements because of the lack of real-time participation by all participating directors.

A board may also take action by unanimous written consent, that is, "if all members of the board shall individually or collectively consent in writing to that action."  An "interested director" (generally, one with a material financial interest in the transaction being voted upon) is excluded from the "all members of the board" requirement.  Such action has the effect of a unanimous vote of the directors.  

The California Corporation Law does not expressly authorize a unanimous written consent to be executed by email.  However, an email vote may constitute a unanimous written consent if all directors, other than any interested directors, approve the same action "in writing."  "In writing" is defined in the Nonprofit Corporation Law vaguely to include "facsimile, telegraphic, and other electronic communication as authorized by this code, including an electronic transmission by a corporation that satisfied the requirements of section 20."  Section 20 in turn requires that an email by a corporation satisfy the federal E-Sign Act, which defines an "electronic signature" as "an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record."

For a unanimous written consent, an approval in writing requires a valid signature of the director, whether it be manual or electronic.  Where the signature is simply the typed name of the sender, a major issue is whether the board relied with due care on the authenticity of the signature.  While not directly applicable, the California Government Code, which applies only to communications with public entities, offers some guidance.  It states that "the use of a digital signature shall have the same force and effect as the use of a manual signature if and only if it embodies all of the following attributes:

1. It is unique to the person using it.
2. It is capable of verification. 
3. It is under the sole control of the person using it.
4. It is linked to data in such a manner that if the data are changed, the digital signature is invalidated." 

For a trivial action, If the purported sender of an email consent denies sending it, there may be little, if any, harm.  However, the same may not be true for a major transaction or corporate change.  In such case, the requirement of a manual signature seems prudent.  Because it may be too much trouble to determine where an email consent would or would not be appropriate, I generally disfavor unanimous written consents by email without use of manual signatures or unique digital signatures.

See also Can Association Boards of Directors Vote by E-Mail or Fax? by Jeffrey S. Tenenbaum; and

Electronic Signature Legislation by Thomas J. Snedinghoff and Ruth Hill Bro.

Comments

[Gene Takagi]

Jack, Part 3 of the Nonprofit Corporation Law deals with nonprofit mutual benefit corporations. You can find more about member inspection rights at http://www.leginfo.ca.gov/cgi-bin/displaycode?section=corp&group=08001-09000&file=8330-8338.

[Jack Surmani]

Mr. Takagi,

My name is Jack Surmani, and I am the President of the Bayside Grange # 500 in Bayside and a Deputy for Region # 3, California State Grange.

I am interested to find out how the California Corporations code “governs” Mutual Benefit Corporations in California.

Specifically, I wish to know what rights members have in inspecting the membership lists, minutes and regular financial reports of the corporation /association.

We are a state wide association, the California State Grange, a Non profit Mutual Benefit Association # 0210454. We were chartered in 1873, have 9,000 members and 180 subordinate “community” Granges.

I can send the bylaws of the California State Grange upon request.

Thank you for your time,

Sincerely,

Jack Surmani
President, Bayside Grange

[Gene Takagi]

Brent, I'm not sure I understand your question. Meetings of committees are different from meetings of the board and would not depend on board meeting quorum requirements.

Board committees are generally covered by the same meeting requirements as those that apply to the full board. See Cal. Corp. Code Sec. 5211(c).

Non-board committee meeting requirements may be spelled out in the bylaws. If there is a reference in the bylaws that such committee meetings will be held pursuant to the same procedures as board meetings, "email meetings" may be problematic.

[Brent Smith]

What does California Non-Profit Law say about electronic meetings of committees constituting less than a quorum of the full Board? Can they be conducted via email? Thanks!

[Gene Takagi]

Daniel, Corp. Code Sec. 7513 applies to California nonprofit mutual benefit corporations and action by members, not directors.

[Daniel Schaeffer]

What about the sections of the Cal. Code -- e.g., Corporation Code Sec. 7513 -- that permit actions to be taken without a meeting through written ballots, which may be transmitted and received by the corporation electronically? Would this not permit email voting on board matters?

[Kerch McConlogue]

Thanks for the info about electronic voting. The part about having sole control of the email address is particularly interesting. Just puts another check mark on my rant against people sharing email accounts! Not only might I not know who wrote to me, but perhaps worse, I don't know who might be reading what I wrote!