program: law reform in nonprofit corporation law including ...pbarber/tess/misc/ea-pp_mnca-3d...law...

LAW REFORM IN NONPROFIT CORPORATION LAW

Moderator Professor Lizabeth A. Moody

Stetson University College of Law Gulfport, FL

Speakers

Lawrence J. Beaser, Esq. Blank, Rome, Comisky & McCauley, LLP,

Philadelphia, PA William H. Clark,Esq.

Drinker, Biddle & Reath Philadelphia, PA

John T.Subak, Esq. Boca Grande, FL

I. Introduction –The Changing Landscape of Nonprofit Organizations and their Importance to the Economy and the Community II. History of Statutory Law Governing Nonprofit

Organizations a. Nineteenth Century : Legislative Charters b. Adoption of General Corporation Laws c. Business Law Reform after World War II d. Model Business Corporation Act-1952 e. Model Nonprofit Corporation Act-1954 f. Model Nonprofit Corporation Act-1964 g. New York Nonprofit Corporation Act-1967 h. California Nonprofit Corporation Acts i. Revised Model Business Corporation Act j. Revised Model Nonprofit Corporation Act -1988

III. State Adoptions and Revisions

IV. Current Activities with Respect to Nonprofit Law

a. The Proposed New Revision of the 1988 Act b. ALI Project: “Principles of the Law of Nonprofit

Organizations”

c. Concerns over Governance and Accountability

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Proposed Model Nonprofit Corporation Act

Third Edition

February 2006 Exposure Draft

American Bar Association Section on Business Law

Committee on Nonprofit Corporations

Task Force to Revise the Model Nonprofit Corporation Act Lizabeth A. Moody, Chair

William H. Clark, Jr., Reporter

Copyright ©2006 by

AMERICAN BAR ASSOCIATION

____________________________________________________________________________ The ideas and conclusions set forth in this draft, including the proposed statutory language, have not been passed upon by the American Bar Association, the Section on Business Law, or the Committee on Nonprofit Corporations. They do not necessarily reflect the views of the American Bar Association, the Section on Business Law, or the Committee on Nonprofit Corporations. Proposed statutory language may not be used to ascertain the intent or meaning of any promulgated final statutory proposal. Interested persons are invited to submit written comments to the Chair of the Task Force, at Stetson University College of Law, 1401 61st Street, South, St. Petersburg, FL 33707, with a copy to the Reporter at One Logan Square, Philadelphia, PA 19103.

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CHAPTER 1 1 GENERAL PROVISIONS 2 3 Subchapter 4 A. Short Title and Savings Provisions 5 B. Filing Documents 6 C. Secretary of State 7 D. Definitions 8 E. Review of Contested Corporate Action 9 F. Religious Corporations 10 G. Attorney General 11 12 Subchapter A 13 SHORT TITLE AND SAVINGS PROVISIONS 14 15 Section 16 1.01. Short title. 17 1.02. Reservation of power to amend or repeal. 18 1.03. Relationship of Act to other laws. 19 20 21 § 1.01. SHORT TITLE 22 23 This Act shall be known and may be cited as the “[name of state] Nonprofit Corporation Act.” 24 25

Source Note: Patterned after Model Business 26 Corporation Act, 3d Ed. (2002) § 1.01. 27 Reenactment of Revised Model Nonprofit 28 Corporation Act (1987) § 1.01. 29

30 31 § 1.02. RESERVATION OF POWER TO AMEND OR REPEAL 32 33 The [name of state legislature] has power to amend or repeal all or part of this Act at any time 34 and all domestic and foreign nonprofit corporations subject to this Act are governed by the 35 amendment or repeal. 36 37


42 43 § 1.03. RELATIONSHIP OF ACT TO OTHER LAWS 44 45 (a) This Act is not intended to authorize any entity to do any act prohibited by any regulatory 46

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law. 47 48 (b) Except as expressly provided otherwise by or pursuant to a regulatory law: 49 50

(1) The filing by the secretary of state of any document under this Act shall not be 51 effective to exempt an entity from any of the requirements of any regulatory law. 52

53 (2) Failure to comply with a regulatory law in connection with an action or 54

fundamental transaction under this Act shall not affect the valid existence 55 following the action or fundamental transaction of an entity that engaged in or 56 was a party to the action or fundamental transaction. 57

58 (3) If a fundamental transaction under this Act is enjoined or reversed because of a 59

violation of a regulatory law after the filing that effected the transaction has 60 become effective, the enjoining or reversal of the transaction shall not affect the 61 valid existence of an entity that was a party to the transaction and the existence of 62 any entity whose existence ceased in the transaction shall be reinstated upon the 63 filing with the secretary of state by any interested party of a final order not subject 64 to appeal enjoining or reversing the transaction. 65

66 (c) Except as provided in section 1.03(b)(2), any document filed by the secretary of state or 67

any action taken by any person under the authority of this Act in violation of any 68 regulatory law shall be ineffective as against this State, including the officers, 69 departments, agencies, boards and commissions thereof, unless and until the violation is 70 cured. 71

72 (d) If and to the extent that a regulatory law sets forth provisions relating to the government 73

and regulation of the affairs of an entity that are inconsistent with the provisions of this 74 Act on the same subject, the provisions of the regulatory law shall control. 75

76 (e) As used in this section, the term “regulatory law” means any statute, other than an 77

organic law, regulating the business of an entity and any rule or regulation validly 78 promulgated under such a statute by any officer, department, agency, board or 79 commission of this State. 80

81 Source Note: Patterned after Model Inter-Entity 82 Transactions Act § 103. 57 BUS. LAW. 1569, 1578 83 (2002). See also 15 Pa.C.S. § 103. 84

85 86 Subchapter B 87 FILING DOCUMENTS 88 89 Section 90 1.20. Filing requirements. 91 1.21. Forms. 92

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1.22. Filing, service, and copying fees. 93 1.23. Effective time and date of document. 94 1.24. Correcting filed document. 95 1.25. Filing duty of secretary of state. 96 1.26. Appeal from refusal of secretary of state to file document. 97 1.27. Evidentiary effect of copy of filed document. 98 1.28. Certificate of existence. 99 1.29. Penalty for signing false document. 100 101 102 § 1.20. FILING REQUIREMENTS 103 104 (a) To be entitled to filing by the secretary of state, a document must satisfy the following 105

requirements and the requirements of any other provision of this Act that adds to or 106 varies these requirements: 107

108 (1) This Act requires or permits filing the document in the office of the secretary of 109

state. 110 111 (2) The document contains the information required by this Act and may contain 112

other information. 113 114 (3) The document is in a record. 115 116 (4) The document is in the English language, but the name of an entity need not be in 117

English if written in English letters or Arabic or Roman numerals. The certificate 118 of existence required of foreign nonprofit corporations need not be in English if 119 accompanied by a reasonably authenticated English translation. 120

121 (5) The document is signed on behalf of a domestic or foreign entity: 122

123 (i) by the chair of the board of directors, a member of a designated body, or 124

an officer of a domestic or foreign nonprofit or business corporation; 125 126 (ii) if directors or members of a designated body have not been selected or the 127

corporation has not been formed, by an incorporator; 128 129 (iii) by a person authorized by a domestic or foreign unincorporated entity; or 130 131 (iv) if the entity is in the hands of a receiver, trustee, or other court-appointed 132

fiduciary, by that fiduciary. 133 134

(6) The document states the name of the person signing the document and the 135 capacity in which that person has signed it. The document may but need not 136 contain a corporate seal, attestation, acknowledgment or verification. 137

138

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(7) The document is delivered to the office of the secretary of state for filing. 139 Delivery may be made by electronic transmission if and to the extent permitted by 140 the secretary of state. If the document is filed in typewritten or printed form and 141 not transmitted electronically, the secretary of state may require one exact or 142 conformed copy to be delivered with the document (except as provided in sections 143 5.03 and 15.09). 144

145 (b) When the document is delivered to the office of the secretary of state for filing, the 146

correct filing fee, and any franchise tax, license fee, or penalty required to be paid 147 therewith by this Act or other law is paid or provision for payment is made in a manner 148 permitted by the secretary of state. 149 150

(c) Whenever a provision of this Act permits any of the terms of a plan or a filed document 151 to be dependent on facts objectively ascertainable outside the plan or filed document, the 152 following provisions apply: 153 154 (1) The manner in which the facts will operate upon the terms of the plan or filed 155

document shall be set forth in the plan or filed document. 156 157

(2) The facts may include, but are not limited to: 158 159

(i) any of the following that is available in a nationally recognized news or 160 information medium either in print or electronically: statistical or market 161 indices, market prices of any security or group of securities, interest rates, 162 currency exchange rates, or similar economic or financial data; 163

164 (ii) a determination or action by any person or body, including the corporation 165

or any other party to a plan or filed document; or 166 167

(iii) the terms of, or actions taken under, an agreement to which the 168 corporation is a party, or any other agreement or document. 169

170 (3) As used in this subsection: 171

172 (i) “filed document’’ means a document filed with the secretary of state under 173

any provision of this Act except chapter 15 or section [16.21]; and 174 175

(ii) “plan’’ means a plan of domestication, business conversion, entity 176 conversion, merger or membership exchange. 177 178 Source Note: Patterned after Model Entity 179 Transactions Act § A1-1. Derived from Revised 180 Model Nonprofit Corporation Act (1987) § 1.20. 181

182 183 § 1.21. FORMS 184

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185 The secretary of state may prescribe and furnish on request forms for documents required or 186 permitted to be filed by this Act, but their use is not mandatory. 187 188

Source Note: Patterned after Model Entity 189 Transactions Act § A1-2. Derived from Revised 190 Model Nonprofit Corporation Act (1987) § 1.21. 191

192 193 § 1.22. FILING, SERVICE, AND COPYING FEES 194 195 (a) The secretary of state shall collect the following fees when the documents described in 196

this subsection are delivered to the secretary of state for filing: 197 198 DOCUMENT FEE 199 200 (1) Articles of incorporation $___. 201 202 (2) Application for use of indistinguishable name $___. 203 204 (3) Application for reserved name $___. 205 206 (4) Notice of transfer of reserved name $___. 207 208 (5) Application for registered name $___. 209 210 (6) Application for renewal of registered name $___. 211 212 (7) Corporation’s statement of change of 213 registered agent or registered office or both $___. 214 215 (8) Agent’s statement of change of registered 216 office for each affected corporation, not to 217 exceed a total of $_____ $___. 218 219 (9) Agent’s statement of resignation No fee. 220 221 (10) Articles of domestication $____ 222 223 (11) Articles of charter surrender $____ 224 225 (12) Articles of business conversion $____ 226 227 (13) Articles of domestication and conversion $____ 228 229 (14) Articles of entity conversion $____ 230

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231 (15) Amendment of articles of incorporation $___. 232 233 (16) Restatement of articles of incorporation 234 with amendment of articles $___. 235 236 (17) Articles of merger or membership exchange $___. 237 238 (18) Articles of dissolution $___. 239 240 (19) Articles of revocation of dissolution $___. 241 242 (20) Certificate of administrative dissolution No fee. 243 244 (21) Application for reinstatement following 245 administrative dissolution $___. 246 247 (22) Certificate of reinstatement No fee. 248 249 (23) Certificate of judicial dissolution No fee. 250 251 (24) Application for certificate of authority $___. 252 253 (25) Application for amended certificate of 254 authority $___. 255 256 (26) Application for certificate of withdrawal $___. 257 258 (27) Application for transfer of authority $____ 259 260 (28) Certificate of revocation of authority to 261 transact business No fee. 262 263 (29) Annual report $___. 264 265 (30) Articles of correction $___. 266 267 (31) Application for certificate of existence or 268 authorization $___. 269 270 (32) Any other document required or permitted 271 to be filed by this Act $___. 272 273 (b) The secretary of state shall collect a fee of $ ______ each time process is served on the 274

secretary of state under this Act. The party to a proceeding causing service of process 275 may recover this fee as costs if that party prevails in the proceeding. 276

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277 (c) The secretary of state shall collect the following fees for copying and certifying the copy 278

of any document filed under this Act: 279 280 (1) $______ a page for copying; and 281 282 (2) $ ______ for the certificate. 283 284

Source Note: Patterned after Model Business 285 Corporation Act, 3d Ed. (2002) § 1.22. 286 Substantially a reenactment of Revised Model 287 Nonprofit Corporation Act (1987) § 1.22, except 288 subsection (a)(10) – (14) and (27) which are new. 289

290 291 § 1.23. EFFECTIVE TIME AND DATE OF DOCUMENT 292 293 (a) Except as provided in subsection (b) and section 1.24(c), a document accepted for filing 294

is effective: 295 296

(1) at the date and time of filing, as evidenced by such means as the secretary of state 297 may use for the purpose of recording the date and time of filing; or 298

299 (2) at the time specified in the document as its effective time on the date it is filed. 300

301 (b) A document may specify a delayed effective time and date, and if it does so the document 302

becomes effective at the time and date specified. If a delayed effective date but no time 303 is specified, the document is effective at the close of business on that date. A delayed 304 effective date for a document may not be later than the 90th day after the date it is filed. 305

306 Source Note: Patterned after Model Business 307 Corporation Act, 3d Ed. (2002) § 1.23. 308 Substantially a reenactment of Revised Model 309 Nonprofit Corporation Act (1987) § 1.23. 310

311 312 § 1.24. CORRECTING FILED DOCUMENT 313 314 (a) A domestic or foreign entity may correct a document filed by the secretary of state if: 315 316

(1) the document contains an inaccuracy; 317 318 (2) the document was defectively signed; or 319 320 (3) the electronic transmission of the document to the secretary of state was defective. 321

322

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(b) A document is corrected by filing with the secretary of state articles of correction, signed 323 by the corporation or other party in interest, that: 324

325 (1) describe the document (including its filing date) or attach a copy of it to the 326

articles, 327 328

(2) specify the inaccuracy or defect to be corrected, and 329 330

(3) correct the inaccuracy or defect. 331 332 (c) Articles of correction are effective on the effective date of the document they correct 333

except as to persons relying on the uncorrected document and adversely affected by the 334 correction. As to those persons, articles of correction are effective when filed. 335

336 Source Note: Patterned after Model Business 337 Corporation Act, 3d Ed. (2002) § 1.24. 338 Substantially a Reenactment of Revised Model 339 Nonprofit Corporation Act (1987) § 1.24, except 340 subsection (a)(3) which is new and subsection (b) 341 which has been revised to track Model Business 342 Corporation Act, 3d Ed. (2002) § 1.24(b). 343

344 345 § 1.25. FILING DUTY OF SECRETARY OF STATE 346 347 (a) A document delivered to the office of the secretary of state for filing that satisfies the 348

requirements of section 1.20 must be filed by the secretary of state. 349 350 (b) The secretary of state files a document by recording it as filed on the date and time of 351

receipt. After filing a document, except as provided in sections [5.03 and 15.10], the 352 secretary of state shall deliver to the domestic or foreign entity or its representative a 353 copy of the document with an acknowledgement of the date and time of filing. 354

355 (c) If the secretary of state refuses to file a document, the secretary of state shall return it to 356

the domestic or foreign entity or its representative within five days after the document 357 was delivered, together with a brief, written explanation of the reason for the refusal. 358

359 (d) The duty of the secretary of state to file documents under this section is ministerial. The 360

filing or refusal to file a document does not: 361 362

(1) affect the validity or invalidity of the document in whole or part; 363 364

(2) relate to the correctness or incorrectness of information contained in the 365 document; or 366

367

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(3) create a presumption that the document is valid or invalid or that information 368 contained in the document is correct or incorrect. 369

370 Source Note: Patterned after Model Entity 371 Transactions Act § A1-6. Derived from Revised 372 Model Nonprofit Corporation Act (1987) § 1.25. 373

374 375 § 1.26. APPEAL FROM REFUSAL OF SECRETARY OF STATE TO FILE 376

DOCUMENT 377 378 (a) If the secretary of state refuses to file a document delivered for filing, the domestic or 379

foreign entity that submitted the document for filing may appeal the refusal within 30 380 days after the return of the document to the [name or describe] court [of the county where 381 the entity’s principal office (or, if none in this state, its registered office) is or will be 382 located] [of county]. The appeal is commenced by petitioning the court to compel filing 383 the document and by attaching to the petition the document and the explanation of the 384 secretary of state for the refusal to file. 385

386 (b) The court may summarily order the secretary of state to file the document or take other 387

action the court considers appropriate. 388 389 (c) The final decision of the court may be appealed as in other civil proceedings. 390 391

Source Note: Patterned after Model Entity 392 Transactions Act § A1-7. Substantially a 393 reenactment of Revised Model Nonprofit 394 Corporation Act (1987) § 1.26. 395

396 397 § 1.27. EVIDENTIARY EFFECT OF COPY OF FILED DOCUMENT 398 399 A certificate from the secretary of state delivered with a copy of a document filed by the 400 secretary of state conclusively establishes that the original document is on file with the secretary 401 of state. 402 403


407 408 § 1.28. CERTIFICATE OF EXISTENCE 409 410 (a) Anyone may apply to the secretary of state to furnish a certificate of existence for a 411

domestic nonprofit corporation or a certificate of authorization for a foreign nonprofit 412 corporation. 413

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414 (b) A certificate of existence or authorization sets forth: 415 416

(1) the corporate name of the domestic nonprofit corporation or the corporate name 417 used by the foreign nonprofit corporation in this state; 418

419 (2) that: 420

421 (i) the domestic corporation is duly incorporated under the law of this state, 422

the date of its incorporation, and the period of its duration if less than 423 perpetual; or 424

425 (ii) that the foreign corporation is authorized to transact business in this state; 426

427 (3) that all fees, taxes, and penalties owed to this state have been paid, if: 428

429 (i) payment is reflected in the records of the secretary of state, and 430

431 (ii) nonpayment affects the existence or authorization of the domestic or 432

foreign corporation; 433 434

(4) that its most recent annual report required by section [16.21] has been delivered to 435 the secretary of state; 436

437 (5) that articles of dissolution have not been filed; and 438

439 (6) other facts of record in the office of the secretary of state that may be requested by 440

the applicant. 441 442 (c) Subject to any qualification stated in the certificate, a certificate of existence or 443

authorization issued by the secretary of state may be relied upon as conclusive evidence 444 that the domestic or foreign nonprofit corporation is in existence or is authorized to 445 transact business in this state. 446


452 453 § 1.29. PENALTY FOR SIGNING FALSE DOCUMENT 454 455 A person commits a [______] misdemeanor [punishable by a fine of not to exceed $ _______] if 456 the person signs a document the person knows is false in any material respect with intent that the 457 document be delivered to the secretary of state for filing. 458 459

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463 464 Subchapter C 465 SECRETARY OF STATE 466 467 Section 468 1.30. Powers. 469 470 471 § 1.30. POWERS 472 473 The secretary of state has the powers reasonably necessary to perform the duties required of the 474 secretary of state by this Act. 475 476


481 482 Subchapter D 483 DEFINITIONS 484 485 Section 486 1.40. Act definitions. 487 1.41. Notice. 488 489 490 § 1.40. ACT DEFINITIONS 491 492 In this Act, unless the context clearly indicates otherwise: 493 494

(1) “Articles” or “articles of incorporation” means the original articles of 495 incorporation, all amendments thereof, and any other documents filed with the 496 secretary of state with respect to a domestic nonprofit corporation under any 497 provision of this Act except section 16.21. If any document filed under this Act 498 restates the articles in their entirety, thenceforth the articles shall not include any 499 prior documents. 500

501 Source Note: Patterned after Model Business 502 Corporation Act, 3d Ed. (2002) § 1.40(1). 503 Compare Revised Model Nonprofit Corporation Act 504 (1987) § 1.40 505

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506 (2) “Board” or “board of directors” means the group of individuals responsible for the 507

management of the activities and affairs of the nonprofit corporation, regardless 508 of the name used to refer to the group. The term includes a designated body to the 509 extent: 510

511 (i) the powers, functions, or authority of the board have been vested in, or are 512

exercised by, the designated body; and 513 514 (ii) the provision of this Act in which the term appears is relevant to the 515

discharge by the designated body of its powers, functions, or authority. 516 517

Source Note: Patterned in part after first two 518 sentences of 15 Pa.C.S. § 5103 (“board of 519 directors”). Compare Revised Model Nonprofit 520 Corporation Act (1987) § 1.40(3). 521 522

(3) “Business corporation” or “domestic business corporation” means a corporation 523 incorporated under the laws of this state and subject to the provisions of the 524 [Model Business Corporation Act]. 525

526 Source Note: Patterned after Model Business 527 Corporation Act, 3d Ed. (2002) § 1.40(4). 528

529 (4) “Bylaws” means the code or codes of rules (other than the articles of 530

incorporation) adopted for the regulation and governance of the internal affairs of 531 the nonprofit corporation, regardless of the name or names used to refer to those 532 rules. 533

534 Source Note: Derived from Revised Model 535 Nonprofit Corporation Act (1987) § 1.40(4). 536 537

(5) “Charitable purpose” means relief of the poor and distressed or of the 538 underprivileged; advancement of religion; advancement of literacy, education or 539 science; erection or maintenance of public buildings, monuments or works; 540 lessening of the burdens of government; promotion of social welfare; testing for 541 public safety; prevention of cruelty to children or animals; promotion of health; or 542 any other purpose the accomplishment of which is beneficial to the community. 543

544 Source Note: Patterned after 26 C.F.R. § 545 1.501(c)(3)-1(d). See also 15 Pa.C.S. § 5103 546 (“charitable purposes”). 547 548

(6) “Conspicuous” means so written or presented that a reasonable person against 549 whom the record is to operate should have noticed it. For example, text in italics, 550 boldface, contrasting color or capitals, or that is underlined, is conspicuous. 551

