Agoura Hills, CA asked in Business Law for California

Q: A 501(c)(3) NPO with membership setup in April 2019. Till today there was no election of the board. Is the board legal?

Members requested the board to be elected and worked on writing up a bylaw on Mar 1, 2022. Board did no reply to election request. Then on Apr 5 out of blue published a bylaw, dated March 12, that will allow them stay in power forever. Is the board legal since they should have held election on 2020, 2021, then 2022. If bylaw is generated, should the effective date after we elect new board as 2022 started with the default California state law for term of 1 year? The content of bylaw also allow them the sole control of the organization. Is this the base for the bylaw to be invalid? 28-29 members

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1 Lawyer Answer
Matthew Morris
Matthew Morris
Answered

A: This is a complex question, and there are a lot of variables that might affect the answer that a nonprofit lawyer would give you after looking at this deeply. Let me talk through some of the issues that seem to be at play here, but there might be other issues that are not obvious from the limits of this forum.

As a nonprofit lawyer, if you came through my door my first question would be to ask what your relationship is to the organization. Incorporator? One of the executives of the organization? One of the members? A board member? The rights you have in this situation might depend on how you fit into this equation.

Another immediate question would be to look at the details of the articles of incorporation. A general rule of thumb is that bylaws have to comply with the articles, and the articles (and therefore the bylaws) have to comply with the nonprofit corporation law. You say that there was no election of the board. So, who are these people who are claiming to be the board? Sometimes the articles of incorporation will name the slate of initial directors, in which case there might not have been a need for an initial election. But the articles might have also set the terms in office of those initial directors. Articles can also allow for "designated" directors, who are not elected at all. And the articles can allow for directors "ex officio" -- directors who are automatically on the board because they occupy some other role in the organization. And the articles can also specify things about the terms of any directors, but the law says that an elected director cannot serve a term longer than four years (in organizations like yours that have members). So any answer to this question needs to start with looking at exactly what the articles say.

Then we go to the bylaws. As noted above, the bylaws have to comply with the articles. So I would want to look at the purported "bylaws" and compare them to the articles. You say that the bylaws seem to permit the current board to stay in power "forever." What does that mean? If you are saying that the bylaws permit the current slate of directors to be appointed for life, those terms are likely not allowed. (Elected directors have to stand for reelection periodically.) But bylaws can allow for directors to be reelected over and over without limit, which is a different version of "forever" that is not a problem. So, I would want to talk about what the bylaws say that seem to permit the directors to serve "forever."

You say that the directors appear to have "sole control" of the organization. That, by itself, does not seem to be an issue. That's the role of the board of directors, in a sense.

A director can also be removed for cause, if he or she is not acting in compliance with the statute requiring that they act in the interests of the nonprofit.

Finally, you say that this is an organization with members. What rights do the members have in the articles of incorporation? If there are 28 to 29 members, and if they think that the board has gone rogue, California law allows the members to remove the directors from office. For a group with less than 50 members, it takes a majority vote of the members to remove any or all directors with or without cause. If you have the support of a clear majority (15 or more) of the members, a route available to you could be to just vote out the directors and replace them.

Finally, let's think about where you are if all of the above doesn't solve your problems. In other words: (a) the articles and bylaws don't violate the nonprofit corporation act; AND (b) the current board of directors is has not violated the articles; AND (c) the bylaws don't violate the articles; AND (d) the directors have not breached their duty to the nonprofit, AND (e) you can't convince 15 of 29 members that the board should be recalled ... I'd have to suggest that the directors are on solid ground.

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