The term “member” is a term of art defined in California Nonprofit Corporation Law (the “Law”). Generally, a member under the Law (sometimes referred to as a “statutory member” or “voting member”) means any person who, under a provision of a corporation’s articles of incorporation (“articles”) or bylaws, has the right to vote on (1) the election of directors, (2) the dissolution of the corporation, (3) a merger, or (4) a disposition of all or substantially all of the corporate assets; or any person identified as a member in a corporation’s articles or bylaws who has a right, under either governing document, to vote on changes to either document.
A California nonprofit corporation is not required to have members. If a corporation has no members, actions that would otherwise require membership approval requires only board approval, and rights that would otherwise vest in the members are vested in the directors.
Note that these voting members are different than a nonvoting “membership” that may be offered in return for a donation or dues, such as the membership at a typical museum or other arts or cultural organizations. While such nonvoting members may receive certain benefits such as discounts or exhibit previews, nonvoting members do not have voting rights or statutory rights and should not be confused with voting members.
Rights of Voting Members
Generally, voting members have the following rights under California Nonprofit Public Benefit Corporation Law:
- To elect elected directors (designated directors need not be approved by the members);
- To remove directors without cause (subject to the rights of the designator to consent to such removal of a designated director);
- To fill vacancies caused by a removal of a director (unless the bylaws explicitly state otherwise);
- To approve any amendment of the articles (except for certain mostly ministerial provisions);
- To amend the bylaws;
- To approve the amendment of any provisions of the bylaws that materially and adversely affect their rights on voting or transfer;
- To approve any amendment of the bylaws that would change the authorized number of directors or change it from a fixed number to a variable number (with a minimum and maximum) or vice versa;
- To approve any amendment of the bylaws that would extend one or more director’s term of office;
- To approve any amendment of the bylaws that would adopt, amend, or repeal provisions for designating directors;
- To approve any amendment of the bylaws that would increase the quorum for membership meetings;
- To approve any amendment of the bylaws affecting proxy rights of members;
- To approve any amendment of the bylaws terminating membership rights;
- To approve the sale, exchange, transfer or other disposition of all or substantially all of the corporation’s assets (not in the usual and regular course of the corporation’s activities);
- To approve a merger;
- To amend a merger agreement;
- To approve most kinds of volunteer elections to wind up and dissolve;
- To inspect corporate books and records for reasons reasonably related to the requesting member’s interest in the corporation;
- To inspect and copy or receive a copy of the membership list (subject to exceptions);
- To participate in nominating elected directors (doesn’t apply to designated directors);
- To receive an annual report for years in which gross revenues are $25,000 or more;
- To receive copies of certain reports that must be filed with the Attorney General;
- To have fair disciplinary procedures before being suspended or expelled; and
- To sue directors derivatively (on behalf of the corporation) for breach of fiduciary duties.
Corporations may provide voting members with additional rights. However, in considering whether to provide such members with additional rights or authority, the board should determine whether it is unreasonably giving important powers to individuals who have no fiduciary duties to exercise care and loyalty in using such powers. If a quorum for a membership meeting is relatively low, it can also allow a very small group of members to take actions and sometimes take over the corporation (including by removing and replacing the entire board and changing the corporation’s mission).
Decision to Create a Voting Membership Structure
While voting members can make sense for certain organizations, having voting members adds a significant amount of procedural complexity and substantial compliance costs for an organization and also increases potential litigation risks, as voting members generally have standing to sue the organization or sue on behalf of the organization.
Below are some pros and cons to consider when determining if your organization should have a voting membership structure:
- Gives a voice to certain stakeholders, creating a democratic election process.
- May help develop financial support among the public and encourage community involvement.
- May serve as a check and balance in managing the corporation for personal gain by the founders or directors.
- Members have enforceable rights that add significant expense and risk, may distract the directors and officers, and otherwise may frustrate the organization’s goals.
- Factional divisions can be created among the members, making decisions and progress difficult.
- Administratively, organizing periodic meetings, providing certain notices, and obtaining consents can sometimes delay important corporate objectives such as amending the articles or bylaws, or dissolving the corporation.
Overall, it is important to clarify whether a voting membership structure is desired for an organization, because it is possible to inadvertently create a voting membership class by not clearly describing the rights and obligations of certain individuals, regardless of whether they are called “members.”