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552 Source Note: Patterned after Model Business 553 Corporation Act, 3d Ed. (2002) § 1.40(3). 554 555

(7) “Corporation,” “domestic corporation,” “domestic nonprofit corporation” or 556 “nonprofit corporation” means a corporation not-for-profit, which is not a foreign 557 corporation, incorporated under or subject to the provisions of this Act. 558

559 Source Note: Patterned after Model Business 560 Corporation Act, 3d Ed. (2002) § 1.40(4). 561 Compare Revised Model Nonprofit Corporation Act 562 (1987) § 1.40(6) and (11). 563

564 (8) “Delegate” means a person elected or appointed to vote in a representative 565

assembly for the election of directors or on other matters. 566 567

Source Note: Substantially a reenactment of 568 Revised Model Nonprofit Corporation Act (1987) § 569 1.40(7). 570 571

(9) “Deliver” or “delivery” means any method of delivery used in conventional 572 commercial practice, including delivery by hand, mail, commercial delivery, and 573 electronic transmission. 574

575 Source Note: Patterned after Model Business 576 Corporation Act, 3d Ed. (2002) § 1.40(5). Compare 577 Revised Model Nonprofit Corporation Act (1987) § 578 1.40(8). 579

580 (10) “Designated body” means a person or group, other than the members, the board of 581

directors, or a committee of the board of directors, that has been vested by the 582 articles of incorporation or bylaws, pursuant to authority expressly conferred by 583 this Act, with powers that, if not vested by the articles or bylaws in such person or 584 group, would be required by this Act to be exercised by: 585

586 (i) the board of directors; 587 588 (ii) the members; or 589 590 (iii) a convention or assembly of delegates. 591

592 Source Note: Patterned in part after 15 Pa.C.S. § 593 5103 (“other body”). 594 595

(11) “Director” means an individual designated, elected, or appointed, by that or any 596 other name or title, to act as a member of the board of directors, while the 597

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individual is holding that position. The term does not include a member of a 598 designated body, as such. 599

600 Source Note: Patterned in part after 15 Pa.C.S. § 601 5103 (“directors”). Compare Revised Model 602 Nonprofit Corporation Act (1987) § 1.40(9). 603

604 (12) “Domestic unincorporated entity” means an unincorporated entity whose internal 605

affairs are governed by the laws of this state. 606 607

Source Note: Patterned after Model Business 608 Corporation Act, 3d Ed. (2002) § 1.40(6A). 609 610

(13) “Effective date of notice” is defined in section 1.41. 611 612

Source Note: Patterned after Model Business 613 Corporation Act, 3d Ed. (2002) § 1.40(7). 614 Reenactment of Revised Model Nonprofit 615 Corporation Act (1987) § 1.40(12). 616

617 (14) “Electronic transmission” or “electronically transmitted” means any process of 618

communication not directly involving the physical transfer of paper that is 619 suitable for the retention, retrieval, and reproduction of information by the 620 recipient. 621

622 Source Note: Patterned after Model Business 623 Corporation Act, 3d Ed. (2002) § 1.40(7A). 624 625

(15) “Eligible entity” means a domestic or foreign unincorporated entity or a domestic 626 or foreign business corporation. 627

628 Source Note: Patterned after Model Business 629 Corporation Act, 3d Ed. (2002) § 1.40(7B). 630

631 (16) “Eligible interests” means interests or shares. 632 633

Source Note: Patterned after Model Business 634 Corporation Act, 3d Ed. (2002) § 1.40(7C). 635

636 (17) “Employee” does not include an officer or director who is not otherwise 637

employed by the corporation. 638 639

Source Note: Reenactment of Revised Model 640 Nonprofit Corporation Act (1987) § 1.40(13). 641 642 Drafting Note: The need for this definition will be 643

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reevaluated as the project continues. 644 645 (18) “Entitled to vote” means entitled to vote on the matter under consideration 646

pursuant to the articles of incorporation or bylaws of the nonprofit corporation or 647 any applicable controlling provision of law. 648

649 Source Note: Patterned after 15 Pa.C.S. § 5103 650 (“entitled to vote”). 651

652 (19) “Entity” includes a domestic and foreign business corporation; domestic and 653

foreign nonprofit corporation; estate; trust; domestic and foreign unincorporated 654 entity; and state, United States, and foreign government. 655

656 Source Note: Patterned after Model Business 657 Corporation Act, 3d Ed. (2002) § 1.40(9). 658 Derived from Revised Model Nonprofit 659 Corporation Act (1987) § 1.40(14). 660

661 (20) “Filing entity” means an unincorporated entity that is created by filing a public 662

organic document. 663 664

Source Note: Patterned after Model Business 665 Corporation Act, 3d Ed. (2002) § 1.40(9B). 666 667

(21) “Foreign business corporation” means a corporation for profit incorporated under 668 a law other than the law of this state that would be a business corporation if 669 incorporated under the law of this state. 670


674 (22) “Foreign corporation” or “foreign nonprofit corporation” means a corporation 675

incorporated under a law other than the law of this state that would be a nonprofit 676 corporation if incorporated under the law of this state. 677

678 Source Note: Patterned after Model Business 679 Corporation Act, 3d Ed. (2002) § 1.40(10A). 680 Substantially a reenactment of Revised Model 681 Nonprofit Corporation Act (1987) § 1.40(16). 682

683 (23) “Foreign unincorporated entity” means an unincorporated entity whose internal 684

affairs are governed by an organic law of a jurisdiction other than this state. 685 686

Source Note: Patterned after Model Business 687 Corporation Act, 3d Ed. (2002) § 1.40(10B). 688 689

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(24) “Fundamental transaction” means an amendment of the articles of incorporation 690 or bylaws, merger, sale of all or substantially all of the assets, division, 691 domestication, conversion or dissolution of a nonprofit corporation. 692

693 Source Note: New. 694

695 (25) “Governmental subdivision” includes an authority, county, district and 696

municipality. 697 698


703 (26) “Includes” denotes a partial definition. 704 705


710 (27) “Individual” means a natural person. 711 712

Source Note: Patterned after Model Business 713 Corporation Act, 3d Ed. (2002) § 1.40(13). 714 Compare Revised Model Nonprofit Corporation Act 715 (1987) § 1.40(19). 716

717 (28) “Interest” means either or both of the following rights under the organic law of an 718

unincorporated entity: 719 720

(i) the right to receive distributions from the entity either in the ordinary 721 course or upon liquidation; or 722

723 (ii) the right to receive notice or vote on issues involving its internal affairs, 724

other than as an agent, assignee, proxy, or person responsible for 725 managing its business and affairs. 726

727 Source Note: Patterned after Model Business 728 Corporation Act, 3d Ed. (2002) § 1.40(13A). 729

730 (29) “Interest holder” means a person who holds of record an interest. 731 732

Source Note: Patterned after Model Business 733 Corporation Act, 3d Ed. (2002) § 1.40(13B). 734

735

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(30) “Interest holder liability” means personal liability for a debt, obligation, or 736 liability of a domestic or foreign business or nonprofit corporation or 737 unincorporated entity that is imposed on a person: 738

739 (i) solely by reason of the person’s status as a shareholder, interest holder, or 740

member; or 741 742

(ii) by the articles of incorporation, bylaws, or an organic document pursuant 743 to a provision of the organic law authorizing the articles, bylaws, or an 744 organic document to make one or more specified shareholders, interest 745 holders, or members liable in their capacity as shareholders, interest 746 holders, or members for all or specified debts, obligations, or liabilities of 747 the entity. 748

749 Source Note: Patterned after Model Business 750 Corporation Act, 3d Ed. (2002) § 1.40(15D). 751

752 (31) “Means” denotes an exhaustive definition. 753 754

Source Note: Patterned after Model Business 755 Corporation Act, 3d Ed. (2002) § 1.40(14). 756 Substantially a reenactment of Revised Model 757 Nonprofit Corporation Act (1987) § 1.40(20). 758

759 (32) “Member” means a person, other than a delegate, who has the right to select or 760

vote for the election of directors in accordance with the articles of incorporation 761 or bylaws, or who qualifies or is designated or selected as a member in 762 accordance with the bylaws of a membership corporation. The term includes a 763 designated body to the extent: 764

765 (i) the powers, functions, or authority of the members have been vested in, or 766

are exercised by, the designated body; and 767 768 (ii) the provision of this Act in which the term appears is relevant to the 769

discharge by the designated body of its powers, functions, or authority. 770 771

Source Note: Compare Revised Model Nonprofit 772 Corporation Act (1987) § 1.40(21). 773 774

(33) “Membership” means the rights and any obligations of a member in a nonprofit 775 corporation. 776

777 Source Note: Patterned in part after Revised Model 778 Nonprofit Corporation Act (1987) § 1.40(22). 779 Compare Model Business Corporation Act, 3d Ed. 780 (2002) § 1.40(14A). 781

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782 (34) “Membership corporation” means a nonprofit corporation whose articles of 783

incorporation or bylaws provide that it shall have members. 784 785

Source Note: New. 786 787

(35) “Nonfiling entity” means an unincorporated entity that is not created by filing a 788 public organic document. 789

790 Source Note: Patterned after proposed Model 791 Business Corporation Act, 3d Ed. (2002) 792 § 1.40(14B). 793

794 (36) “Nonmembership corporation” means a nonprofit corporation whose articles of 795

incorporation or bylaws do not provide that it shall have members. 796 797

Source Note: New. 798 799

(37) “Notice” is defined in section 1.41. 800 801


806 (38) “Officer” includes: 807 808 (i) a person who is an officer as provided in section 8.40; and 809 810 (ii) if a nonprofit corporation is in the hands of a custodian, receiver, trustee 811

or like official, that official or any person appointed by that official to act 812 as an officer for any purpose under this Act. 813

814 Source Note: Patterned after 15 Pa.C.S. § 5103 815 (“officer”). 816

817 (39) “Organic document” means a public organic document or a private organic 818

document. 819 820

Source Note: Patterned after Model Business 821 Corporation Act, 3d Ed. (2002) § 1.40(15A). 822

823 (40) “Organic law” means the statute principally governing the internal affairs of a 824

domestic or foreign business or nonprofit corporation or unincorporated entity. 825 826

Source Note: Patterned after Model Business 827

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Corporation Act, 3d Ed. (2002) § 1.40(15B). 828 829 (41) “Person” includes an individual and an entity. 830 831

Source Note: Patterned after Model Business 832 Corporation Act, 3d Ed. (2002) § 1.40(16). 833 Substantially a reenactment of Revised Model 834 Nonprofit Corporation Act (1987) § 1.40(25). 835

836 (42) “Principal office” means the office (in or out of this state) designated in the 837

annual report as the location of the principal executive offices of a domestic or 838 foreign nonprofit corporation. 839

840 Source Note: Patterned after Model Business 841 Corporation Act, 3d Ed. (2002) § 1.40(17). 842 Substantially a reenactment of Revised Model 843 Nonprofit Corporation Act (1987) § 1.40(26). 844

845 (43) “Private organic document” means any document (other than the public organic 846

document, if any) that determines the internal governance of an unincorporated 847 entity. Where a private organic document has been amended or restated, the term 848 means the private organic document as last amended or restated. 849


853 (44) “Proceeding” includes civil suit and criminal, administrative, and investigatory 854

action. 855 856


861 (45) “Public organic document” means the document, if any, that is filed of public 862

record to create an unincorporated entity. Where a public organic document has 863 been amended or restated, the term means the public organic document as last 864 amended or restated. 865

866 Source Note: Patterned after Model Business 867 Corporation Act, 3d Ed. (2002) § 1.40(17B). 868

869 (46) “Record” means information that is inscribed on a tangible medium or that is 870

stored in an electronic or other medium and is retrievable in perceivable form. 871 872

Source Note: Patterned after a definition developed 873

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by the National Conference of Commissioners on 874 Uniform State Laws for use generally in uniform 875 acts. 876

877 (47) “Record date” means the date established under chapter 6 or 7 on which a 878

nonprofit corporation determines the identity of its members and the membership 879 interests they hold for purposes of this Act. The determinations shall be made as 880 of the close of business on the record date unless another time for doing so is 881 specified when the record date is fixed. 882

883 Source Note: Patterned after Model Business 884 Corporation Act, 3d Ed. (2002) § 1.40(19). 885 First sentence is substantially a reenactment of 886 Revised Model Nonprofit Corporation Act (1987) § 887 1.40(29). 888

889 (48) “Secretary” means the corporate officer to whom the board of directors has 890

delegated responsibility under section [8.40(c)] for custody of the minutes of the 891 meetings of the board of directors, any designated body, committees and the 892 members, and for authenticating records of the nonprofit corporation. 893

894 Source Note: Patterned after Model Business 895 Corporation Act, 3d Ed. (2002) § 1.40(20). 896 Substantially a reenactment of Revised Model 897 Nonprofit Corporation Act (1987) § 1.40(31). 898

899 (49) “Select exempt organization” means an entity that is exempt from Federal income 900

taxation under Section 501(c)(3) or (4) of the Internal Revenue Code of 1986 or 901 that is exempt from income taxation under [cite comparable provision of state 902 law]. 903

904 Source Note: New. 905 906

(50) “Shareholder” means the person in whose name shares are registered in the 907 records of a domestic or foreign business corporation or the beneficial owner of 908 shares to the extent of the rights granted by a nominee certificate on file with such 909 a corporation. 910


914 (51) “Shares” means the units into which the proprietary interests in a domestic or 915

foreign business corporation are divided. 916 917

Source Note: Patterned after Model Business 918 Corporation Act, 3d Ed. (2002) § 1.40(22). 919

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920 (52) “Sign” or “signature” includes any manual, facsimile, conformed, or electronic 921

signature or any other manifestation of an intention to execute a document or 922 record. 923

924 Source Note: Patterned after Model Business 925 Corporation Act, 3d Ed. (2002) § 1.40(22A). 926 927

(53) “State,” when referring to a part of the United States, includes a state or 928 commonwealth, the District of Columbia, the Commonwealth of Puerto Rico, a 929 territory or insular possession of the United States, and any agency or 930 governmental subdivision of any of the foregoing. 931

932 Source Note: Patterned after Model Business 933 Corporation Act, 3d Ed. (2002) § 1.40(23). 934 Reenactment of Revised Model Nonprofit 935 Corporation Act (1987) § 1.40(32). 936

937 (54) “Unincorporated entity” means an organization or artificial legal person that 938

either has a separate legal existence or has the power to acquire an estate in real 939 property in its own name and that is not any of the following: a domestic or 940 foreign business or nonprofit corporation, an estate, a trust, a governmental 941 subdivision, a state, the United States, or a foreign government. The term 942 includes a general partnership, limited liability company, limited partnership, 943 business trust, joint stock association and unincorporated nonprofit association. 944


948 (55) “United States” includes a district, authority, bureau, commission, department, 949

and any other agency of the United States. 950 951


956 (56) “Vote,” “voting” or “casting a vote” includes the giving of written consent. The 957

term does not include either recording the fact of abstention or failing to vote for 958 a candidate or for approval or disapproval of a matter, whether or not the person 959 entitled to vote characterizes such conduct as voting or casting a vote. 960

961 Source Note: Patterned after 15 Pa.C.S. § 1103 962 (“voting”). 963 964

(57) “Voting group” means one or more classes of members that under the articles of 965

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incorporation, bylaws, or this Act are entitled to vote and be counted together 966 collectively on a matter at a meeting of members. All members entitled by the 967 articles of incorporation, bylaws, or this Act to vote generally on the matter are 968 for that purpose a single voting group. 969

970 Source Note: Patterned after Model Business 971 Corporation Act, 3d Ed. (2002) § 1.40(26). 972 973

(58) “Voting power” means the current power to vote in the election of directors or 974 members of a designated body. 975

976 Source Note: Patterned after Model Business 977 Corporation Act, 3d Ed. (2002) § 1.40(27). 978 Compare Revised Model Nonprofit Corporation Act 979 (1987) § 1.40(35). 980 981 Drafting Note: The need for this definition will be 982 reevaluated as the project continues. 983

984 985 § 1.41. NOTICE 986 987 (a) Notice under this Act must be in a record unless oral notice is reasonable under the 988

circumstances. 989 990 (b) Notice may be communicated in person; by mail or other method of delivery; or by 991

telephone, voice mail or other electronic means. If these forms of personal notice are im-992 practicable, notice may be communicated by a newspaper of general circulation in the 993 area where published, or by radio, television or other form of public broadcast 994 communication. 995

996 (c) Notice in a record by a nonprofit corporation to a member is effective: 997 998

(1) upon deposit in the United States mail, if mailed postpaid and correctly addressed 999 to the member’s address shown in the corporation’s current record of members, or 1000

1001 (2) when electronically transmitted to the member in a manner authorized by the 1002

member. 1003 1004 (d) Written notice to a domestic or foreign nonprofit corporation (authorized to transact 1005

business in this state) may be addressed to its registered agent at its registered office or to 1006 the corporation or its secretary at its principal office shown in its most recent annual 1007 report or, in the case of a foreign corporation that has not yet delivered an annual report, 1008 in its application for a certificate of authority. 1009

1010

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(e) Except as provided in subsection (c), notice in a record is effective at the earliest of the 1011 following: 1012

1013 (1) when received; 1014

1015 (2) five days after its deposit in the United States Mail, if mailed postpaid and 1016

correctly addressed; 1017 1018

(3) on the date shown on the return receipt, if sent by registered or certified mail, 1019 return receipt requested, and the receipt is signed by or on behalf of the addressee. 1020

1021 (f) Oral notice is effective when communicated, if communicated in a comprehensible 1022

manner. 1023 1024 (g) If this Act prescribes notice requirements for particular circumstances, those 1025

requirements govern. If bylaws prescribe notice requirements, not inconsistent with this 1026 section or other provisions of this Act, those requirements govern. 1027

1028 Source Note: Patterned after Model Business 1029 Corporation Act, 3d Ed. (2002) § 1.41. 1030 Derived from Revised Model Nonprofit 1031 Corporation Act (1987) § 1.41. 1032 1033 1034

Subchapter E 1035 REVIEW OF CONTESTED CORPORATE ACTION 1036 1037 Section 1038 1.50. Definitions. 1039 1.51. Proceedings prior to corporate action. 1040 1.52. Review of contested corporate action. 1041 1042 1043 § 1.50. DEFINITIONS 1044 1045 (a) This subchapter shall apply to, and the term “corporate action” in this subchapter shall 1046

mean any of the following actions: 1047 1048

(1) The election, appointment, designation or other selection and the suspension, 1049 removal or expulsion of members, directors, members of a designated body or 1050 officers of a nonprofit corporation. 1051

1052 (2) The taking of any action on any matter that is required under this article or under 1053

any other provision of law to be, or which under the bylaws may be, submitted for 1054 action to the members, directors, members of a designated body or officers of a 1055 nonprofit corporation. 1056

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1057 (b) The “court” referred to in this subchapter is the [name or describe] court [of the county 1058

where the corporation’s principal office (or, if none in this state, its registered office) is 1059 located] [of county]. 1060

1061 Source Note: Subsection (a) patterned after 15 1062 Pa.C.S. § 5791. See also Del. GCL §§ 211(c) and 1063 225. Subsection (b) patterned after proposed 1064 MNCA § 1.26(a). 1065

1066 1067 § 1.51. PROCEEDINGS PRIOR TO CORPORATE ACTION 1068 1069 (a) Where under applicable law or the bylaws of a nonprofit corporation there has been a 1070

failure to hold a meeting to take corporate action and the failure has continued for 30 1071 days after the date designated or appropriate therefor, the court may summarily order a 1072 meeting to be held upon the application of [the attorney general in the case of a 1073 corporation that is a select exempt organization or] any person entitled, either alone or in 1074 conjunction with other persons similarly seeking relief under this section, to call a 1075 meeting to consider the corporate action in issue. 1076

1077 (b) The court may determine the right to vote at the meeting of persons claiming that right, 1078

may appoint a master to hold the meeting under such orders and powers as the court may 1079 deem proper, and may take such action as may be required to give due notice of the 1080 meeting and convene and conduct the meeting in the interests of justice. 1081

1082 Source Note: Patterned after 15 Pa.C.S. § 5792. 1083 See also Del. GCL § 211(c). Compare Revised 1084 Model Nonprofit Corporation Act (1987) § 1.60. 1085

1086 1087 § 1.52. REVIEW OF CONTESTED CORPORATE ACTION 1088 1089 (a) Upon petition of [the attorney general in the case of a select exempt corporation or] any 1090

person whose status as, or whose rights or duties as, a member, director, member of a 1091 designated body, officer or other capacity similar to any of the foregoing of a nonprofit 1092 corporation are or may be affected by any corporate action, the court may hear and 1093 determine the validity of the corporate action. 1094

1095 (b) The court may make such orders in any such case as may be just and proper, with power 1096

to enforce the production of any books, papers and records of the corporation and other 1097 evidence that may relate to the issue. The court shall provide for notice of the pendency 1098 of the proceedings under this section to all persons affected thereby. If it is determined 1099 that no valid corporate action has been taken, the court may order a meeting to be held in 1100 accordance with section 1.51. 1101

1102

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Source Note: Patterned after 15 Pa.C.S. § 5793. 1103 See also Del. GCL § 225. 1104

1105 1106 Subchapter F 1107 RELIGIOUS CORPORATIONS 1108 1109 Section 1110 1.60. Subordination to canon law. 1111 1112 1113 § 1.60. SUBORDINATION TO CANON LAW 1114 1115 If religious doctrine or canon law governing the affairs of a nonprofit corporation is inconsistent 1116 with the provisions of this [Act] on the same subject, the religious doctrine or canon law shall 1117 control to the extent, and only to the extent, required by the Constitution of the United States or 1118 the Constitution of [name of state] or both. 1119 1120

