SB 446 – Authorizes The Superior Court To Ratify Certain Lawful Corporate Actions Made By Nonprofit Corporations

Last year, the Legislature enacted SB 218 establishing a process by which a California for-profit corporation could remedy corporate actions that did not comply with technical legal requirements when originally undertaken.  SB 218 did not provide the same ratification mechanisms to nonprofit corporations.

Senate Bill 446 (SB 446) extends the same ratification procedures and mechanisms established in SB 218 to nonprofit corporations organized under California law.  SB 446 authorizes the superior court to validate or ratify otherwise lawful corporate actions not in compliance, or purportedly not in compliance, with the General Corporation Law, the articles, bylaws, or a plan or agreement to which the corporation is a party in effect at the time of a corporate action, if the requirements outlined in SB 446 are met.

If the corporate action is not related to the election of the initial directors, the Board must ratify the corporate action by resolutions that set forth:

1. Each action to be ratified;
2. The date the action took place and the date the action is effective, if different;
3. The nature of the noncompliance or purposed noncompliance of each action; and
4. A statement that the ratification of each action is approved.

If the corporate action is related to the election of the initial directors, the resolution must set forth:

1. The name of the person or persons who first took action in the name of corporation as the initial directors;
2. The earlier date of which such person took action or were purported to have been elected as initial directors and the date the persons shall be deemed to become the initial directors; and
3. A statement that the ratification of each election is approved.

The corporation must file a certificate of ratification with the Secretary of State if the ratified corporate action would have required filing or any document previously filed becomes inaccurate or incomplete after giving effect to the ratification.  The Corporations Code sets forth the required provisions that must be included in the certificate of ratification.

If the Secretary of State refuses to file the certificate of ratification because it would render prior filings inaccurate, ambiguous, or unintelligible, an authorized person may file a petition with the superior court to determine the validity of the corporate action.  An “authorized person” is defined as the corporation, any successor entity to the corporation, any director, or any member or any other person that claims to be substantially and adversely affected by the ratification of a corporate action.

The petition must be filed in the superior court in the county where the principal office of the corporation is located or where the corporation’s agent for service of process is located, if the principal office is out of state.  The authorized person must serve the petition on the corporation’s registered agent and does not need to join any other party.  The court may require the authorized person to provide notice of the action to other persons and permit those other persons to intervene in the action.  The Corporations Code sets forth the required provisions that must be included in the petition.

The corporation must file a certificate of validation with the Secretary of State if the corporate action validated by the superior court would have required filing or any document previously filed becomes inaccurate or incomplete after giving effect to the validation.  The Corporations Code sets forth the required provisions that must be included in the certificate of validation.

(SB 446 amends Sections 5008 and 12214 of, and adds Sections 5017 and 12220.5 to, the Corporations Code.)