Source Note: Patterned after 15 Pa.C.S. § 5107. 1121 Derived from Revised Model Nonprofit 1122 Corporation Act (1987) § 1.80. 1123

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CHAPTER 2 1124 INCORPORATION 1125 1126 Section 1127 2.01. Incorporators. 1128 2.02. Articles of incorporation. 1129 2.03. Incorporation. 1130 2.04. Liability for preincorporation transactions. 1131 2.05. Organization of corporation. 1132 2.06. Bylaws. 1133 2.07. Emergency bylaws. 1134 1135 1136 § 2.01. INCORPORATORS 1137 1138 One or more persons may act as the incorporators of a nonprofit corporation by delivering 1139 articles of incorporation to the secretary of state for filing. 1140 1141

Source Note: Patterned after Model Business 1142 Corporation Act, 3d Ed. (2002), § 2.01. 1143 Reenactment of Revised Model Nonprofit 1144 Corporation Act (1987), § 2.01. 1145

1146 1147 § 2.02. ARTICLES OF INCORPORATION 1148 1149 (a) The articles of incorporation must set forth: 1150 1151 (1) a corporate name for the nonprofit corporation that satisfies the requirements of 1152

section 4.01; 1153 1154 (2) the street address of the corporation’s initial registered office and the name of its 1155

initial registered agent at that office; 1156 1157

(3) that the corporation is incorporated under this Act for a nonprofit purpose; and 1158 1159 (4) the name and address of each incorporator. 1160 1161 (b) The articles of incorporation may set forth: 1162 1163 (1) the names of the individuals who are to serve as the initial directors; 1164 1165

(2) provisions creating one or more designated bodies; 1166 1167 (3) the names of the initial members of a designated body; 1168 1169

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(4) whether the corporation will have members; 1170 1171 (5) the names of the initial members, if any; 1172

1173 (6) provisions not inconsistent with law regarding: 1174 1175 (i) the purpose or purposes for which the nonprofit corporation is organized; 1176 1177 (ii) managing the business and regulating the affairs of the corporation; 1178 1179 (iii) defining, limiting, and regulating the powers of the corporation, its board 1180

of directors, any designated body, and the members, if any; 1181 1182 (iv) the characteristics, qualifications, rights, limitations, and obligations 1183

attaching to each or any class of members; 1184 1185 (v) the imposition of personal liability on members for the debts of the 1186

corporation to a specified extent and upon specified conditions; or 1187 1188 (vi) the distribution of assets on dissolution; 1189 1190 (7) any provision that this Act requires or permits to be set forth in the bylaws; 1191 1192 (8) a provision eliminating or limiting the liability of a director or member of a 1193

designated body to the corporation or its members for money damages for any 1194 action taken, or any failure to take any action, as a director or member of a 1195 designated body, except liability for: 1196

1197 (i) the amount of a financial benefit received by a director or member of a 1198

designated body to which the person is not entitled; 1199 1200 (ii) an intentional infliction of harm on the corporation or the members; 1201 1202 (iii) a violation of section 8.33; or 1203 1204 (iv) an intentional violation of criminal law; 1205

1206 (9) a provision permitting or making obligatory indemnification of a director or 1207

member of a designated body for liability (as defined in section 8.50(5)) to any 1208 person for any action taken, or any failure to take any action, as a director or 1209 member of a designated body, except liability for: 1210

1211 (i) receipt of a financial benefit to which the person is not entitled; 1212 1213 (ii) an intentional infliction of harm on the corporation or its members; 1214 1215

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(iii) a violation of section 8.33; or 1216 1217 (iv) an intentional violation of criminal law; and 1218 1219

(10) provisions required if the corporation is to be exempt from taxation under federal, 1220 state, or local law. 1221

1222 (c) The articles of incorporation need not set forth any of the corporate powers enumerated in 1223

this Act. 1224 1225 (d) Provisions of the articles of incorporation may be made dependent upon facts objectively 1226

ascertainable outside the articles of incorporation in accordance with section 1.20(k). 1227 1228

Source Note: Patterned after Model Business 1229 Corporation Act, 3d Ed. (2002), § 2.02, except for 1230 paragraph (a)(3) which is new. Derived from 1231 Revised Model Nonprofit Corporation Act (1987), § 1232 2.02. 1233

1234 1235 § 2.03. INCORPORATION 1236 1237 (a) Unless a delayed effective date is specified, the corporate existence begins when the 1238

articles of incorporation are filed. 1239 1240 (b) The secretary of state’s filing of the articles of incorporation is conclusive proof that the 1241

incorporators satisfied all conditions precedent to incorporation except in a proceeding by 1242 the state to cancel or revoke the incorporation or involuntarily dissolve the nonprofit 1243 corporation. 1244

1245 Source Note: Patterned after Model Business 1246 Corporation Act, 3d Ed. (2002), § 2.03. 1247 Reenactment of Revised Model Nonprofit 1248 Corporation Act (1987), § 2.03. 1249

1250 1251 § 2.04. LIABILITY FOR PREINCORPORATION TRANSACTIONS 1252 1253 All persons purporting to act as or on behalf of a nonprofit corporation, knowing there was no 1254 incorporation under this Act, are jointly and severally liable for all liabilities created while so 1255 acting. 1256 1257

Source Note: Patterned after Model Business 1258 Corporation Act, 3d Ed. (2002), § 2.04. 1259 Reenactment of Revised Model Nonprofit 1260 Corporation Act (1987), § 2.04. 1261

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1262 1263 § 2.05. ORGANIZATION OF CORPORATION 1264 1265 (a) After incorporation: 1266 1267 (1) if initial directors are named in the articles of incorporation, those persons shall 1268

hold an organizational meeting, at the call of a majority of them, to complete the 1269 organization of the nonprofit corporation by appointing officers, adopting bylaws, 1270 and carrying on any other business brought before the meeting; 1271

1272 (2) if initial directors are not named in the articles, the incorporator or incorporators 1273

shall hold an organizational meeting at the call of a majority of the incorporators: 1274 1275 (i) to elect directors and complete the organization of the nonprofit 1276

corporation; or 1277 1278 (ii) to elect a board of directors who shall complete the organization of the 1279

corporation. 1280 1281 (b) Action required or permitted by this Act to be taken by incorporators at an organizational 1282

meeting may be taken without a meeting if the action taken is evidenced by one or more 1283 written consents describing the action taken and signed by each incorporator. 1284

1285 (c) An organizational meeting may be held in or out of this state. 1286 1287

Source Note: Patterned after Model Business 1288 Corporation Act, 3d Ed. (2002), § 2.05. 1289 Reenactment of Revised Model Nonprofit 1290 Corporation Act (1987), § 2.05, except that 1291 references to a designated body are new. 1292

1293 1294 § 2.06. BYLAWS 1295 1296 (a) The incorporators or the board of directors of a nonprofit corporation shall adopt initial 1297

bylaws for the corporation. 1298 1299 (b) The bylaws of a nonprofit corporation may contain any provision for managing the 1300

business and regulating the affairs of the corporation that is not inconsistent with law or 1301 the articles of incorporation. 1302

1303 Source Note: Patterned after Model Business 1304 Corporation Act, 3d Ed. (2002), § 2.06. 1305 Reenactment of Revised Model Nonprofit 1306 Corporation Act (1987), § 2.06. 1307

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1308 1309 § 2.07. EMERGENCY BYLAWS 1310 1311 (a) Unless the articles of incorporation provide otherwise, the board of directors of a 1312

nonprofit corporation may adopt bylaws to be effective only in an emergency defined in 1313 subsection (d). The emergency bylaws, which are subject to amendment or repeal by the 1314 members, may make all provisions necessary for managing the corporation during the 1315 emergency, including: 1316

1317 (1) procedures for calling a meeting of the board of directors or a designated body; 1318 1319 (2) quorum requirements for the meeting; and 1320 1321 (3) designation of additional or substitute directors or members of a designated body. 1322 1323 (b) All provisions of the regular bylaws consistent with the emergency bylaws remain 1324

effective during the emergency. The emergency bylaws are not effective after the 1325 emergency ends. 1326

1327 (c) Corporate action taken in good faith in accordance with the emergency bylaws: 1328 1329 (1) binds the nonprofit corporation; and 1330 1331 (2) may not be used to impose liability on a director, member of a designated body, 1332

officer, employee, or agent. 1333 1334 (d) An emergency exists for purposes of this section if a quorum of the board of directors or 1335

a designated body cannot readily be assembled because of some catastrophic event. 1336 1337

Source Note: Patterned after Model Business 1338 Corporation Act, 3d Ed. (2002), § 2.07. 1339 Substantially a reenactment of Revised Model 1340 Nonprofit Corporation Act (1987), § 2.07, except 1341 that references to a designated body are new. 1342

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CHAPTER 3 1343 PURPOSES AND POWERS 1344 1345 Section 1346 3.01. Purposes. 1347 3.02. General powers. 1348 3.03. Emergency powers. 1349 3.04. Ultra vires. 1350 1351 1352 § 3.01. PURPOSES 1353 1354 (a) Every nonprofit corporation incorporated under this Act has the purpose of engaging in 1355

any lawful activity unless a more limited purpose is set forth in the articles of 1356 incorporation. 1357 1358

(b) A corporation engaging in an activity that is subject to regulation under another statute of 1359 this state may incorporate under this Act only if permitted by, and subject to all 1360 limitations of, the other statute. 1361


1367 1368 § 3.02. GENERAL POWERS 1369 1370 Unless its articles of incorporation provide otherwise, every nonprofit corporation has perpetual 1371 duration and succession in its corporate name and has the same powers as an individual to do all 1372 things necessary or convenient to carry out its affairs including, without limitation, power: 1373 1374 (1) to sue and be sued, complain and defend in its corporate name; 1375 1376 (2) to have a corporate seal, which may be altered at will, and to use it, or a facsimile of it, 1377

by impressing or affixing it or in any other manner reproducing it; 1378 1379 (3) to make and amend bylaws, not inconsistent with its articles of incorporation or with the 1380

laws of this state, for managing and regulating the affairs of the corporation; 1381 1382 (4) to purchase, receive, lease, or otherwise acquire, and own, hold, improve, use, and 1383

otherwise deal with, real or personal property, or any legal or equitable interest in 1384 property, wherever located; 1385

1386 (5) to sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of all or any 1387

part of its property; 1388

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1389 (6) to purchase, receive, subscribe for, or otherwise acquire, own, hold, vote, use, sell, 1390

mortgage, lend, pledge, or otherwise dispose of, and deal in and with shares or other 1391 interests in, or obligations of, any other entity; 1392

1393 (7) to make contracts and guarantees, incur liabilities, borrow money, issue notes, bonds, and 1394

other obligations, and secure any of its obligations by mortgage or pledge of any of its 1395 property, franchises, or income; 1396

1397 (8) to lend money, invest and reinvest its funds, and receive and hold real and personal 1398

property as security for repayment[, except as limited by section 8.32]; 1399 1400 (9) to be a promoter, partner, member, associate, or manager of any partnership, joint 1401

venture, trust, or other entity; 1402 1403 (10) to conduct its activities, locate offices, and exercise the powers granted by this Act within 1404

or without this state; 1405 1406 (11) to elect directors and appoint officers, employees, and agents of the corporation, define 1407

their duties, fix their compensation[, and lend them money and credit, except as limited 1408 by section 8.32]; 1409

1410 (12) to pay pensions and establish pension plans, pension trusts, and benefit or incentive plans 1411

for any or all of its current or former directors, officers, employees, and agents; 1412 1413 (13) to make donations for charitable purposes; 1414 1415 (14) to impose dues, assessments, admission, and transfer fees on its members; 1416 1417 (15) to establish conditions for admission of members, admit members, and issue 1418

memberships; 1419 1420 (16) to carry on a business; 1421 1422 (17) to make payments or donations, or do any other act, not inconsistent with law, that 1423

furthers the activities and affairs of the corporation. 1424 1425

Source Note: Patterned after Model Business 1426 Corporation Act, 3d Ed. (2002) § 3.02. 1427 Substantially a reenactment of Revised Model 1428 Nonprofit Corporation Act (1987) § 3.02. 1429

1430 1431 § 3.03. EMERGENCY POWERS 1432 1433 (a) In anticipation of or during an emergency defined in subsection (d), the board of directors 1434

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of a nonprofit corporation may: 1435 1436

(1) modify lines of succession to accommodate the incapacity of any director, officer, 1437 employee or agent; and 1438

1439 (2) relocate the principal office, designate alternative principal offices or regional 1440

offices, or authorize the officers to do so. 1441 1442

(b) During an emergency defined in subsection (d), unless emergency bylaws provide 1443 otherwise: 1444

1445 (1) notice of a meeting of the board of directors need be given only to those directors 1446

it is practicable to reach and may be given in any practicable manner; and 1447 1448 (2) one or more officers of the nonprofit corporation present at a meeting of the board 1449

of directors may be deemed to be directors for the meeting, in order of rank and 1450 within the same rank in order of seniority, as necessary to achieve a quorum. 1451

1452 (c) Corporate action taken in good faith during an emergency under this section to further the 1453

ordinary affairs of the nonprofit corporation: 1454 1455

(1) binds the corporation; and 1456 1457 (2) may not be used to impose liability on a director, officer, employee, or agent. 1458 1459

(d) An emergency exists for purposes of this section if a quorum of the directors cannot 1460 readily be assembled because of some catastrophic event. 1461

1462 Source Note: Patterned after Model Business 1463 Corporation Act, 3d Ed. (2002) § 3.03. 1464 Reenactment of Revised Model Nonprofit 1465 Corporation Act (1987) § 3.03. 1466

1467 1468 § 3.04. ULTRA VIRES 1469 1470 (a) Except as provided in subsection (b), the validity of corporate action may not be 1471

challenged on the ground that the nonprofit corporation lacks or lacked power to act. 1472 1473 (b) The power of a nonprofit corporation to act may be challenged: 1474 1475

(1) in a proceeding by a member or director against the corporation to enjoin the act; 1476 1477 (2) in a proceeding by the corporation, directly, derivatively, or through a receiver, 1478

trustee, or other legal representative, against an incumbent or former director, 1479 officer, employee, or agent of the corporation; or 1480

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1481 (3) in a proceeding by the attorney general under section [14.30]. 1482 1483

(c) In a proceeding by a member or director under subsection (b)(1) to enjoin an 1484 unauthorized corporate act, the court may enjoin or set aside the act, if equitable and if all 1485 affected persons are parties to the proceeding, and may award damages for loss (other 1486 than anticipated profits) suffered by the corporation or another party because of enjoining 1487 the unauthorized act. 1488

1489 Source Note: Patterned after Model Business 1490 Corporation Act, 3d Ed. (2002) § 3.04. Derived 1491 from Revised Model Nonprofit Corporation Act 1492 (1987) § 3.04. 1493

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CHAPTER 4 1494 NAME 1495 1496 Section 1497 4.01. Corporate name. 1498 4.02. Reserved name. 1499 4.03. Registered name. 1500 1501 1502 § 4.01. CORPORATE NAME 1503 1504 (a) A corporate name may not contain language stating or implying that the nonprofit 1505

corporation is organized for a purpose other than that permitted by section 3.01 and its 1506 articles of incorporation. 1507 1508

(b) Except as authorized by subsections (c) and (d), a corporate name must be 1509 distinguishable upon the records of the secretary of state from: 1510

1511 (1) the corporate name of a nonprofit or business corporation incorporated or 1512

authorized to transact business in this state; 1513 1514 (2) a corporate name reserved or registered under section 4.02 or 4.03 or [cite 1515

corresponding provisions of the state’s business corporation law]; and 1516 1517 (3) the fictitious name adopted by a foreign corporation authorized to transact 1518

business in this state because its real name is unavailable. 1519 1520

(c) A nonprofit corporation may apply for authorization to use a name that is not 1521 distinguishable upon the records of the secretary of state from one or more of the names 1522 described in subsection (b). The secretary of state shall authorize use of the name applied 1523 for if: 1524

1525 (1) the other corporation consents to the use in writing and submits an undertaking in 1526

form satisfactory to the secretary of state to change its name to a name that is 1527 distinguishable upon the records of the secretary of state from the name of the 1528 applying corporation; or 1529

1530 (2) the applicant delivers to the secretary of state a certified copy of a final judgment 1531

of a court of competent jurisdiction establishing the applicant’s right to use the 1532 name applied for in this state. 1533

1534 (d) A nonprofit corporation may use the name (including the fictitious name) of another 1535

domestic or foreign nonprofit or business corporation that is used in this state if the other 1536 corporation is incorporated or authorized to transact business in this state and the 1537 proposed user corporation: 1538

1539

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(1) has merged with the other corporation; 1540 1541 (2) has been formed by reorganization of the other corporation; or 1542 1543 (3) has acquired all or substantially all of the assets, including the corporate name, of 1544

the other corporation. 1545 1546

(e) This Act does not control the use of fictitious names. 1547 1548

Source Note: Patterned in part after Model 1549 Business Corporation Act, 3d Ed. (2002) § 4.01. 1550 Substantially a reenactment of Revised Model 1551 Nonprofit Corporation Act (1987) § 4.01. 1552

1553 1554 § 4.02. RESERVED NAME 1555 1556 (a) A person may reserve the exclusive use of a corporate name including a fictitious name 1557

for a foreign nonprofit corporation whose corporate name is not available, by delivering 1558 an application to the secretary of state for filing. The application must set forth the name 1559 and address of the applicant and the name proposed to be reserved. Upon finding that the 1560 corporate name applied for is available, the secretary of state shall reserve the name for 1561 the exclusive use of the applicant for a nonrenewable 120-day period. 1562

1563 (b) The owner of a reserved corporate name may transfer the reservation to another person 1564

by delivering to the secretary of state a signed notice of the transfer that states the name 1565 and address of the transferee. 1566


1572 1573 § 4.03. REGISTERED NAME 1574 1575 (a) A foreign nonprofit corporation may register its corporate name, or its corporate name 1576

with any addition required by section 15.06, if the name is distinguishable upon the 1577 records of the secretary of state from the corporate names that are not available under 1578 section 4.01(b). 1579

1580 (b) A foreign nonprofit corporation registers its corporate name, or its corporate name with 1581

any addition required by section 15.06 by delivering to the secretary of state for filing an 1582 application: 1583

1584

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(1) setting forth its corporate name, or its corporate name with any addition required 1585 by section 15.06, the state or country and date of its incorporation, and a brief 1586 description of the nature of the activities in which it is engaged; and 1587

1588 (2) accompanied by a certificate of existence (or a document of similar import) from 1589

the state or country of incorporation. 1590 1591

(c) The name is registered for the exclusive use of the applicant upon the effective date of the 1592 application. 1593

1594 (d) A foreign nonprofit corporation whose registration is effective may renew it for 1595

successive years by delivering to the secretary of state for filing a renewal application, 1596 which complies with the requirements of subsection (b), between October 1 and 1597 December 31 of the preceding year. The renewal application when filed renews the 1598 registration for the following calendar year. 1599

1600 (e) A foreign nonprofit corporation whose registration is effective may thereafter qualify as a 1601

foreign corporation under the registered name or consent in writing to the use of that 1602 name by a corporation thereafter incorporated under this Act or by another foreign 1603 corporation thereafter authorized to transact business in this state. The registration 1604 terminates when the domestic corporation is incorporated or the foreign corporation 1605 qualifies or consents to the qualification of another foreign corporation under the 1606 registered name. 1607


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CHAPTER 5 1613 OFFICE AND AGENT 1614 1615 Section 1616 5.01. Registered office and registered agent. 1617 5.02. Change of registered office or registered agent. 1618 5.03. Resignation of registered agent. 1619 5.04. Service on corporation. 1620 1621 1622 § 5.01. REGISTERED OFFICE AND REGISTERED AGENT 1623 1624 Each nonprofit corporation must continuously maintain in this state: 1625 1626 (1) a registered office that may be the same as any of its places of business; and 1627

1628 (2) a registered agent, who may be:. 1629

1630 (i) an individual who resides in this state and whose business office is identical with 1631

the registered office; 1632 1633 (ii) a domestic nonprofit or business corporation whose business office is identical 1634

with the registered office; or 1635 1636 (iii) a foreign nonprofit or business corporation authorized to transact business in this 1637

state whose business office is identical with the registered office. 1638 1639

Source Note: Patterned after Model Business 1640 Corporation Act, 3d Ed. (2002) § 5.01. 1641 Substantially a reenactment of Model Nonprofit 1642 Corporation Act (1987) § 5.01. 1643

1644 1645 § 5.02. CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT 1646 1647 (a) A nonprofit corporation may change its registered office or registered agent by delivering 1648

to the secretary of state for filing a statement of change that sets forth: 1649 1650

(1) the name of the corporation; 1651 1652 (2) the street address of its current registered office; 1653 1654 (3) if the current registered office is to be changed, the street address of the new 1655

registered office; 1656 1657 (4) the name of its current registered agent; 1658

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1659 (5) if the current registered agent is to be changed, the name of the new registered 1660

agent and the new agent’s consent in a record (either as part of the statement or 1661 accompanying it) to the appointment; and 1662

1663 (6) that after the change or changes are made, the street addresses of its registered 1664

office and the business office of its registered agent will be identical. 1665 1666

(b) If the street address of a registered agent’s business office is changed, the agent may 1667 change the street address of the registered office of any corporation for which the agent is 1668 the registered agent by notifying the corporation in a record of the change and signing 1669 and delivering to the secretary of state for filing a statement that complies with the 1670 requirements of subsection (a) and recites that the corporation has been notified of the 1671 change. 1672

1673 Source Note: Patterned after Model Business 1674 Corporation Act, 3d Ed. (2002) § 5.02. 1675 Substantially a reenactment of Model Nonprofit 1676 Corporation Act (1987) § 5.02. 1677

1678 1679 § 5.03. RESIGNATION OF REGISTERED AGENT 1680 1681 (a) A registered agent may resign as registered agent by signing and delivering to the 1682

secretary of state for filing the signed original and two exact or conformed copies of a 1683 statement of resignation. The statement may include a statement that the registered office 1684 is also discontinued. 1685

1686 (b) After filing the statement the secretary of state shall mail one copy to the registered office 1687

(if not discontinued) and the other copy to the nonprofit corporation at its principal 1688 office. 1689

1690 (c) The agency appointment is terminated, and the registered office discontinued if so 1691

provided, on the 31st day after the date on which the statement was filed. 1692 1693


1698 1699 § 5.04. SERVICE ON CORPORATION 1700 1701 (a) A nonprofit corporation’s registered agent is the corporation’s agent for service of 1702

process, notice, or demand required or permitted by law to be served on the corporation. 1703 1704

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(b) If a nonprofit corporation has no registered agent, or the agent cannot with reasonable 1705 diligence be served, the corporation may be served by registered or certified mail, return 1706 receipt requested, addressed to the secretary of the corporation at its principal office. 1707 Service is perfected under this subsection on the earliest of: 1708

1709 (1) the date the corporation receives the mail; 1710 1711 (2) the date shown on the return receipt, if signed on behalf of the corporation; or 1712 1713 (3) five days after its deposit in the United States Mail, as evidenced by the postmark, 1714

if mailed postpaid and correctly addressed. 1715 1716

(c) This section does not prescribe the only means, or necessarily the required means of 1717 serving a nonprofit corporation. 1718

1719 Source Note: Patterned after Model Business 1720 Corporation Act, 3d Ed. (2002) § 5.04. 1721 Reenactment of Model Nonprofit Corporation Act 1722 (1987) § 5.04. 1723

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CHAPTER 6 1724 MEMBERSHIPS AND FINANCIAL PROVISIONS 1725 1726 Subchapter 1727 A. Admission of Members 1728 B. Members’ Rights and Obligations 1729 C. Resignation and Termination 1730 D. Delegates 1731 E. Financial Provisions 1732 1733 Subchapter A 1734 ADMISSION OF MEMBERS 1735 1736 Section 1737 6.01. No requirement of members. 1738 6.02. Admission. 1739 6.03. Consideration. 1740 1741 1742 § 6.01. NO REQUIREMENT OF MEMBERS 1743 1744 (a) A nonprofit corporation is not required to have members. 1745 1746 (b) Where the articles of incorporation or bylaws of a nonprofit corporation do not provide 1747

that it shall have members, or where a corporation has in fact no members entitled to vote 1748 on a matter, any provision of this [Act] or any other provision of law requiring notice to, 1749 the presence of, or the vote, consent, or other action by members of the corporation in 1750 connection with the matter shall be satisfied by notice to, the presence of, or the vote, 1751 consent, or other action by the board of directors or a designated body of the corporation. 1752

1753 Source Note: Subsection (a) is a reenactment of 1754 Model Nonprofit Corporation Act (1987) § 6.03. 1755 Subsection (b) is patterned after 15 Pa.C.S. § 1756 5751(b). 1757

1758 1759 § 6.02. ADMISSION 1760 1761 (a) The articles of incorporation or bylaws of a nonprofit corporation may establish criteria 1762

or procedures for admission of members. 1763 1764 (b) A person may not be admitted as a member without the person’s consent. 1765 1766 (c) If a nonprofit corporation provides certificates of membership to the members, the 1767

certificates shall not be registered or transferable. 1768 1769

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Source Note: Subsections (a) and (b) are 1770 substantially a reenactment of Model Nonprofit 1771 Corporation Act (1987) § 6.01. As to subsection 1772 (c), compare 15 Pa.C.S. 5753. 1773

1774 1775 § 6.03. CONSIDERATION 1776 1777 Except as provided in its articles of incorporation or bylaws, a nonprofit corporation may admit 1778 members for no consideration or for such consideration as is determined by the board of 1779 directors. The consideration may take any form, including but not limited to promissory notes, 1780 intangible property, or past or future services. Payment of the consideration may be made at 1781 such times and upon such terms as are set forth in or authorized by the articles of incorporation, 1782 bylaws, or a resolution of the board. 1783

1784 Source Note: The first sentence is substantially a 1785 reenactment of Model Nonprofit Corporation Act 1786 (1987) § 6.02. The second sentence is derived from 1787 the Official Comment to Model Nonprofit 1788 Corporation Act (1987) § 6.02. 1789

1790 1791 Subchapter B 1792 MEMBERS’ RIGHTS AND OBLIGATIONS 1793 1794 Section 1795 6.10. Rights and obligations of members. 1796 6.11. Transfers. 1797 6.12. Member’s liability to third parties. 1798 6.13. Member’s liability for dues, assessments, and fees. 1799 6.14. Creditor’s action against member. 1800 1801 1802 § 6.10. RIGHTS AND OBLIGATIONS OF MEMBERS 1803 1804 Except as otherwise provided in the articles of incorporation or bylaws, each member of a 1805 nonprofit corporation has the same rights and obligations as every other member with respect to 1806 voting, dissolution, membership transfer, and other matters. 1807 1808

Source Note: Derived from Model Nonprofit 1809 Corporation Act (1987) § 6.10. 1810

1811 1812 § 6.11. TRANSFERS 1813 1814 (a) Except as provided in the articles of incorporation or bylaws, a member of a nonprofit 1815

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corporation may not transfer a membership or any right arising therefrom. 1816 1817 (b) Where the right to transfer a membership has been provided, a restriction on that right 1818

shall not be binding with respect to a member holding a membership issued prior to the 1819 adoption of the restriction unless the restriction is approved by the affected member. 1820 1821


1824 1825 § 6.12. MEMBER’S LIABILITY TO THIRD PARTIES 1826 1827 A member of a nonprofit corporation is not, as such, personally liable for the acts, debts, 1828 liabilities, or obligations of the corporation. 1829 1830

Source Note: Reenactment of Model Nonprofit 1831 Corporation Act (1987) § 6.12. 1832

1833 1834 § 6.13. MEMBER’S LIABILITY FOR DUES, ASSESSMENTS, AND FEES 1835 1836 (a) A nonprofit corporation may levy dues, assessments, and fees on its members to the 1837

extent authorized in the articles of incorporation or bylaws. Dues, assessments, and fees 1838 may be imposed on all members of the same class either alike or in different amounts or 1839 proportions, and may be imposed on a different basis on different classes of members. 1840 Members of a class may be made exempt from dues, assessments, and fees to the extent 1841 provided in the articles or bylaws. 1842

1843 (b) The amount and method of collection of dues, assessments, and fees may be fixed in the 1844

articles of incorporation or bylaws, or the articles or bylaws may authorize the board of 1845 directors to fix the amount and method of collection. 1846

1847 (c) The articles of incorporation or bylaws may provide reasonable means, such as 1848

termination and reinstatement of membership, to enforce the collection of dues, 1849 assessments, and fees. 1850 1851

Source Note: Patterned after 15 Pa.C.S. § 5544. 1852 Compare Model Nonprofit Corporation Act (1987) 1853 § 6.13. 1854

1855 1856 § 6.14. CREDITOR’S ACTION AGAINST MEMBER 1857 1858 (a) A proceeding may not be brought by a creditor to reach the liability, if any, of a member 1859

to a nonprofit corporation unless final judgment has been rendered in favor of the creditor 1860 against the corporation and execution has been returned unsatisfied in whole or in part or 1861

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unless the proceeding would be useless. 1862 1863 (b) All creditors of a nonprofit corporation, with or without reducing their claims to 1864

judgment, may intervene in any creditor’s proceeding brought under subsection (a) to 1865 reach and apply unpaid amounts due the corporation. Any or all members who owe 1866 amounts to the corporation may be joined in the proceeding. 1867

1868 Source Note: Substantially a reenactment of Model 1869 Nonprofit Corporation Act (1987) § 6.14. 1870

1871 1872 Subchapter C 1873 RESIGNATION AND TERMINATION 1874 1875 Section 1876 6.20. Resignation. 1877 6.21. Termination, suspension, and expulsion. 1878 6.22. Purchase of memberships. 1879 1880 1881 § 6.20. RESIGNATION 1882 1883 (a) A member of a nonprofit corporation may resign at any time. 1884 1885 (b) The resignation of a member does not relieve the member from any obligations incurred 1886

or commitments made prior to resignation. 1887 1888

Source Note: Substantially a reenactment of Model 1889 Nonprofit Corporation Act (1987) § 6.20. 1890

1891 1892 § 6.21. TERMINATION AND SUSPENSION 1893 1894 (a) A membership in a nonprofit corporation may be terminated or suspended for the reasons 1895

and in the manner provided in the articles of incorporation or bylaws. 1896 1897 (b) A proceeding challenging a termination or suspension for any reason must be 1898

commenced within one year after the effective date of the termination or suspension. 1899 1900 (c) The termination or suspension of a member does not relieve the member from any 1901

obligations incurred or commitments made prior to the termination or suspension. 1902 1903

Source Note: Derived from Model Nonprofit 1904 Corporation Act (1987) § 6.21. Subsection (c) is 1905 patterned after Model Nonprofit Corporation Act 1906 (1987) § 6.20(b). 1907

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1908 1909 § 6.22. PURCHASE OF MEMBERSHIPS 1910 1911 Except as provided in the articles of incorporation or bylaws, a nonprofit corporation may not 1912 purchase any of its memberships or any right arising therefrom. 1913 1914


1917 1918 Subchapter D 1919 DELEGATES 1920 1921 Section 1922 6.30. Delegates. 1923 1924 1925 § 6.30. DELEGATES 1926 1927 (a) A nonprofit corporation may provide in its articles of incorporation or bylaws for 1928

delegates. 1929 1930 (b) The articles of incorporation or bylaws may set forth provisions relating to: 1931 1932

(1) the characteristics, qualifications, rights, limitations, and obligations of delegates 1933 including their selection and removal; 1934

1935 (2) calling, noticing, holding, and conducting meetings of delegates; and 1936 1937 (3) carrying on corporate activities during and between meetings of delegates. 1938 1939

(c) When delegates are exercising the powers of the board of directors the delegates 1940 constitute a designated body. 1941 1942

Source Note: Subsections (a) and (b) are 1943 substantially a reenactment of Model Nonprofit 1944 Corporation Act (1987) § 6.40, except that a 1945 reference in subsection (a) to delegates having the 1946 authority of members has been omitted. 1947

1948 1949 Subchapter E 1950 FINANCIAL PROVISIONS 1951 1952 Section 1953

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6.40. Distributions prohibited. 1954 6.41. Compensation and other permitted payments. 1955 6.42. Devises, bequests, and gifts after fundamental changes. 1956 6.43. Capital contributions of members. 1957 6.44. Debt and security interests. 1958 1959 1960 § 6.40. DISTRIBUTIONS PROHIBITED 1961 1962 Except as provided in section 6.41, a nonprofit corporation shall not pay dividends or distribute 1963 any part of its income or profits to its members, directors, members of a designated body, or 1964 officers. 1965 1966

Source Note: Derived from Model Nonprofit 1967 Corporation Act (1987) §§ 1.40(10) (“distribution”) 1968 and 13.01. 1969

1970 1971 § 6.41. COMPENSATION AND OTHER PERMITTED PAYMENTS 1972 1973 (a) A nonprofit corporation may pay reasonable compensation or reimburse reasonable 1974

expenses to members, directors, members of a designated body, or officers for services 1975 rendered. 1976

1977 (b) A nonprofit corporation may confer benefits upon or make contributions to members or 1978

nonmembers in conformity with its purposes, repurchase its memberships to the extent 1979 provided in section 6.22, repay capital contributions to the extent provided in section 1980 6.43, or repay its evidences of indebtedness, except when: 1981

1982 (1) the corporation is currently insolvent or would thereby be made insolvent or 1983

rendered unable to carry on its purposes; or 1984 1985 (2) the fair value of the assets of the corporation remaining after the conferring of 1986

benefits, contribution, repurchase, or repayment would be insufficient to meet its 1987 liabilities. 1988

1989 (c) A nonprofit corporation may make distributions of cash or property to members upon 1990

dissolution or final liquidation as permitted by this [act]. 1991 1992

Source Note: Subsections (a) and (b) patterned 1993 after 15 Pa.C.S. § 5551(b) and (c). Subsection (c) 1994 derived from Model Nonprofit Corporation Act 1995 (1987) § 13.02(b). 1996

1997 1998 § 6.42. DEVISES, BEQUESTS, AND GIFTS AFTER FUNDAMENTAL CHANGES 1999

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2000 A devise, bequest, or gift to be effective in the future, in trust or otherwise, to or for a nonprofit 2001 corporation shall be effective only as a court having jurisdiction over the assets may order under 2002 [cite state cy pres statute] or other applicable provisions of law, if the corporation has, after the 2003 execution of the document containing the devise, bequest, or gift: 2004 2005

(1) materially changed its purposes as a result of a fundamental transaction or in any 2006 other fashion; 2007

2008 (2) sold, leased away, exchanged, or otherwise parted with title to all or substantially 2009

all of its property and assets; 2010 2011 (3) been converted to a business corporation or other entity; or 2012 2013 (4) been dissolved. 2014

2015 Source Note: Patterned after 15 Pa.C.S. § 5550. 2016 Compare Revised Model Nonprofit Corporation Act 2017 (1987) § 11.07. 2018

2019 2020 § 6.43. CAPITAL CONTRIBUTIONS OF MEMBERS 2021 2022 (a) A nonprofit corporation may provide in its articles of incorporation or bylaws that 2023

members, upon or subsequent to admission, shall make capital contributions. The 2024 amount shall be specified in, or fixed by the board of directors pursuant to authority 2025 granted by, the articles or bylaws. The requirement of a capital contribution may apply 2026 to all members, or to the members of a single class, or to members of different classes in 2027 different amounts or proportions. 2028

2029 (b) The capital contribution of a member may consist of money or other property, tangible or 2030

intangible, or labor or services actually received by or performed for the nonprofit 2031 corporation or for its benefit or in its formation or reorganization, or a combination 2032 thereof. In the absence of fraud, the judgment of the board of directors as to the value of 2033 the consideration received by the corporation is conclusive. 2034

2035 (c) The capital contribution of a member shall be recorded on the books of the nonprofit 2036

corporation and may be evidenced by a written instrument delivered to the member, but 2037 the instrument shall not be denominated as “stock” or a “stock certificate” or by a similar 2038 term. 2039

2040 (d) The capital contribution of a member shall not be repaid by the nonprofit corporation 2041

except upon dissolution of the corporation or as provided in this [chapter]. A corporation 2042 may provide in its articles of incorporation or bylaws that capital contributions are 2043 repayable, in whole or in part, at the option of the corporation only, in such amount (not 2044 to exceed the amount of the capital contribution), within such period, and on such terms 2045

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and conditions, not inconsistent with this [chapter], as are stated in, or fixed by the board 2046 of directors pursuant to authority granted by, the articles or bylaws. 2047

2048 Source Note: Patterned after 15 Pa.C.S. § 5541. 2049

2050 2051 § 6.44. DEBT AND SECURITY INTERESTS 2052 2053 (a) A nonprofit corporation shall not issue bonds or other evidences of indebtedness except 2054

for money or other property, tangible or intangible, or labor or services actually received 2055 by or performed for the corporation or for its benefit or in its formation or reorganization, 2056 or a combination thereof. In the absence of fraud, the judgment of the board of directors 2057 as to the value of the consideration received by the corporation is conclusive. 2058

2059 (b) The board of directors may authorize a mortgage or pledge of, or the creation of a 2060

security interest in, all or any part of the property of the nonprofit corporation, or any 2061 interest therein. Unless otherwise restricted in the articles of incorporation or bylaws, the 2062 vote or consent of the members shall not be required to make effective such action by the 2063 board. 2064

2065 Source Note: Patterned after 15 Pa.C.S. § 5543. 2066

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CHAPTER 7 2067 MEMBERS 2068 2069 Subchapter 2070 A. Meetings 2071 B. Voting 2072 C. Voting Agreements 2073 D. Derivative Proceedings 2074 2075 Subchapter A 2076 MEETINGS 2077 2078 Section 2079 7.01. Annual meeting. 2080 7.02. Special meeting. 2081 7.03. Court-ordered meeting. 2082 7.04. Action without meeting. 2083 7.05. Notice of meeting. 2084 7.06. Waiver of notice. 2085 7.07. Record date. 2086 7.08. Conduct of the meeting. 2087 7.09. Action by ballot. 2088 2089 2090 § 7.01. ANNUAL MEETING 2091 2092 (a) A membership corporation shall hold a meeting of members annually at a time stated in 2093

or fixed in accordance with the articles of incorporation or bylaws. 2094 2095 (b) Annual meetings of the members may be held in or out of this state at the place stated in 2096

or fixed in accordance with the articles of incorporation or bylaws. If no place is stated in 2097 or fixed in accordance with the articles or bylaws, annual meetings shall be held at the 2098 nonprofit corporation’s principal office. 2099

2100 (c) The failure to hold an annual meeting at the time stated in or fixed in accordance with the 2101

articles of incorporation or bylaws does not affect the validity of any corporate action. 2102 2103 (d) If an annual meeting of members is held by means of the Internet or other electronic 2104

communications technology in a fashion pursuant to which the members have the 2105 opportunity to read or hear the proceedings substantially concurrently with their 2106 occurrence, vote on matters submitted to the members and pose questions to the directors, 2107 the meeting need not be held at a geographic location. 2108

2109 Source Note: Subsections (a) - (c) are patterned 2110 after Model Business Corporation Act, 3d Ed. 2111 (2002) § 7.01, and derived from Revised Model 2112

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Nonprofit Corporation Act (1987) § 7.01(a)-(c) and 2113 (f). Subsection (d) is patterned after 15 Pa.C.S. § 2114 1704(a) (last sentence). 2115

2116 2117 § 7.02. SPECIAL MEETING 2118 2119 (a) A nonprofit corporation shall hold a special meeting of members: 2120 2121

(1) on call of its board of directors or the persons authorized to do so by the articles 2122 of incorporation or bylaws; or 2123

2124 (2) if the holders of at least 10%, or such other amount up to 25% as the articles of 2125

incorporation or bylaws shall specify, of all the votes entitled to be cast on an 2126 issue proposed to be considered at the proposed special meeting sign, date, and 2127 deliver to the corporation one or more demands in a record for the meeting 2128 describing the purpose for which it is to be held. 2129

2130 (b) Unless otherwise provided in the articles of incorporation or bylaws, a demand in a 2131

record for a special meeting may be revoked by a record to that effect received by the 2132 nonprofit corporation prior to the receipt by the corporation of demands sufficient in 2133 number to require the holding of a special meeting. 2134 2135

(c) If not otherwise fixed under section 7.03 or 7.07, the record date for determining 2136 members entitled to demand a special meeting is the date the first member signs the 2137 demand. 2138

2139 (d) Special meetings of the members may be held in or out of this state at the place stated in 2140

or fixed in accordance with the articles of incorporation or bylaws. If no place is stated 2141 or fixed in accordance with the articles or bylaws, special meetings shall be held at the 2142 corporation’s principal office. 2143

2144 (e) Only business within the purpose or purposes described in the meeting notice required by 2145

section 7.05(c) may be conducted at a special meeting of the members. 2146 2147 (f) If a special meeting of members is held by means of the Internet or other electronic 2148

communications technology in a fashion pursuant to which the members have the 2149 opportunity to read or hear the proceedings substantially concurrently with their 2150 occurrence, vote on matters submitted to the members and pose questions to the directors, 2151 the meeting need not be held at a geographic location. 2152

2153 Source Note: Subsections (a) – (e) are patterned after 2154 Model Business Corporation Act, 3d Ed. (2002) § 7.02, and 2155 derived from Revised Model Nonprofit Corporation Act 2156 (1987) § 7.02. Subsection (f) is patterned after 15 Pa.C.S. § 2157 1704(a) (last sentence). 2158

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2159 2160 § 7.03. COURT-ORDERED MEETING 2161 2162 (a) The [name or describe] court of the county where the principal office of a nonprofit 2163

corporation (or, if not in this state, its registered office) is located may summarily order a 2164 meeting to be held: 2165

2166 (1) on application of any member entitled to participate in an annual meeting if an 2167

annual meeting was not held within the earlier of 6 months after the end of the 2168 corporation’s fiscal year or 15 months after its last annual meeting; or 2169

2170 (2) on application of a member who signed a demand for a special meeting valid 2171

under section 7.02, if: 2172 2173

(i) notice of the special meeting was not given within 30 days after the date 2174 the demand was delivered to the corporation’s secretary; or 2175

2176 (ii) the special meeting was not held in accordance with the notice. 2177 2178

(b) The court may fix the time and place of the meeting, determine the members entitled to 2179 participate in the meeting, specify a record date for determining members entitled to 2180 notice of and to vote at the meeting, prescribe the form and content of the meeting notice, 2181 fix the quorum required for specific matters to be considered at the meeting (or direct that 2182 the votes represented at the meeting constitute a quorum for action on those matters), and 2183 enter other orders necessary to accomplish the purpose or purposes of the meeting. 2184

2185 Source Note: Patterned after Model Business Corporation 2186 Act, 3d Ed. (2002) § 7.03. Derived from Revised Model 2187 Nonprofit Corporation Act (1987) § 7.03. 2188

2189 2190 § 7.04. ACTION WITHOUT MEETING 2191 2192 (a) Except as provided in the articles of incorporation or bylaws, action required or permitted 2193

by this [act] to be taken at a meeting of the members may be taken without a meeting if 2194 the action is taken by members entitled to cast at least a majority of the votes that all 2195 members are entitled to cast on the action. The action must be evidenced by one or more 2196 consents in a record bearing the date of signature and describing the action taken, signed 2197 by all the members entitled to vote on the action, and delivered to the nonprofit 2198 corporation for inclusion in the minutes or filing with the corporate records. 2199

2200 (b) If not otherwise fixed under section 7.03 or 7.07, the record date for determining 2201

members entitled to take action without a meeting is the date the first member signs the 2202 consent under subsection (a). A consent shall not be effective to take the corporate action 2203 referred to therein unless, within 60 days of the earliest date appearing on a consent 2204

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delivered to the corporation in the manner required by this section, consents in a record 2205 signed by all members entitled to vote on the action are received by the nonprofit 2206 corporation. A consent in a record may be revoked by a record to that effect received by 2207 the corporation prior to receipt by the corporation of unrevoked consents in a record 2208 sufficient in number to take corporate action. 2209

2210 (c) A consent signed under this section has the effect of a meeting vote and may be described 2211

as such in any document. 2212 2213 (d) If this [act] requires that notice of proposed action be given to nonvoting members and 2214

the action is to be taken by consent of the voting members, the nonprofit corporation 2215 must give its nonvoting members notice in a record of the proposed action at least 10 2216 days before the action is taken. The notice must contain or be accompanied by the same 2217 material that, under this [act], would have been required to be sent to nonvoting members 2218 in a notice of meeting at which the proposed action would have been submitted to the 2219 members for action. 2220


2225 2226 § 7.05. NOTICE OF MEETING 2227 2228 (a) A nonprofit corporation shall notify the members of the date, time, and place of each 2229

annual and special meeting of the members no fewer than 10 nor more than 60 days 2230 before the meeting date. Unless this [act] or the articles of incorporation or bylaws 2231 require otherwise, the corporation is required to give notice only to members entitled to 2232 vote at the meeting. 2233

2234 (b) Unless this [act] or the articles of incorporation or bylaws require otherwise, notice of an 2235

annual meeting need not include a description of the purpose for which the meeting is 2236 called. 2237

2238 (c) Notice of a special meeting must include a description of the purpose for which the 2239

meeting is called. 2240 2241 (d) If not otherwise fixed under section 7.03 or 7.07, the record date for determining 2242

members entitled to notice of and to vote at an annual or special meeting of the members 2243 is the day before the first notice is delivered to members. 2244

2245 (e) Unless the bylaws require otherwise, if an annual or special meeting of the members is 2246

adjourned to a different date, time, or place, notice need not be given of the new date, 2247 time, or place if the new date, time, or place is announced at the meeting before 2248 adjournment. If a new record date for the adjourned meeting is or must be fixed under 2249

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section 7.07, however, notice of the adjourned meeting must be given under this section 2250 to persons who are members as of the new record date. 2251

2252 (f) The persons authorized or required to give notice of a meeting of members of a church or 2253

similar religious body may give notice of the meeting by announcement at any two 2254 regular church or religious services held during different weeks within 30 days before the 2255 time at which the meeting of members will be held. If notice is given by announcement 2256 under this subsection, notice shall be given at the last service preceding the meeting. If 2257 two church or religious services are not held within the required 30-day period, notice of 2258 a meeting of members shall be given as provided in subsection (a). 2259

2260 Source Note: Subsections (a) – (e) are patterned after 2261 Model Business Corporation Act, 3d Ed. (2002) § 7.05, and 2262 are derived from Revised Model Nonprofit Corporation Act 2263 (1987) § 7.05. Subsection (f) is patterned after 15 Pa.C.S. § 2264 5702(e). 2265

2266 2267 § 7.06. WAIVER OF NOTICE 2268 2269 (a) A member may waive any notice required by this [act], the articles of incorporation, or 2270

bylaws before or after the date and time stated in the notice. The waiver must be in a 2271 record, be signed by the member entitled to the notice, and be delivered to the nonprofit 2272 corporation for inclusion in the minutes or filing with the corporate records. 2273

2274 (b) The attendance of a member at a meeting: 2275 2276

(1) waives objection to lack of notice or defective notice of the meeting, unless the 2277 member at the beginning of the meeting objects to holding the meeting or 2278 transacting business at the meeting; 2279

2280 (2) waives objection to consideration of a particular matter at the meeting that is not 2281

within the purpose described in the meeting notice, unless the member objects at 2282 the meeting to considering the matter. 2283


2289 2290 § 7.07. RECORD DATE 2291 2292 (a) The articles of incorporation or bylaws may fix or provide the manner of fixing the 2293

record date to determine the members entitled to notice of a meeting of the members, to 2294 demand a special meeting, to vote, or to take any other action. If the articles or bylaws 2295

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do not fix or provide for fixing a record date, the board of directors of the nonprofit 2296 corporation may fix a future date as the record date. 2297

2298 (b) A record date fixed under this section may not be more than 70 days before the meeting 2299

or action requiring a determination of members. 2300 2301 (c) A determination of members entitled to notice of or to vote at a meeting of the members 2302

is effective for any adjournment of the meeting unless the board of directors fixes a new 2303 record date, which it must do if the meeting is adjourned to a date more than 120 days 2304 after the date fixed for the original meeting. 2305

2306 (d) If a court orders a meeting adjourned to a date more than 120 days after the date fixed for 2307

the original meeting, it may provide that the original record date continues in effect or it 2308 may fix a new record date. 2309


2314 2315 § 7.08. CONDUCT OF THE MEETING 2316 2317 (a) At each meeting of members, a chair shall preside. The chair shall be appointed as 2318

provided in the articles of incorporation or bylaws or, in the absence of such provision, 2319 by the board of directors. 2320

2321 (b) The chair, unless the articles of incorporation or bylaws provide otherwise, shall 2322

determine the order of business and shall have the authority to establish rules for the 2323 conduct of the meeting. 2324

2325 (c) Any rules adopted for, and the conduct of, the meeting shall be fair to members. 2326 2327 (d) The chair of the meeting shall announce at the meeting when the polls close for each 2328

matter voted upon. If no announcement is made, the polls shall be deemed to have closed 2329 upon the final adjournment of the meeting. After the polls close, no ballots, proxies, or 2330 votes, nor any otherwise permissible revocations or changes thereto may be accepted. 2331

2332 Source Note: Patterned after Model Business Corporation 2333 Act, 3d Ed. (2002) § 7.08. 2334

2335 2336 § 7.09. ACTION BY BALLOT 2337 2338 (a) Except as otherwise restricted by the articles of incorporation or bylaws, any action that 2339

may be taken at any annual or special meeting of members may be taken without a 2340

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meeting if the nonprofit corporation delivers a ballot in a record to every member entitled 2341 to vote on the matter. 2342

2343 (b) A ballot shall: 2344 2345

(1) be in a record; 2346 2347 (2) set forth each proposed action; 2348 2349 (3) provide an opportunity to vote for election of candidates for director; and 2350 2351 (4) provide an opportunity to vote for or against each other proposed action. 2352 2353

(c) Approval by ballot pursuant to this section of action other than election of directors shall 2354 be valid only when the number of votes cast by ballot equals or exceeds the quorum 2355 required to be present at a meeting authorizing the action, and the number of approvals 2356 equals or exceeds the number of votes that would be required to approve the matter at a 2357 meeting at which the total number of votes cast was the same as the number of votes cast 2358 by ballot. 2359

2360 (d) The nonprofit corporation may close the polls for election of directors by ballot at any 2361

time after the number of members voting by ballot equals or exceeds the quorum required 2362 to be present at a meeting for the election of directors. 2363

2364 (e) All solicitations for votes by ballot shall: 2365 2366

(1) indicate the number of responses needed to meet the quorum requirements; 2367 2368 (2) state the percentage of approvals necessary to approve each matter other than 2369

election of directors; and 2370 2371 (3) specify the time by which a ballot must be received by the nonprofit corporation 2372

in order to be counted. 2373 2374

(f) Except as otherwise provided in the articles of incorporation or bylaws, a ballot may not 2375 be revoked. 2376

2377 Source Note: Substantially a reenactment of Revised 2378 Model Nonprofit Corporation Act (1987) § 7.08, except 2379 subsection (d) which is new. 2380

2381 2382 Subchapter B 2383 VOTING 2384 2385 Section 2386

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7.20. Members’ list for meeting. 2387 7.21. Voting entitlement of members. 2388 7.22. Proxies. 2389 7.23. Corporation’s acceptance of votes. 2390 7.24. Quorum and voting requirements for voting groups. 2391 7.25. Action by single and multiple voting groups. 2392 7.26. Different quorum or voting requirements. 2393 7.27. Voting for directors. 2394 7.28. Inspectors of election. 2395 2396 2397 § 7.20. MEMBERS’ LIST FOR MEETING 2398 2399 (a) After fixing a record date for a meeting, a nonprofit corporation shall prepare an 2400

alphabetical list of the names of all its members who are entitled to notice of a meeting of 2401 the members. The list must show the address of and number of votes each member is 2402 entitled to cast at the meeting. 2403

2404 (b) The list of members must be available for inspection by any member, beginning two 2405

business days after notice of the meeting is given for which the list was prepared and 2406 continuing through the meeting, at the nonprofit corporation’s principal office or at a 2407 place identified in the meeting notice in the city where the meeting will be held. A 2408 member, a member’s agent, or attorney is entitled on demand in a record to inspect and, 2409 subject to the requirements of section [16.02(c)], to copy the list, during regular business 2410 hours and at the member’s expense, during the period it is available for inspection. 2411

2412 (c) The nonprofit corporation shall make the list of members available at the meeting, and 2413

any member, a member’s agent, or attorney is entitled to inspect the list at any time 2414 during the meeting or any adjournment. 2415

2416 (d) If a nonprofit corporation refuses to allow a member, a member’s agent, or attorney to 2417

inspect the list of members before or at the meeting (or copy the list as permitted by 2418 subsection (b)), the [name or describe] court of the county where the corporation’s 2419 principal office (or, if none in this state, its registered office) is located, on application of 2420 the member, may summarily order the inspection or copying at the corporation’s expense 2421 and may postpone the meeting for which the list was prepared until the inspection or 2422 copying is complete and may order the corporation to pay the member’s costs (including 2423 reasonable counsel fees) incurred to obtain the order. 2424

2425 (e) Refusal or failure to prepare or make available the list of members does not affect the 2426

validity of action taken at the meeting. 2427 2428

Source Note: Patterned after Model Business Corporation 2429 Act, 3d Ed. (2002) § 7.20. Substantially a reenactment of 2430 Revised Model Nonprofit Corporation Act (1987) § 2431 7.20(a)-(e). 2432

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2433 2434 § 7.21. VOTING ENTITLEMENT OF MEMBERS 2435 2436 Except as otherwise provided in the articles of incorporation or bylaws, each member is entitled 2437 to one vote on each matter voted on by the members. 2438 2439

Source Note: Patterned after Model Business 2440 Corporation Act, 3d Ed. (2002) § 7.21(a). 2441 Substantially a reenactment of Revised Model 2442 Nonprofit Corporation Act (1987) § 7.21(a). 2443 Revised Model Nonprofit Corporation Act (1987) § 2444 7.21(b) omitted as supplied by section 7.23. 2445

2446 2447 § 7.22. PROXIES 2448 2449 (a) Except as otherwise provided in the articles of incorporation or bylaws, a member may 2450

vote in person or by proxy. 2451 2452 (b) A member or the member’s agent or attorney-in-fact may appoint a proxy to vote or 2453

otherwise act for the member by signing a proxy in a record. A proxy must contain or be 2454 accompanied by information from which it can be determined that the member or the 2455 member’s agent or attorney-in-fact authorized the proxy. 2456

2457 (c) An appointment of a proxy is effective when a signed appointment form in a record is 2458

received by the inspector of election or the officer or agent of the nonprofit corporation 2459 authorized to tabulate votes. An appointment is valid for 11 months unless a longer 2460 period, which may not exceed three years, is expressly provided in the appointment form. 2461

2462 (d) The death or incapacity of the member appointing a proxy does not affect the right of the 2463

nonprofit corporation to accept the proxy’s authority unless notice of the death or 2464 incapacity is received by the secretary or other officer or agent authorized to tabulate 2465 votes before the proxy exercises his authority under the appointment. 2466

2467 (e) Subject to section 7.23 and to any express limitation on the proxy’s authority stated in the 2468

appointment form, a nonprofit corporation is entitled to accept the proxy’s vote or other 2469 action as that of the member making the appointment. 2470

2471 Source Note: Patterned after Model Business Corporation 2472 Act, 3d Ed. (2002) § 7.22(a)-(c), (e), and (h). Substantially 2473 a reenactment of Revised Model Nonprofit Corporation Act 2474 (1987) § 7.24. 2475

2476 2477 § 7.23. CORPORATION’S ACCEPTANCE OF VOTES 2478

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2479 (a) If the name signed on a vote, consent, waiver, or proxy appointment corresponds to the 2480

name of a member, the nonprofit corporation if acting in good faith is entitled to accept 2481 the vote, consent, waiver, or proxy appointment and give it effect as the act of the 2482 member. 2483

2484 (b) If the name signed on a vote, consent, waiver, or proxy appointment does not correspond 2485

to the name of its member, the nonprofit corporation if acting in good faith is 2486 nevertheless entitled to accept the vote, consent, waiver, or proxy appointment and give it 2487 effect as the act of the member if: 2488

2489 (1) the member is an entity and the name signed purports to be that of an officer or 2490

agent of the entity; 2491 2492 (2) the name signed purports to be that of an administrator, executor, guardian, or 2493

conservator representing the member and, if the corporation requests, evidence of 2494 fiduciary status acceptable to the corporation has been presented with respect to 2495 the vote, consent, waiver, or proxy appointment; 2496

2497 (3) the name signed purports to be that of a receiver or trustee in bankruptcy of the 2498

member and, if the corporation requests, evidence of this status acceptable to the 2499 corporation has been presented with respect to the vote, consent, waiver, or proxy 2500 appointment; 2501

2502 (4) the name signed purports to be that of a beneficial owner or attorney-in-fact of the 2503

member and, if the corporation requests, evidence acceptable to the corporation of 2504 the signatory’s authority to sign for the member has been presented with respect 2505 to the vote, consent, waiver, or proxy appointment; 2506

2507 (5) two or more persons are the member as co-tenants or fiduciaries and the name 2508

signed purports to be the name of at least one of the co-owners and the person 2509 signing appears to be acting on behalf of all the co-owners. 2510

2511 (c) The nonprofit corporation is entitled to reject a vote, consent, waiver, or proxy 2512

appointment if the secretary or other officer or agent authorized to tabulate votes, acting 2513 in good faith, has reasonable basis for doubt about the validity of the signature on it or 2514 about the signatory’s authority to sign for the member. 2515

2516 (d) The nonprofit corporation and its officer or agent who accepts or rejects a vote, consent, 2517

waiver, or proxy appointment in good faith and in accordance with the standards of this 2518 section or section 7.22(b) are not liable in damages to the member for the consequences 2519 of the acceptance or rejection. 2520

2521 (e) Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy 2522

appointment under this section is valid unless a court of competent jurisdiction 2523 determines otherwise. 2524

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2525 Source Note: Patterned after Model Business 2526 Corporation Act, 3d Ed. (2002) § 7.24. Derived 2527 from Revised Model Nonprofit Corporation Act 2528 (1987) § 7.27. As to subsection (b)(5), see Revised 2529 Model Nonprofit Corporation Act (1987) § 7.21(b). 2530

2531 2532 § 7.24. QUORUM AND VOTING REQUIREMENTS FOR VOTING GROUPS 2533 2534 (a) Members entitled to vote as a separate voting group may take action on a matter at a 2535

meeting only if a quorum of those members exists with respect to that matter. Unless the 2536 articles of incorporation, bylaws, or this [act] provide otherwise, a majority of the votes 2537 entitled to be cast on the matter by the voting group constitutes a quorum of that voting 2538 group for action on that matter. 2539

2540 (b) Once a member is represented for any purpose at a meeting, the member is deemed 2541

present for quorum purposes for the remainder of the meeting and for any adjournment of 2542 that meeting unless a new record date is or must be set for that adjourned meeting. 2543

2544 (c) If a quorum exists, action on a matter (other than the election of directors) by a voting 2545

group is approved if the votes cast within the voting group favoring the action exceed the 2546 votes cast opposing the action, unless the articles of incorporation, bylaws, or this [act] 2547 require a greater number of affirmative votes. 2548

2549 (d) An amendment of the articles of incorporation or bylaws adding, changing, or deleting a 2550

quorum or voting requirement for a voting group greater than specified in subsection (a) 2551 or (c) is governed by section 7.26. 2552

2553 (e) The election of directors is governed by section 7.27. 2554 2555

Source Note: Patterned after Model Business Corporation 2556 Act, 3d Ed. (2002) § 7.25. Derived from Revised Model 2557 Nonprofit Corporation Act (1987) §§ 7.22 and 7.23. 2558

2559 2560 § 7.25. ACTION BY SINGLE AND MULTIPLE VOTING GROUPS 2561 2562 (a) If the articles of incorporation, bylaws, or this [act] provide for voting by a single voting 2563

group on a matter, action on that matter is taken when voted upon by that voting group as 2564 provided in section 7.24. 2565

2566 (b) If the articles of incorporation, bylaws, or this [act] provide for voting by two or more 2567

voting groups on a matter, action on that matter is taken only when voted upon by each of 2568 those voting groups counted separately as provided in section 7.24. Action may be taken 2569

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by one voting group on a matter even though no action is taken by another voting group 2570 entitled to vote on the matter. 2571

2572 Source Note: Patterned after Model Business 2573 Corporation Act, 3d Ed. (2002) § 7.26. 2574

2575 2576 § 7.26. DIFFERENT QUORUM OR VOTING REQUIREMENTS 2577 2578 (a) The articles of incorporation or bylaws may provide for a higher or lower quorum or 2579

voting requirement for members (or voting groups of members) than is provided for by 2580 this [act]. 2581

2582 (b) An amendment to the articles of incorporation or bylaws that adds, changes, or deletes a 2583

greater quorum or voting requirement must meet the same quorum requirement and be 2584 adopted by the same vote and voting groups required to take action under the quorum and 2585 voting requirements then in effect. 2586


2590 2591 § 7.27. VOTING FOR DIRECTORS 2592 2593 (a) Unless otherwise provided in the articles of incorporation or bylaws, directors are elected 2594

by a plurality of the votes cast by the members entitled to vote in the election at a meeting 2595 at which a quorum is present. 2596

2597 (b) Members do not have a right to cumulate their votes for directors. 2598 2599

Source Note: Patterned after Model Business 2600 Corporation Act, 3d Ed. (2002) § 7.28(a) and (b), 2601 except that the ability to provide for cumulative 2602 voting by appropriate provision in the articles of 2603 incorporation has been omitted. Derived from 2604 Revised Model Nonprofit Corporation Act (1987) § 2605 7.26. Revised Model Nonprofit Corporation Act 2606 (1987) § 7.25 specifying the mechanics of 2607 cumulative voting omitted. 2608

2609 2610 § 7.28. INSPECTORS OF ELECTION 2611 2612 (a) A nonprofit corporation may appoint one or more inspectors to act at a meeting of 2613

members and make a written report of the inspectors’ determinations. Each inspector 2614

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shall execute the duties of inspector impartially and according to the best of the 2615 inspector’s ability. 2616

2617 (b) The inspectors shall: 2618 2619

(1) ascertain the number of members and their voting power; 2620 2621 (2) determine the members present at a meeting; 2622 2623 (3) determine the validity of proxies and ballots; 2624 2625 (4) count all votes; and 2626 2627 (5) determine the result. 2628

2629 (c) An inspector may be an officer or employee of the nonprofit corporation. A person who 2630

is a candidate for office to be filled at the meeting may not be an inspector. 2631 2632

Source Note: Patterned after Model Business 2633 Corporation Act, 3d Ed. (2002) § 7.29. 2634

2635 2636 Subchapter C 2637 VOTING AGREEMENTS 2638 2639 Section 2640 7.30. Voting agreements. 2641 2642 2643 § 7.30. VOTING AGREEMENTS 2644 2645 (a) Two or more members may provide for the manner in which they will vote by signing an 2646

agreement for that purpose. A voting agreement may be valid for a period of up to ten 2647 years. 2648

2649 (b) A voting agreement created under this section is specifically enforceable. 2650 2651

Source Note: Patterned in part after Model 2652 Business Corporation Act, 3d Ed. (2002) § 7.31. 2653 Substantially a reenactment of Revised Model 2654 Nonprofit Corporation Act (1987) § 7.31, except the 2655 last sentence of subsection (a) which has been 2656 omitted. 2657

2658 2659 Subchapter D 2660

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DERIVATIVE PROCEEDINGS 2661 2662 Section 2663 7.40. Subchapter definitions. 2664 7.41. Standing. 2665 7.42. Demand. 2666 7.43. Stay of proceedings. 2667 7.44. Dismissal. 2668 7.45. Discontinuance or settlement. 2669 7.46. Payment of expenses. 2670 7.47. Applicability to foreign corporations. 2671 7.48. Notice to attorney general. 2672 2673 2674 § 7.40. SUBCHAPTER DEFINITIONS 2675 2676 In this subchapter: 2677 2678 (1) “Derivative proceeding” means a civil suit in the right of a domestic nonprofit 2679

corporation or, to the extent provided in section 7.47, in the right of a foreign nonprofit 2680 corporation. 2681

2682 (2) “Member” includes a beneficial owner whose membership is held by a nominee on the 2683

beneficial owner’s behalf. 2684 2685


2688 2689 § 7.41. STANDING 2690 2691 (a) A derivative proceeding may be brought by: 2692 2693

(1) a member or members having five percent or more of the voting power, or by 50 2694 members, whichever is less; or 2695

2696 (2) any director or member of a designated body. 2697 2698

(b) The plaintiff in a derivative proceeding must be a member, director, or member of a 2699 designated body at the time of bringing the proceeding. 2700

2701 Source Note: Substantially a reenactment of 2702 Revised Model Nonprofit Corporation Act (1987) § 2703 6.30(a) and (b). Compare Model Business 2704 Corporation Act, 3d Ed. (2002) § 7.41. 2705

2706

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2707 § 7.42. DEMAND 2708 2709 A member may not commence a derivative proceeding until: 2710 2711 (1) a written demand has been made upon the nonprofit corporation to take suitable action; 2712

and 2713 2714 (2) 90 days have expired from the date the demand was made unless the member has earlier 2715

been notified that the demand has been rejected by the corporation or unless irreparable 2716 injury to the corporation would result by waiting for the expiration of the 90-day period. 2717

2718 Source Note: Patterned after Model Business 2719 Corporation Act, 3d Ed. (2002) § 7.42. Compare 2720 Revised Model Nonprofit Corporation Act (1987) § 2721 6.30(c). 2722

2723 2724 § 7.43. STAY OF PROCEEDINGS 2725 2726 If the nonprofit corporation commences an inquiry into the allegations made in the demand or 2727 complaint, the court may stay any derivative proceeding for such period as the court deems 2728 appropriate. 2729 2730

Source Note: Patterned after Model Business Corporation 2731 Act, 3d Ed. (2002) § 7.43. Compare Revised Model 2732 Nonprofit Corporation Act (1987) § 6.30(c). 2733

2734 2735 § 7.44. DISMISSAL 2736 2737 (a) A derivative proceeding shall be dismissed by the court on motion by the nonprofit 2738

corporation if one of the groups specified in subsection (b) or (f) has determined in good 2739 faith after conducting a reasonable inquiry upon which its conclusions are based that the 2740 maintenance of the derivative proceeding is not in the best interests of the corporation. 2741

2742 (b) Unless a panel is appointed pursuant to subsection (f), the determination in subsection (a) 2743

shall be made by: 2744 2745

(1) a majority vote of independent directors present at a meeting of the board of 2746 directors if the independent directors constitute a quorum; or 2747

2748 (2) a majority vote of a committee consisting of two or more independent directors 2749

appointed by majority vote of independent directors present at a meeting of the 2750 board of directors, whether or not such independent directors constituted a 2751 quorum. 2752

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2753 (c) None of the following shall by itself cause a director to be considered not independent for 2754

purposes of this section: 2755 2756

(1) the nomination or election of the director by persons who are defendants in the 2757 derivative proceeding or against whom action is demanded; 2758

2759 (2) the naming of the director as a defendant in the derivative proceeding or as a 2760

person against whom action is demanded; or 2761 2762 (3) the approval by the director of the act being challenged in the derivative 2763

proceeding or demand if the act resulted in no personal benefit to the director. 2764 2765 (d) If a derivative proceeding is commenced after a determination has been made rejecting a 2766

demand by a member, the complaint shall allege with particularity facts establishing 2767 either (1) that a majority of the board of directors did not consist of independent directors 2768 at the time the determination was made or (2) that the requirements of subsection (a) have 2769 not been met. 2770

2771 (e) If a majority of the board of directors does not consist of independent directors at the time 2772

the determination is made, the nonprofit corporation shall have the burden of proving that 2773 the requirements of subsection (a) have been met. If a majority of the board of directors 2774 consists of independent directors at the time the determination is made, the plaintiff shall 2775 have the burden of proving that the requirements of subsection (a) have not been met. 2776

2777 (f) The court may appoint a panel of one or more independent persons upon motion by the 2778

nonprofit corporation to make a determination whether the maintenance of the derivative 2779 proceeding is in the best interests of the corporation. In such case, the plaintiff shall have 2780 the burden of proving that the requirements of subsection (a) have not been met. 2781


2785 2786 § 7.45. DISCONTINUANCE OR SETTLEMENT 2787 2788 A derivative proceeding may not be discontinued or settled without the court’s approval. If the 2789 court determines that a proposed discontinuance or settlement will substantially affect the 2790 interests of the members or a class of members of the nonprofit corporation, the court shall direct 2791 that notice be given to the members affected. 2792 2793


2796 2797 § 7.46. PAYMENT OF EXPENSES 2798

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2799 On termination of the derivative proceeding the court may: 2800 2801 (1) order the nonprofit corporation to pay the plaintiff’s reasonable expenses (including 2802

counsel fees) incurred in the proceeding if it finds that the proceeding has resulted in a 2803 substantial benefit to the corporation; 2804

2805 (2) order the plaintiff to pay any defendant’s reasonable expenses (including counsel fees) 2806

incurred in defending the proceeding if it finds that the proceeding was commenced or 2807 maintained without reasonable cause or for an improper purpose; or 2808

2809 (3) order a party to pay an opposing party’s reasonable expenses (including counsel fees) 2810

incurred because of the filing of a pleading, motion, or other paper, if it finds that the 2811 pleading, motion, or other paper was not well grounded in fact, after reasonable inquiry, 2812 or warranted by existing law or a good faith argument for the extension, modification, or 2813 reversal of existing law and was interposed for an improper purpose, such as to harass or 2814 cause unnecessary delay or needless increase in the cost of litigation. 2815


2819 2820 § 7.47. APPLICABILITY TO FOREIGN CORPORATIONS 2821 2822 In any derivative proceeding in the right of a foreign nonprofit corporation, the matters covered 2823 by this subchapter shall be governed by the laws of the jurisdiction of incorporation of the 2824 foreign corporation except for sections 7.43, 7.45, and 7.46. 2825 2826


2829 2830 § 7.48. NOTICE TO ATTORNEY GENERAL 2831 2832 The plaintiff in a derivative proceeding shall notify the attorney general within ten days after 2833 commencing the proceeding if it involves a nonprofit corporation that holds assets in trust or for 2834 charitable purposes. 2835 2836

Source Note: Derived from Revised Model Nonprofit 2837 Corporation Act (1987) § 6.30(f). 2838

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CHAPTER 8 2839 DIRECTORS AND OFFICERS 2840 2841 Subchapter 2842 A. Board of Directors 2843 B. Meetings and Action of the Board 2844 C. Directors 2845 D. Officers 2846 E. Indemnification and Advance for Expenses 2847 F. Conflicting Interest Transactions 2848 G. Business Opportunities 2849 2850 Subchapter A 2851 BOARD OF DIRECTORS 2852 2853 Section 2854 8.01. Requirement for and functions of board of directors. 2855 8.02. Qualifications of directors. 2856 8.03. Number of directors. 2857 8.04. Selection of directors. 2858 8.05. Terms of directors generally. 2859 8.06. Staggered terms for directors. 2860 8.07. Resignation of directors. 2861 8.08. Removal of directors by members or other persons. 2862 8.09. Removal of directors by judicial proceeding. 2863 8.10. Vacancy on board. 2864 8.11. Compensation of directors. 2865 8.12. Designated body. 2866 2867 2868 § 8.01. REQUIREMENT FOR AND FUNCTIONS OF BOARD OF DIRECTORS 2869 2870 (a) A nonprofit corporation must have a board of directors. 2871 2872 (b) All corporate powers must be exercised by or under the authority of the board of directors 2873

of the nonprofit corporation, and the activities and affairs of the corporation must be 2874 managed by or under the direction, and subject to the oversight, of its board of directors. 2875

2876 Source Note: Patterned after Model Business 2877 Corporation Act, 3d Ed. (2002) § 8.01. Derived 2878 from Model Nonprofit Corporation Act (1987) § 2879 8.01(a) and (b). 2880

2881 2882 § 8.02. QUALIFICATIONS OF DIRECTORS 2883 2884

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A director of a nonprofit corporation must be an individual. The articles of incorporation or 2885 bylaws may prescribe other qualifications for directors. A director need not be a resident of this 2886 state or a member of the corporation unless the articles of incorporation or bylaws so prescribe. 2887 2888

Source Note: Patterned after Model Business 2889 Corporation Act, 3d Ed. (2002) § 8.02. Derived 2890 from Model Nonprofit Corporation Act (1987) § 2891 8.02. 2892

2893 2894 § 8.03. NUMBER OF DIRECTORS 2895 2896 (a) A board of directors must consist of three or more directors, with the number specified in 2897

or fixed in accordance with the articles of incorporation or bylaws. 2898 2899 (b) The number of directors may be increased or decreased (but to no fewer than three) from 2900

time to time by amendment to, or in the manner provided in, the articles of incorporation 2901 or the bylaws. 2902

2903 Source Note: Patterned after Model Business 2904 Corporation Act, 3d Ed. (2002) § 8.03(a) and (b). 2905 Substantially a reenactment of Model Nonprofit 2906 Corporation Act (1987) § 8.03. 2907

2908 2909 § 8.04. SELECTION OF DIRECTORS 2910 2911 (a) If a nonprofit corporation has members, all the directors (other than any initial directors 2912

named in the articles of incorporation or elected by the incorporators) shall be elected at 2913 the first annual meeting of members, and at each annual meeting thereafter, unless the 2914 articles or bylaws provide some other time or method of election, or provide that some or 2915 all of the directors are appointed by some other person or designated in some other 2916 manner. 2917

2918 (b) If a nonprofit corporation does not have members, all the directors (other than any initial 2919

directors named in the articles of incorporation or elected by the incorporators) shall be 2920 elected, appointed, or designated as provided in the articles or bylaws. If no method of 2921 designation or appointment is set forth in the articles or bylaws, the directors (other than 2922 any initial directors) shall be elected by the board. 2923

2924 Source Note: Substantially a reenactment of Model 2925 Nonprofit Corporation Act (1987) § 8.04. 2926

2927 2928 § 8.05. TERMS OF DIRECTORS GENERALLY 2929 2930

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(a) The articles of incorporation or bylaws may specify the terms of directors. If a term is 2931 not specified in the articles or bylaws, the term of a director is one year. Except for 2932 directors who are appointed by persons who are not members or who are designated in a 2933 manner other than by election or appointment, the term of a director may not exceed five 2934 years. 2935

2936 (b) A decrease in the number of directors or term of office does not shorten an incumbent 2937

director's term. 2938 2939 (c) The term of a director elected to fill a vacancy expires at the end of the unexpired term 2940

that the director is filling. 2941 2942 (d) Despite the expiration of a director's term, the director continues to serve until the 2943

director’s successor is elected, designated, or appointed and until the director’s successor 2944 is qualified. 2945

2946 Source Note: Patterned in part after Model 2947 Business Corporation Act, 3d Ed. (2002) § 8.05. 2948 Derived from Model Nonprofit Corporation Act 2949 (1987) § 8.05. 2950

2951 2952 § 8.06. STAGGERED TERMS FOR DIRECTORS 2953 2954 The articles of incorporation or bylaws may provide for staggering the terms of directors by 2955 dividing the total number of directors into two or three groups, with each group containing one-2956 half or one-third of the total, as near as may be. In that event, the terms of directors in the first 2957 group expire at the first annual meeting of members after their election, the terms of the second 2958 group expire at the second annual meeting of members after their election, and the terms of the 2959 third group, if any, expire at the third annual meeting of meeting of members after their election. 2960 At each annual meeting of members held thereafter, directors shall be chosen for a term of two 2961 years or three years, as the case may be, to succeed those whose terms expire. 2962 2963


2968 2969 § 8.07. RESIGNATION OF DIRECTORS 2970 2971 (a) A director may resign at any time by delivering notice in a record to the presiding officer 2972

of the board of directors or to an executive officer or the secretary of the corporation. 2973 2974 (b) A resignation is effective when the notice is delivered unless the notice specifies a later 2975

effective time. 2976

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2977 Source Note: Patterned after Model Business 2978 Corporation Act, 3d Ed. (2002) § 8.07. 2979 Substantially a reenactment of Model Nonprofit 2980 Corporation Act (1987) § 8.07, except that last 2981 sentence of subsection (b) omitted as supplied by § 2982 8.10(c). 2983

2984 2985 § 8.08. REMOVAL OF DIRECTORS BY MEMBERS OR OTHER PERSONS 2986 2987 (a) The members may remove, with or without cause, one or more directors who have been 2988

elected by the members, unless the articles of incorporation or bylaws provide that 2989 directors may be removed only for cause. The bylaws may specify what constitutes 2990 cause for removal. 2991

2992 (b) If a director is elected by a voting group of members, or by a chapter or other 2993

organizational unit, or by a region or other geographic grouping, only the members of 2994 that voting group or chapter, unit, region, or grouping may participate in the vote to 2995 remove the director. 2996

2997 (c) The notice of a meeting of members at which removal of a director is to be considered 2998

must state that the purpose, or one of the purposes, of the meeting is removal of the 2999 director. 3000

3001 (d) A director who is designated in the articles of incorporation or bylaws may be removed 3002

by an amendment to the articles or bylaws deleting or changing the designation. 3003 3004 (e) Except as provided in the articles of incorporation or bylaws, a director who is appointed 3005

by persons other than the members may be removed with or without cause by those 3006 persons. 3007

3008 Source Note: Subsections (a) – (c) are derived from 3009 Model Nonprofit Corporation Act (1987) § 8.08. 3010 Compare Model Business Corporation Act, 3d Ed. 3011 (2002) § 8.08. Subsections (d) and (e) are derived 3012 from Model Nonprofit Corporation Act (1987) § 3013 8.09. 3014

3015 3016 § 8.09. REMOVAL OF DIRECTORS BY JUDICIAL PROCEEDING 3017 3018 (a) The [name or describe] court of the county where the principal office of a nonprofit 3019

corporation (or, if none in this state, its registered office) is located may remove a 3020 director from office in a proceeding commenced by or in the right of the corporation if 3021 the court finds that: 3022

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3023 (1) the director engaged in fraudulent conduct with respect to the corporation or its 3024

members, grossly abused the position of director, or intentionally inflicted harm 3025 on the corporation; and 3026

3027 (2) considering the director's course of conduct and the inadequacy of other available 3028

remedies, removal would be in the best interest of the corporation. 3029 3030 (b) A member, individual director, or member of a designated body proceeding on behalf of 3031

the nonprofit corporation under subsection (a) shall comply with all of the requirements 3032 of subchapter 7D. 3033

3034 (c) The court, in addition to removing the director, may bar the director from being reelected, 3035

redesignated, or reappointed for a period prescribed by the court. 3036 3037 (d) Nothing in this section limits the equitable powers of the court to order other relief. 3038 3039


3044 3045 § 8.10. VACANCY ON BOARD 3046 3047 (a) Except as otherwise provided in subsection (b), the articles of incorporation, or bylaws, if 3048

a vacancy occurs on the board of directors, including a vacancy resulting from an 3049 increase in the number of directors, the vacancy may be filled by a majority of the 3050 directors remaining in office even if they constitute less than a quorum. 3051

3052 (b) Except as provided in the articles of incorporation or bylaws, a vacancy in the position of 3053

a director who is: 3054 3055

(1) elected by a voting group of members, by a chapter or other organizational unit of 3056 members, or by a region or other geographic grouping of members, may be filled 3057 during the first three months after the vacancy occurs only by that voting group or 3058 chapter, unit, region, or grouping; 3059

3060 (2) designated in the articles of incorporation or bylaws may not be filled by action of 3061

the board of directors; and 3062 3063 (3) appointed by persons other than the members, may be filled only by those 3064

persons. 3065 3066

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(c) A vacancy that will occur at a specific later time (by reason of a resignation effective at a 3067 later time under section 8.07(b) or otherwise) may be filled before the vacancy occurs but 3068 the new director may not take office until the vacancy occurs. 3069

3070 Source Note: Subsection (a) is patterned after 15 3071 Pa.C.S. § 5725(c). Derived from Model Nonprofit 3072 Corporation Act (1987) § 8.11. Compare Model 3073 Business Corporation Act, 3d Ed. (2002) §8.11. 3074

3075 3076 § 8.11. COMPENSATION OF DIRECTORS 3077 3078 Unless the articles of incorporation or bylaws provide otherwise, the board of directors may fix 3079 the compensation of directors. 3080 3081

Source Note: Patterned after Model Business 3082 Corporation Act, 3d Ed. (2002) § 8.11. 3083 Reenactment of Model Nonprofit Corporation Act 3084 (1987) § 8.12. 3085

3086 3087 § 8.12. DESIGNATED BODY 3088 3089 (a) Some, but less than all, of the powers, authority or functions of the board of directors of a 3090

nonprofit corporation under this [act] may be vested by the articles of incorporation or 3091 bylaws in a designated body. 3092

3093 (b) The provisions of this chapter and other provisions of law on the rights, duties and 3094

liabilities of the board of directors or directors individually also apply to any designated 3095 body of a nonprofit corporation and to the members of a designated body individually. 3096 The provisions of this chapter and other provisions of law on the manner of acting of the 3097 board of directors also apply to any designated body in the absence of an applicable rule 3098 in the articles of incorporation, bylaws or internal operating rules of the designated body, 3099

3100 (c) To the extent the powers, authority, or functions of the board of directors have been 3101

vested in a designated body, the directors are relieved from their duties and liabilities 3102 with respect to those powers, authority, and functions. 3103

3104 Source Note: Patterned generally after 15 Pa.C.S. § 3105 5734. Derived from Model Nonprofit Corporation 3106 Act (1987) § 8.01(c). 3107

3108 3109 Subchapter B 3110 MEETINGS AND ACTION OF THE BOARD 3111 3112

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Section 3113 8.20. Meetings. 3114 8.21. Action without meeting. 3115 8.22. Call and notice of meeting. 3116 8.23. Waiver of notice. 3117 8.24. Quorum and voting. 3118 8.25. Board and advisory committees. 3119 3120 3121 § 8.20. MEETINGS 3122 3123 (a) The board of directors may hold regular or special meetings in or out of this state. 3124 3125 (b) Unless the articles of incorporation or bylaws provide otherwise, the board of directors 3126

may permit any or all directors to participate in a regular or special meeting by, or 3127 conduct the meeting through the use of, any means of communication by which all 3128 directors participating may simultaneously hear each other during the meeting. A 3129 director participating in a meeting by this means is considered to be present in person at 3130 the meeting. 3131

3132 Source Note: Patterned after Model Business 3133 Corporation Act, 3d Ed. (2002) § 8.20. 3134 Substantially a reenactment of Model Nonprofit 3135 Corporation Act (1987) § 8.20 (b)-(c). 3136

3137 3138 § 8.21. ACTION WITHOUT MEETING 3139 3140 (a) Except to the extent that the articles of incorporation or bylaws require that action by the 3141

board of directors be taken at a meeting, action required or permitted by this [act] to be 3142 taken by the board of directors may be taken without a meeting if each director signs a 3143 consent in record form describing the action to be taken and delivers it to the nonprofit 3144 corporation. 3145

3146 (b) Action taken under this section is the act of the board of directors when one or more 3147

consents signed by all the directors are delivered to the nonprofit corporation. The 3148 consent may specify the time at which the action taken in the consent is to be effective. 3149 A director's consent may be withdrawn by a revocation in record form signed by the 3150 director and delivered to the corporation prior to delivery to the corporation of unrevoked 3151 consents signed by all the directors. 3152

3153 (c) A consent signed under this section has the effect of action taken at a meeting of the 3154

board of directors and may be described as such in any document. 3155 3156


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Substantially a reenactment of Model Nonprofit 3159 Corporation Act (1987) § 8.21. 3160

3161 3162 § 8.22. CALL AND NOTICE OF MEETING 3163 3164 (a) Unless the articles of incorporation or bylaws provide otherwise, regular meetings of the 3165

board of directors may be held without notice of the date, time, place, or purpose of the 3166 meeting. 3167

3168 (b) Unless the articles of incorporation or bylaws provide for a longer or shorter period, 3169

special meetings of the board of directors must be preceded by at least two days' notice of 3170 the date, time, and place of the meeting. The notice need not describe the purpose of the 3171 special meeting unless required by the articles of incorporation or bylaws. 3172

3173 (c) Unless the articles of incorporation or bylaws provide otherwise, the presiding officer of 3174

the board, the highest ranking officer of the corporation, or 20% of the directors then in 3175 office may call and give notice of a meeting of the board of directors. 3176

3177 Source Note: Patterned after Model Business 3178 Corporation Act, 3d Ed. (2002) §8.22. Derived 3179 from Model Nonprofit Corporation Act (1987) § 3180 8.22(a), (b), and (d). 3181

3182 3183 § 8.23. WAIVER OF NOTICE 3184 3185 (a) A director may waive any notice required by this [act], the articles of incorporation, or 3186

bylaws before or after the date and time stated in the notice. Except as provided by 3187 subsection (b), the waiver must be in a record, signed by the director entitled to the 3188 notice, and filed with the minutes or corporate records. 3189

3190 (b) A director's attendance at or participation in a meeting waives any required notice to the 3191

director of the meeting unless the director at the beginning of the meeting (or promptly 3192 upon arrival) objects to holding the meeting or transacting business at the meeting and 3193 does not thereafter vote for or assent to action taken at the meeting. 3194


3200 3201 § 8.24. QUORUM AND VOTING 3202 3203

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(a) Except as provided in subsection (b) or the articles of incorporation or bylaws, a quorum 3204 of the board of directors consists of a majority of the directors in office before a meeting 3205 begins. 3206

3207 (b) The articles of incorporation or bylaws may authorize a quorum of the board of directors 3208

to consist of no fewer than the greater of one-third of the number of directors in office or 3209 two directors. 3210

3211 (c) Except as provided in the articles of incorporation or bylaws, if a quorum is present when 3212

a vote is taken, the affirmative vote of a majority of directors present is the act of the 3213 board of directors. 3214

3215 (d) A director who is present at a meeting of the board of directors when corporate action is 3216

taken is considered to have assented to the action taken unless one of the following 3217 applies: 3218

3219 (1) The director objects at the beginning of the meeting (or promptly upon arrival) to 3220

holding it or transacting business at the meeting. 3221 3222 (2) The director’s dissent or abstention from the action taken is entered in the minutes 3223

of the meeting. 3224 3225 (3) The director delivers notice in record form of the director’s dissent or abstention 3226

to the presiding officer of the meeting before its adjournment or to the corporation 3227 immediately after adjournment of the meeting. 3228

3229 (e) The right of dissent or abstention is not available to a director who votes in favor of the 3230

action taken. 3231 3232


3237 3238 § 8.25. BOARD AND ADVISORY COMMITTEES 3239 3240 (a) Unless this [act], the articles of incorporation or the bylaws provide otherwise, a board of 3241

directors may create one or more committees of the board that consist of one or more 3242 members of the board. 3243

3244 (b) Unless this [act] otherwise provides, the creation of a committee and appointment of 3245

members to it must be approved by the greater of: 3246 3247

(1) a majority of all the directors in office when the action is taken; or 3248 3249

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(2) the number of directors required by the articles of incorporation or bylaws to take 3250 action under section 8.24. 3251

3252 (c) Sections 8.20 through 8.24 apply both to committees of the board and to their members. 3253 3254 (d) To the extent specified by the board of directors or in the articles of incorporation or 3255

bylaws, each committee may exercise the powers of the board of directors under section 3256 8.01. 3257

3258 (e) A committee may not, however: 3259 3260

(1) authorize distributions; 3261 3262 (2) approve or propose to members action that this [act] requires be approved by 3263

members; 3264 3265 (3) fill vacancies on the board of directors or, subject to subsection (g), on any of its 3266

committees; or 3267 3268 (4) adopt, amend, or repeal bylaws. 3269

3270 (f) The creation of, delegation of authority to, or action by a committee does not alone 3271

constitute compliance by a director with the standards of conduct described in section 3272 8.30. 3273

3274 (g) The board of directors may appoint one or more directors as alternate members of any 3275

committee to replace any absent or disqualified member during the member’s absence or 3276 disqualification. Unless the articles of incorporation or the bylaws or the resolution 3277 creating the committee provide otherwise, in the event of the absence or disqualification 3278 of a member of a committee, the member or members present at any meeting and not 3279 disqualified from voting, unanimously may appoint another director to act in place of the 3280 absent or disqualified member. 3281

3282 (h) A nonprofit corporation may create or authorize the creation of one or more advisory 3283

committees whose members need not be directors. 3284 3285 (i) A committee that has one or more members who are not directors: 3286 3287

(1) is not a committee of the board; and 3288 3289 (2) may not exercise any of the powers of the board except to the extent the 3290

committee is a designated body. 3291 3292

Source Note: Patterned after Model Business 3293 Corporation Act, 3d Ed. (2002) § 8.25. Derived 3294

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from Model Nonprofit Corporation Act (1987) § 3295 8.25. Subsection (h) is new. 3296

3297 3298 Subchapter C 3299 DIRECTORS 3300 3301 Section 3302 8.30. Standards of conduct for directors. 3303 8.31. Standards of liability for directors. 3304 8.32. [Loans to or guarantees for directors and officers.] (Optional) 3305 8.33. Directors’ liability for unlawful distributions. 3306 3307 3308 § 8.30. STANDARDS OF CONDUCT FOR DIRECTORS 3309 3310 (a) Each member of the board of directors, when discharging the duties of a director, shall 3311

act: 3312 3313

(1) in good faith, and 3314 3315 (2) in a manner the director reasonably believes to be in the best interests of the 3316

nonprofit corporation. 3317 3318 (b) The members of the board of directors or a committee of the board, when becoming 3319

informed in connection with their decision-making function or devoting attention to their 3320 oversight function, must discharge their duties with the care that a person in a like 3321 position would reasonably believe appropriate under similar circumstances. 3322

3323 (c) In discharging board or committee duties a director must disclose, or cause to be 3324

disclosed, to the other board or committee members information not already known by 3325 them but known by the director to be material to the discharge of their decision-making 3326 or oversight functions, except that disclosure is not required to the extent that the director 3327 reasonably believes that doing so would violate a duty imposed by law, a legally 3328 enforceable obligation of confidentiality, or a professional ethics rule. 3329

3330 (d) In discharging board or committee duties a director who does not have knowledge that 3331

makes reliance unwarranted may rely on the performance by any of the persons specified 3332 in subsection (f)(1) or subsection (f)(3) to whom the board may have delegated, formally 3333 or informally by course of conduct, the authority or duty to perform one or more of the 3334 board’s functions that are delegable under applicable law. 3335

3336 (e) In discharging board or committee duties a director who does not have knowledge that 3337

makes reliance unwarranted may rely on information, opinions, reports, or statements, 3338 including financial statements and other financial data, prepared or presented by any of 3339 the persons specified in subsection (f). 3340

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3341 (f) A director may rely, in accordance with subsection (d) or (e), on: 3342 3343

(1) one or more officers or employees of the nonprofit corporation whom the director 3344 reasonably believes to be reliable and competent in the functions performed or the 3345 information, opinions, reports, or statements provided; 3346

3347 (2) legal counsel, public accountants, or other persons retained by the corporation as 3348

to matters involving skills or expertise the director reasonably believes are 3349 matters: 3350

3351 (i) within the particular person’s professional or expert competence, or 3352 3353 (ii) as to which the particular person merits confidence; 3354

3355 (3) a committee of the board of directors of which the director is not a member if the 3356

director reasonably believes the committee merits confidence; or 3357 3358 (4) in the case of a corporation engaged in religious activity, religious authorities and 3359

ministers, priests, rabbis, imams, or other persons whose positions or duties the 3360 director reasonably believes justify reliance and confidence and whom the 3361 director believes to be reliable and competent in the matters presented. 3362

3363 (g) A director is not a trustee with respect to the nonprofit corporation or with respect to any 3364

property held or administered by the corporation, including property that may be subject 3365 to restrictions imposed by the donor or transferor of the property. 3366

3367 Source Note: Subsections (a), (b), (c)(1) – (3), and 3368 (d)—(f) are patterned after Model Business 3369 Corporation Act, 3d Ed. (2002) § 8.30; those 3370 provisions and subsection (c)(4) are derived from 3371 Model Nonprofit Corporation Act (1987) § 8.30(a) - 3372 (c). Subsection (g) is a reenactment of Model 3373 Nonprofit Corporation Act (1987) § 8.30 (e). 3374

3375 3376 § 8.31. STANDARDS OF LIABILITY FOR DIRECTORS 3377 3378 (a) A director is not liable to the nonprofit corporation or its members for any decision to 3379

take or not to take action, or any failure to take any action, as a director, unless the party 3380 asserting liability in a proceeding establishes that: 3381

3382 (1) none of the following, if interposed as a bar to the proceeding by the director, 3383

precludes liability: 3384 3385

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(i) any provision in the articles of incorporation authorized by section 3386 2.02(b)(4); 3387

3388 (ii) satisfaction of the requirements in section 8.60 for validating a conflicting 3389

interest transaction; or 3390 3391 (iii) satisfaction of the requirements in section 8.70 for disclaiming a business 3392

opportunity; and 3393 3394 (2) the challenged conduct consisted or was the result of: 3395 3396

(i) action not in good faith; or 3397 3398 (ii) a decision: 3399 3400

(A) which the director did not reasonably believe to be in the best 3401 interests of the corporation, or 3402

3403 (B) as to which the director was not informed to an extent the director 3404

reasonably believed appropriate in the circumstances; or 3405 3406 (iii) a lack of objectivity due to the director's familial, financial or business 3407

relationship with, or a lack of independence due to the director's 3408 domination or control by, another person having a material interest in the 3409 challenged conduct: 3410

3411 (A) which relationship or which domination or control could 3412

reasonably be expected to have affected the director's judgment 3413 respecting the challenged conduct in a manner adverse to the 3414 corporation, and 3415

3416 (B) after a reasonable expectation to such effect has been established, 3417

the director has not established that the challenged conduct was 3418 reasonably believed by the director to be in the best interests of the 3419 corporation; or 3420

3421 (iv) a sustained failure of the director to devote attention to ongoing oversight 3422

of the activities and affairs of the corporation, or a failure to devote timely 3423 attention, by making (or causing to be made) appropriate inquiry, when 3424 particular facts and circumstances of significant concern materialize that 3425 would alert a reasonably attentive director to the need therefor; or 3426

3427 (v) receipt of a financial benefit to which the director was not entitled or any 3428

other breach of the director's duties to deal fairly with the corporation and 3429 its members that is actionable under applicable law. 3430

3431

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(b) The party seeking to hold the director liable: 3432 3433

(1) for money damages, also has the burden of establishing that: 3434 3435

(i) harm to the nonprofit corporation or its members has been suffered, and 3436 3437 (ii) the harm suffered was proximately caused by the director's challenged 3438

conduct; or 3439 3440 (2) for other money payment under a legal remedy, such as compensation for the 3441

unauthorized use of corporate assets, also has whatever persuasion burden may be 3442 called for to establish that the payment sought is appropriate in the circumstances; 3443 or 3444

3445 (3) for other money payment under an equitable remedy, such as profit recovery by or 3446

disgorgement to the corporation, also has whatever persuasion burden may be 3447 called for to establish that the equitable remedy sought is appropriate in the 3448 circumstances. 3449

3450 (c) Nothing contained in this section: 3451 3452

(1) in any instance where fairness is at issue, such as consideration of the fairness of a 3453 transaction to the nonprofit corporation under section 8.60(a)(3), alters the burden 3454 of proving the fact or lack of fairness otherwise applicable, 3455

3456 (2) alters the fact or lack of liability of a director under another section of this [act], 3457

such as the provisions governing the consequences of an unlawful distribution 3458 under section 8.33, a conflicting interest transaction under section 8.60, or taking 3459 advantage of a business opportunity under section 8.70; or 3460

3461 (3) affects any rights to which the corporation or a member may be entitled under 3462

another statute of this state or the United States. 3463 3464

Source Note: Patterned after Model Business 3465 Corporation Act, 3d Ed. (2002) § 8.31, except that 3466 conforming changes have been made to subsections 3467 (a) and (c) with respect to §§ 8.60 and 8.70. 3468 Derived from Model Nonprofit Corporation Act 3469 (1987) § 8.30(d). 3470

3471 3472 § 8.32. [LOANS TO OR GUARANTEES FOR DIRECTORS AND OFFICERS] 3473

(Optional) 3474 3475 [(a) A nonprofit corporation may not lend money to or guarantee the obligation of a director 3476

or officer of the corporation. 3477

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3478 (b) The fact that a loan or guarantee is made in violation of this section does not affect the 3479

borrower’s liability on the loan.] 3480 3481

SourceNote: Reenactment of Model 3482 Nonprofit Corporation Act (1987) § 8.32. 3483

3484 3485 § 8.33. DIRECTORS' LIABILITY FOR UNLAWFUL DISTRIBUTIONS 3486 3487 (a) A director who votes for or assents to a distribution made in violation of this [act] is 3488

personally liable to the nonprofit corporation for the amount of the distribution that 3489 exceeds what could have been distributed without violating this [act] if the party asserting 3490 liability establishes that when taking the action the director did not comply with section 3491 8.30. 3492

3493 (b) A director held liable under subsection (a) for an unlawful distribution is entitled to: 3494 3495

(1) contribution from every other director who could be held liable under subsection 3496 (a) for the unlawful distribution; and 3497

3498 (2) recoupment from each person of the pro-rata portion of the amount of the 3499

unlawful distribution the person received, whether or not the person knew the 3500 distribution was made in violation of this [act]. 3501

3502 (c) A proceeding to enforce: 3503 3504

(1) the liability of a director under subsection (a) is barred unless it is commenced 3505 within two years after the date on which the distribution was made; or 3506

3507 (2) contribution or recoupment under subsection (b) is barred unless it is commenced 3508

within one year after the liability of the claimant has been finally adjudicated 3509 under subsection (a). 3510

3511 Source Note: Patterned after Model Business 3512 Corporation Act, 3d Ed. (2002) § 8.33. Subsections 3513 (a) and (b) are substantially a reenactment of Model 3514 Nonprofit Corporation Act (1987) § 8.33. 3515

3516 3517 Subchapter D 3518 OFFICERS 3519 3520 Section 3521 8.40. Officers. 3522 8.41. Duties of officers. 3523

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8.42. Standards of conduct for officers. 3524 8.43. Resignation and removal of officers. 3525 8.44. Contract rights of officers. 3526 3527 3528 § 8.40. OFFICERS 3529 3530 (a) A nonprofit corporation has the officers described in its articles of incorporation or 3531

bylaws or appointed by the board of directors in accordance with the articles and bylaws. 3532 3533 (b) The board of directors may elect individuals to fill one or more offices of the nonprofit 3534

corporation. An officer may appoint one or more officers if authorized by the articles of 3535 incorporation or bylaws or the board of directors. 3536

3537 (c) The articles of incorporation or bylaws or the board of directors must assign to one of the 3538

officers responsibility for preparing the minutes of the meetings of the board of directors, 3539 any designated body, and the members, if any, and for maintaining and authenticating the 3540 records of the corporation required to be kept under sections [16.01(a)] and [16.01(e)]. 3541

3542 (d) The same individual may simultaneously hold more than one office in a nonprofit 3543

corporation. 3544 3545


3550 3551 § 8.41. DUTIES OF OFFICERS 3552 3553 Each officer has the authority and must perform the duties set forth in the articles of 3554 incorporation or bylaws or, to the extent consistent with the articles and bylaws, the duties 3555 prescribed by the board of directors or by direction of an officer authorized by the board of 3556 directors to prescribe the duties of other officers. 3557 3558


3563 3564 § 8.42. STANDARDS OF CONDUCT FOR OFFICERS 3565 3566 (a) An officer with discretionary authority must discharge his or her duties under that 3567

authority: 3568 3569

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(1) in good faith; 3570 3571 (2) with the care an ordinarily prudent person in a like position would exercise under 3572

similar circumstances; and 3573 3574 (3) in a manner the officer reasonably believes to be in the best interests of the 3575

corporation and its members, if any. 3576 3577 (b) In discharging his or her duties, an officer may rely on [information, opinions, reports, 3578

or statements, including financial statements and other financial data, if prepared 3579 or presented by]: 3580

3581 (1) one or more officers or employees of the nonprofit corporation whom the officer 3582

reasonably believes to be reliable and competent in the functions performed or the 3583 information, opinions, reports, or statements provided; 3584

3585 (2) legal counsel, public accountants, or other persons retained by the corporation as 3586

to matters involving skills or expertise the officer reasonably believes are matters: 3587 3588

(i) within the particular person’s professional or expert competence, or 3589 3590 (ii) as to which the particular person merits confidence; 3591

3592 (3) in the case of a corporation engaged in religious activity, religious authorities and 3593

ministers, priests, rabbis, imams, or other persons whose positions or duties the 3594 officer reasonably believes justify reliance and confidence and whom the officer 3595 believes to be reliable and competent in the matters presented. 3596

3597 Source Note: Derived from Model Nonprofit 3598 Corporation Act (1987) § 8.42. 3599

3600 3601 § 8.43. RESIGNATION AND REMOVAL OF OFFICERS 3602 3603 (a) An officer may resign at any time by delivering notice to the nonprofit corporation. A 3604

resignation is effective when the notice is delivered unless the notice specifies a later 3605 effective time. If a resignation is made effective at a later time and the board of directors 3606 or the appointing officer accepts the future effective time, the board or the appointing 3607 officer may designate a successor before the effective time if the board or the appointing 3608 officer provides that the successor does not take office until the effective time. 3609

3610 (b) An officer may be removed at any time with or without cause by: 3611 3612

(i) the board of directors; 3613 3614

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(ii) the officer who appointed the officer being removed, unless the articles of 3615 incorporation or bylaws or the board provides otherwise; or 3616

3617 (iii) any other officer if authorized by the articles or bylaws or the board. 3618

3619 (c) In this section, “appointing officer” means the officer (including any successor to that 3620

officer) who appointed the officer resigning or being removed. 3621 3622


3627 3628 § 8.44. CONTRACT RIGHTS OF OFFICERS 3629 3630 (a) The appointment of an officer does not itself create contract rights. 3631 3632 (b) An officer’s removal does not affect the officer’s contract rights, if any, with the 3633

nonprofit corporation. An officer’s resignation does not affect the corporation’s contract 3634 rights, if any, with the officer. 3635


3641 3642 Subchapter E 3643 INDEMNIFICATION AND ADVANCE FOR EXPENSES 3644 3645 Section 3646 8.50. Subchapter definitions. 3647 8.51. Permissible indemnifications. 3648 8.52. Mandatory indemnification. 3649 8.53. Advance for expenses. 3650 8.54. Court-ordered indemnification and advance for expenses. 3651 8.55. Determination and authorization of indemnification. 3652 8.56. Indemnification of officers. 3653 8.57. Insurance. 3654 8.58. Variation by corporate action; application of subchapter. 3655 3656 3657 § 8.50. SUBCHAPTER DEFINITIONS 3658 3659 In this subchapter: 3660

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3661 (1) "Corporation" includes any domestic or foreign predecessor entity of a nonprofit 3662

corporation in a merger, conversion, or domestication. 3663 3664

(2) "Director" or "officer" means an individual who is or was a director or officer, 3665 respectively, of a nonprofit corporation or who, while a director or officer of the 3666 corporation, is or was serving at the corporation's request as a director, officer, 3667 partner, trustee, employee, or agent of another domestic or foreign corporation, 3668 partnership, joint venture, trust, employee benefit plan, or other entity. A director 3669 or officer is considered to be serving an employee benefit plan at the corporation's 3670 request if the individual’s duties to the corporation also impose duties on, or 3671 otherwise involve services by, the individual to the plan or to participants in or 3672 beneficiaries of the plan. “Director” includes a member of a designated body. 3673 “Director” or “officer” includes, unless the context requires otherwise, the estate 3674 or personal representative of a director or officer. 3675

3676 (3) "Disinterested director" means a director who, at the time of a vote referred to in 3677

section 8.53(c) or a vote or selection referred to in section 8.55(b) or (c), is not: 3678 3679

(i) a party to the proceeding, or 3680 3681 (ii) an individual having a familial, financial, professional, or employment 3682

relationship with the director whose indemnification or advance for 3683 expenses is the subject of the decision being made, which relationship 3684 would, in the circumstances, reasonably be expected to exert an influence 3685 on the director's judgment when voting on the decision being made. 3686

3687 (4) "Expenses" includes counsel fees. 3688

3689 (5) "Liability" means the obligation to pay a judgment, settlement, penalty, fine 3690

(including an excise tax assessed with respect to an employee benefit plan), or 3691 reasonable expenses incurred with respect to a proceeding. 3692

3693 (6) "Official capacity" means: 3694 3695

(i) when used with respect to a director, the office of director in a nonprofit 3696 corporation; and 3697

3698 (ii) when used with respect to an officer, as contemplated in section 8.56, the 3699

office in a corporation held by the officer. 3700 3701 "Official capacity" does not include service for any other domestic or foreign 3702 corporation or any partnership, joint venture, trust, employee benefit plan, or 3703 other entity. 3704

3705

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(7) "Party" means an individual who was, is, or is threatened to be made, a defendant 3706 or respondent in a proceeding. 3707

3708 (8) "Proceeding" means any threatened, pending, or completed action, suit, or 3709

proceeding, whether civil, criminal, administrative, arbitrative, or investigative 3710 and whether formal or informal. 3711


3717 3718 § 8.51. PERMISSIBLE INDEMNIFICATION 3719 3720 (a) Except as otherwise provided in this section, a nonprofit corporation may indemnify an 3721

individual who is a party to a proceeding because he is a director against liability incurred 3722 in the proceeding if: 3723 3724 (1) the individual: 3725 3726

(i) acted in good faith; and 3727 3728 (ii) reasonably believed: 3729 3730

(A) in the case of conduct in an official capacity, that the conduct was 3731 in the best interests of the corporation; and 3732

3733 (B) in all other cases, that the individual’s conduct was at least not 3734

opposed to the best interests of the corporation; and 3735 3736

(iii) in the case of any criminal proceeding, had no reasonable cause to believe 3737 his or her conduct was unlawful; or 3738

3739 (2) the individual engaged in conduct for which broader indemnification has been 3740

made permissible or obligatory under a provision of the articles of incorporation 3741 (as authorized by section 2.02(b)(5)). 3742

3743 (b) A director's conduct with respect to an employee benefit plan for a purpose the director 3744

reasonably believed to be in the interests of the participants in, and the beneficiaries of, 3745 the plan is conduct that satisfies the requirement of subsection (a)(1)(ii)(B). 3746 3747

(c) The termination of a proceeding by judgment, order, settlement, or conviction, or upon a 3748 plea of nolo contendere or its equivalent, is not, of itself, determinative that the director 3749 did not meet the relevant standard of conduct described in this section. 3750

3751

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(d) Unless ordered by a court under section 8.54(a)(3), a nonprofit corporation may not 3752 indemnify a director: 3753

3754 (1) in connection with a proceeding by or in the right of the corporation, except for 3755

reasonable expenses incurred in connection with the proceeding if it is determined 3756 that the director has met the relevant standard of conduct under subsection (a); or 3757

3758 (2) in connection with any proceeding with respect to conduct for which the director 3759

was adjudged liable on the basis that the director received a financial benefit to 3760 which the director was not entitled, whether or not involving action in an official 3761 capacity. 3762


3768 3769 § 8.52. MANDATORY INDEMNIFICATION 3770 3771 A nonprofit corporation must indemnify a director to the extent the director was successful, on 3772 the merits or otherwise, in the defense of any proceeding to which the director was a party 3773 because the director was a director of the corporation against reasonable expenses incurred by 3774 the director in connection with the proceeding. 3775 3776

Source Note: Patterned in part after Model 3777 Business Corporation Act, 3d Ed. (2002) § 8.52. 3778 Derived from Model Nonprofit Corporation Act 3779 (1987) § 8.52. 3780

3781 3782 § 8.53. ADVANCE FOR EXPENSES 3783 3784 (a) A nonprofit corporation may, before final disposition of a proceeding, advance funds to 3785

pay for or reimburse the reasonable expenses incurred by an individual who is a party to a 3786 proceeding because he or she is a director if the individual delivers to the corporation: 3787

3788 (1) an affirmation in record form of his or her good faith belief that he or she has met 3789

the relevant standard of conduct described in section 8.51 or that the proceeding 3790 involves conduct for which liability has been eliminated under a provision of the 3791 articles of incorporation as authorized by section 2.02(b)(4); and 3792

3793 (2) an undertaking in record form to repay any funds advanced if the individual is not 3794

entitled to mandatory indemnification under section 8.52 and it is ultimately 3795 determined under section 8.54 or section 8.55 that the individual has not met the 3796 relevant standard of conduct described in section 8.51. 3797

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3798 (b) The undertaking required by subsection (a)(2) must be an unlimited general obligation of 3799

the director, but need not be secured and may be accepted without reference to the 3800 financial ability of the director to make repayment. 3801

3802 (c) Authorizations under this section must be made: 3803 3804

(1) by the board of directors: 3805 3806

(i) if there are two or more disinterested directors, by a majority vote of all 3807 the disinterested directors (a majority of whom will constitute a quorum 3808 for that purpose) or by a majority of the members of a committee of two or 3809 more disinterested directors appointed by such a vote; or 3810

3811 (ii) if there are fewer than two disinterested directors, by the vote necessary 3812

for action by the board in accordance with section 8.24(c), in which 3813 authorization directors who do not qualify as disinterested directors may 3814 participate; or 3815

3816 (2) by the members. 3817

3818 Source Note: Patterned after Model Business 3819 Corporation Act, 3d Ed. (2002) § 8.53. Derived 3820 from Model Nonprofit Corporation Act (1987) § 3821 8.53. 3822

3823 3824 § 8.54. COURT-ORDERED INDEMNIFICATION AND ADVANCE FOR EXPENSES 3825 3826 (a) A director who is a party to a proceeding because he or she is a director may apply for 3827

indemnification or an advance for expenses to the court conducting the proceeding or to 3828 another court of competent jurisdiction. After receipt of an application and after giving 3829 any notice it considers necessary, the court must: 3830

3831 (1) order indemnification if the court determines that the director is entitled to 3832

mandatory indemnification under section 8.52; 3833 3834 (2) order indemnification or advance for expenses if the court determines that the 3835

director is entitled to indemnification or advance for expenses pursuant to a 3836 provision authorized by section 8.58(a); or 3837

3838 (3) order indemnification or advance for expenses if the court determines, in view of 3839

all the relevant circumstances, that it is fair and reasonable: 3840 3841

(i) to indemnify the director, or 3842 3843

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(ii) to advance expenses to the director, even if the director has not met the 3844 relevant standard of conduct set forth in section 8.51(a), failed to comply 3845 with section 8.53 or was adjudged liable in a proceeding referred to in 3846 subsection 8.51(d)(1) or (d)(2), but if the director was adjudged so liable 3847 his or her indemnification must be limited to reasonable expenses incurred 3848 in connection with the proceeding. 3849

3850 (b) If the court determines that the director is entitled to indemnification under subsection 3851

(a)(1) or to indemnification or advance for expenses under subsection (a)(2), it must also 3852 order the nonprofit corporation to pay the director's reasonable expenses incurred in 3853 connection with obtaining court-ordered indemnification or advance for expenses. If the 3854 court determines that the director is entitled to indemnification or advance for expenses 3855 under subsection (a)(3), it may also order the corporation to pay the director's reasonable 3856 expenses to obtain court-ordered indemnification or advance for expenses. 3857


3863 3864 § 8.55. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION 3865 3866 (a) A nonprofit corporation may not indemnify a director under section 8.51 unless 3867

authorized for a specific proceeding after a determination has been made that 3868 indemnification of the director is permissible because the director has met the relevant 3869 standard of conduct set forth in section 8.51. 3870

3871 (b) The determination may be made: 3872 3873

(1) if there are two or more disinterested directors, by the board of directors by a 3874 majority vote of all the disinterested directors (a majority of whom will constitute 3875 a quorum for that purpose), or by a majority of the members of a committee of 3876 two or more disinterested directors appointed by such a vote; 3877

3878 (2) by special legal counsel: 3879 3880

(i) selected in the manner prescribed in subdivision (1); or 3881 3882 (ii) if there are fewer than two disinterested directors, selected by the board of 3883

directors (in which selection directors who do not qualify as disinterested 3884 directors may participate); or 3885

3886 (3) by the members. 3887

3888

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(c) Authorization of indemnification must be made in the same manner as the determination 3889 that indemnification is permissible, except that if there are fewer than two disinterested 3890 directors or if the determination is made by special legal counsel, authorization of 3891 indemnification must be made by those entitled under subsection (b)(2)(ii) to select 3892 special legal counsel. 3893


3899 3900 § 8.56. INDEMNIFICATION OF OFFICERS 3901 3902 (a) A nonprofit corporation may indemnify and advance expenses under this subchapter to an 3903

officer of the corporation who is a party to a proceeding because he or she is an officer of 3904 the corporation 3905

3906 (1) to the same extent as a director; and 3907 3908 (2) if he or she is an officer but not a director, to such further extent as may be 3909

provided by the articles of incorporation, the bylaws, a resolution of the board of 3910 directors, or contract except for: 3911

3912 (i) liability in connection with a proceeding by or in the right of the 3913

corporation other than for reasonable expenses incurred in connection with 3914 the proceeding, or 3915

3916 (ii) liability arising out of conduct that constitutes: 3917 3918

(A) receipt by the officer of a financial benefit to which the officer is 3919 not entitled, 3920

3921 (B) an intentional infliction of harm on the corporation or the 3922

members, or 3923 3924 (C) an intentional violation of criminal law. 3925 3926

(b) The provisions of subsection (a)(2) apply to an officer who is also a director if the basis 3927 on which he or she is made a party to the proceeding is an act or omission solely as an 3928 officer. 3929

3930 (c) An officer of a corporation who is not a director is entitled to mandatory indemnification 3931

under section 8.52, and may apply to a court under section 8.54 for indemnification or an 3932 advance for expenses, in each case to the same extent to which a director may be entitled 3933 to indemnification or advance for expenses under those provisions. 3934

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3940 3941 § 8.57. INSURANCE 3942 3943 A nonprofit corporation may purchase and maintain insurance on behalf of an individual who is 3944 a director or officer of the corporation, or who, while a director or officer of the corporation, 3945 serves at the corporation's request as a director, officer, partner, trustee, employee, or agent of 3946 another domestic or foreign corporation, partnership, joint venture, trust, employee benefit plan, 3947 or other entity, against liability asserted against or incurred by the individual in that capacity or 3948 arising from the individual’s status as a director or officer, whether or not the corporation would 3949 have power to indemnify or advance expenses to the individual against the same liability under 3950 this subchapter. 3951 3952


3957 3958 § 8.58. VARIATION BY CORPORATE ACTION; APPLICATION OF 3959

SUBCHAPTER 3960 3961 (a) A nonprofit corporation may, by a provision in its articles of incorporation or bylaws or 3962

in a resolution adopted or a contract approved by its board of directors or members, 3963 obligate itself in advance of the act or omission giving rise to a proceeding to provide 3964 indemnification as permitted by section 8.51 or advance funds to pay for or reimburse 3965 expenses as permitted by section 8.53. An obligatory provision satisfies the requirements 3966 for authorization referred to in section 8.53(c) and in section 8.55(c). Any such provision 3967 that obligates the corporation to provide indemnification to the fullest extent permitted by 3968 law obligates the corporation to advance funds to pay for or reimburse expenses in 3969 accordance with section 8.53 to the fullest extent permitted by law, unless the provision 3970 specifically provides otherwise. 3971

3972 (b) Any provision pursuant to subsection (a) may not obligate the nonprofit corporation to 3973

indemnify or advance expenses to a director of a predecessor of the corporation, 3974 pertaining to conduct with respect to the predecessor, unless otherwise specifically 3975 provided. Any provision for indemnification or advance for expenses in the articles of 3976 incorporation, bylaws, or a resolution of the board of directors or members of a 3977 predecessor of the corporation in a merger or in a contract to which the predecessor is a 3978 party, existing at the time the merger takes effect, is governed by section 11.07(a)(4). 3979

3980

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(c) A nonprofit corporation may, by a provision in its articles of incorporation, limit any of 3981 the rights to indemnification or advance for expenses created by or pursuant to this 3982 subchapter. 3983

3984 (d) This subchapter does not limit a nonprofit corporation's power to pay or reimburse 3985

expenses incurred by a director or an officer in connection with appearance as a witness 3986 in a proceeding at a time when the director or officer is not a party. 3987

3988 (e) This subchapter does not limit a nonprofit corporation's power to indemnify, advance 3989

expenses to, or provide or maintain insurance on behalf of an employee, agent, or 3990 volunteer. 3991


3997 3998 Subchapter F 3999 CONFLICTING INTEREST TRANSACTIONS 4000 4001 Section 4002 8.60. Conflicting interest transactions. 4003 4004 4005 § 8.60. CONFLICTING INTEREST TRANSACTIONS 4006 4007 (a) A contract or transaction between a nonprofit corporation and one or more of its 4008

members, directors, members of a designated body, or officers or between a nonprofit 4009 corporation and any other corporation, partnership, association, or other entity in which 4010 one or more of its directors, members of a designated body, or officers are directors or 4011 officers, hold a similar position, or have a financial interest, is not void or voidable solely 4012 for that reason, or solely because the member, director, member of a designated body, or 4013 officer is present at or participates in the meeting of the board of directors that authorizes 4014 the contract or transaction, or solely because his or their votes are counted for that 4015 purpose, if: 4016

4017 (1) the material facts as to the relationship or interest and as to the contract or 4018

transaction are disclosed or are known to the board of directors and the board in 4019 good faith authorizes the contract or transaction by the affirmative votes of a 4020 majority of the disinterested directors even though the disinterested directors are 4021 less than a quorum; 4022

4023 (2) the material facts as to the relationship or interest of the member, director, or 4024

officer and as to the contract or transaction are disclosed or are known to the 4025

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members entitled to vote thereon, if any, and the contract or transaction is 4026 specifically approved in good faith by vote of those members; or 4027

4028 (3) the contract or transaction is fair as to the corporation as of the time it is 4029

authorized, approved, or ratified by the board of directors or the members. 4030 4031

(b) Common or interested directors may be counted in determining the presence of a quorum 4032 at a meeting of the board that authorizes a contract or transaction specified in subsection 4033 (a). 4034

4035 (c) This section is applicable except as otherwise restricted in the articles of incorporation or 4036

bylaws. 4037 4038

Source Note: Patterned after 8 Del. Code § 144 and 15 4039 Pa.C.S. § 5728. Compare Model Nonprofit Corporation 4040 Act (1987) § 8.31. 4041

4042 4043 Subchapter G 4044 BUSINESS OPPORTUNITIES 4045 4046 Section 4047 8.70. Business opportunities. 4048 4049 4050 § 8.70. BUSINESS OPPORTUNITIES 4051 4052 (a) The taking advantage, directly or indirectly, by a director of a business opportunity may 4053

not be the subject of equitable relief, or give rise to an award of damages or other 4054 sanctions against the director, in a proceeding by or in the right of the nonprofit 4055 corporation on the ground that the opportunity should have first been offered to the 4056 corporation, if before becoming legally obligated respecting the opportunity the director 4057 brings it to the attention of the corporation and action by the members or the directors 4058 disclaiming the corporation’s interest in the opportunity is taken in compliance with the 4059 procedures set forth in section 8.60, as if the decision being made concerned a conflicting 4060 interest transaction. 4061

4062 (b) In any proceeding seeking equitable relief or other remedies, based upon an alleged 4063

improper taking advantage of a business opportunity by a director, the fact that the 4064 director did not employ the procedure described in subsection (a) before taking advantage 4065 of the opportunity does not support an inference that the opportunity should have been 4066 first presented to the nonprofit corporation or alter the burden of proof otherwise 4067 applicable to establish that the director breached a duty to the corporation in the 4068 circumstances. 4069

4070 (c) As used in this section, “director” includes a member of a designated body. 4071

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CHAPTER 9 4075 DOMESTICATION AND CONVERSION 4076 4077 Subchapter 4078 A. Preliminary Provisions 4079 B. Domestication 4080 C. For-profit Conversion 4081 D. Foreign For-profit Domestication and Conversion 4082 E. Entity Conversion 4083

4084 Subchapter A 4085 PRELIMINARY PROVISIONS 4086 4087 Section 4088 9.01. Definitions. 4089 9.02. Excluded transactions. 4090 9.03. Required approvals. [Optional] 4091 4092 4093 § 9.01. DEFINITIONS 4094 4095 In this chapter: 4096 4097

(1) “Conversion” means a transaction of the kind authorized by Subchapter C, D, or 4098 E. 4099

4100 (2) “Converting corporation” means the domestic or foreign nonprofit or business 4101

corporation that is the subject of a conversion. 4102 4103 (3) “Converting entity” means the domestic or foreign unincorporated entity that is 4104

the subject of a conversion. 4105 4106 (4) “Domesticated corporation” means the domesticating corporation as it continues 4107

in existence after a domestication. 4108 4109 (5) “Domesticating corporation” means the domestic nonprofit corporation that 4110

adopts a plan of domestication pursuant to section 9.21 or the foreign nonprofit 4111 corporation that approves a domestication pursuant to the law of its jurisdiction of 4112 incorporation. 4113

4114 (6) “Domestication” means a transaction of the kind authorized by Subchapter B. 4115

4116 (7) “Surviving corporation” means the corporation as it continues in existence 4117

immediately after consummation of a for-profit conversion pursuant to 4118 Subchapter C, a foreign for-profit conversion and domestication pursuant to 4119 Subchapter D, or an entity conversion pursuant to Subchapter E. 4120

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4121 (8) “Surviving entity” means the unincorporated entity as it continues in existence 4122

immediately after consummation of an entity conversion pursuant to Subchapter 4123 E. 4124

4125 Source Note: New. 4126

4127 4128 § 9.02. EXCLUDED TRANSACTIONS 4129 4130 This chapter may not be used to effect a transaction that: 4131

4132 (1) [converts a Blue Cross plan to a stock corporation;] 4133

4134 (2) 4135

4136 (3) 4137 4138


4141 4142 § 9.03. REQUIRED APPROVALS [Optional] 4143 4144 (a) If a domestic or foreign nonprofit corporation or eligible entity may not be a party to a 4145

merger or sale of its assets without the approval of the [attorney general], the 4146 [department of insurance] or the [public utility commission], the corporation or eligible 4147 entity shall not be a party to a transaction under this chapter without the prior written 4148 approval of that [agency]. 4149

4150 (b) Property held in trust or otherwise dedicated to a charitable purpose may not be diverted 4151

from that purpose by any transaction under this chapter unless the nonprofit corporation 4152 or eligible entity obtains an order of [court] [the attorney general] specifying the 4153 disposition of the property to the extent required by and pursuant to [cite state statutory 4154 cy pres or other nondiversion statute]. 4155

4156 (c) Unless and until an entity that is a party to a transaction under this chapter obtains an 4157

appropriate order of [court] [the attorney general] under [cite state cy pres or other 4158 nondiversion statute] the transaction may not affect: 4159

4160 (1) any restriction imposed upon the entity by its organic documents; 4161 4162 (2) any restriction imposed upon property held by the entity; or 4163 4164 (3) the existing rights of persons other than members, shareholders, or interest 4165

holders of the entity. 4166

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4167 (d) A person who is a member, interest holder, or otherwise affiliated with a select exempt 4168

organization may not receive a direct or indirect financial benefit in connection with a 4169 transaction under this chapter to which the select exempt organization is a party unless 4170 the person is itself a select exempt organization. 4171


4175 4176 Subchapter B 4177 DOMESTICATION 4178 4179 Section 4180 9.20. Domestication. 4181 9.21. Action on a plan of domestication. 4182 9.22. Articles of domestication. 4183 9.23. Effect of domestication. 4184 9.24. Abandonment of a domestication. 4185 4186 4187 § 9.20. DOMESTICATION 4188 4189 (a) A foreign nonprofit corporation may become a domestic nonprofit corporation only if the 4190

domestication is authorized by the law of the foreign jurisdiction. 4191 4192

(b) A domestic nonprofit corporation may become a foreign nonprofit corporation if the 4193 domestication is permitted by the laws of the foreign jurisdiction. Regardless of whether 4194 the laws of the foreign jurisdiction require the adoption of a plan of domestication, the 4195 domestication must be approved by the adoption by the corporation of a plan of 4196 domestication in the manner provided in this subchapter. 4197 4198

(c) The plan of domestication must include: 4199 4200 (1) a statement of the jurisdiction in which the corporation is to be domesticated; 4201 4202 (2) the terms and conditions of the domestication; 4203 4204 (3) the manner and basis of reclassifying the memberships of the corporation 4205

following its domestication into memberships, securities, obligations, rights to 4206 acquire memberships or securities, cash, other property, or any combination of the 4207 foregoing; and 4208

4209 (4) any desired amendments to the articles of incorporation of the corporation 4210

following its domestication. 4211 4212

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(d) The plan of domestication may also include a provision that the plan may be amended 4213 prior to filing the document required by the laws of this state or the other jurisdiction to 4214 consummate the domestication, except that subsequent to approval of the plan by the 4215 members the plan may not be amended to change: 4216

4217 (1) the amount or kind of memberships, securities, obligations, rights to acquire 4218

memberships or securities, cash, or other property to be received by the members 4219 under the plan; 4220

4221 (2) the articles of incorporation as they will be in effect immediately following the 4222

domestication, except for changes permitted by section 10.05 or by comparable 4223 provisions of the laws of the other jurisdiction; or 4224

4225 (3) any of the other terms or conditions of the plan if the change would adversely 4226

affect any of the members in any material respect. 4227 4228 (e) Terms of a plan of domestication may be made dependent upon facts objectively 4229

ascertainable outside the plan in accordance with section 1.20(c). 4230 4231 (f) If any debt security, note or similar evidence of indebtedness for money borrowed, 4232

whether secured or unsecured, or a contract of any kind, issued, incurred or executed by a 4233 domestic nonprofit corporation before [the effective date of this subchapter] contains a 4234 provision applying to a merger of the corporation and the document does not refer to a 4235 domestication of the corporation, the provision shall be deemed to apply to a 4236 domestication of the corporation until such time as the provision is amended subsequent 4237 to that date. 4238


4242 4243 § 9.21. ACTION ON A PLAN OF DOMESTICATION 4244 4245 In the case of a domestication of a domestic nonprofit corporation in a foreign jurisdiction: 4246 4247

(1) The plan of domestication must be adopted by the board of directors. 4248 4249

(2) After adopting the plan of domestication the board of directors must submit the 4250 plan to the members for their approval if there are members entitled to vote on the 4251 plan. The board of directors must also transmit to the members a 4252 recommendation that the members approve the plan, unless the board of directors 4253 makes a determination that because of conflicts of interest or other special 4254 circumstances it should not make such a recommendation, in which case the 4255 board of directors must transmit to the members the basis for that determination. 4256

4257 (3) The board of directors may condition its submission of the plan of domestication 4258

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to the members on any basis. 4259 4260

(4) If the approval of the members is to be given at a meeting, the corporation must 4261 notify each member, whether or not entitled to vote, of the meeting of members at 4262 which the plan of domestication is to be submitted for approval. The notice must 4263 state that the purpose, or one of the purposes, of the meeting is to consider the 4264 plan and must contain or be accompanied by a copy or summary of the plan. The 4265 notice shall include or be accompanied by a copy of the articles of incorporation 4266 as they will be in effect immediately after the domestication. 4267

4268 (5) Unless the articles of incorporation or bylaws, or the board of directors acting 4269

pursuant to paragraph (3), requires a greater vote or a greater number of votes to 4270 be present, approval of the plan of domestication requires the approval of the 4271 members at a meeting at which a quorum exists consisting of at least a majority of 4272 the votes entitled to be cast on the plan, and, if any class of members is entitled to 4273 vote as a separate group on the plan, the approval of each such separate voting 4274 group at a meeting at which a quorum of the voting group exists consisting of at 4275 least a majority of the votes entitled to be cast on the domestication by that voting 4276 group. 4277

4278 (6) Separate voting by voting groups is required by each class of members that: 4279

4280 (i) are to be reclassified under the plan of domestication into other 4281

memberships, obligations, rights to acquire memberships or securities, 4282 cash, other property, or any combination of the foregoing; 4283

4284 (ii) would be entitled to vote as a separate group on a provision of the plan 4285

that, if contained in a proposed amendment to articles of incorporation, 4286 would require action by separate voting groups under section 10.04; or 4287

4288 (iii) is entitled under the articles of incorporation or bylaws to vote as a voting 4289

group to approve an amendment of the articles. 4290 4291 (7) If any provision of the articles of incorporation, bylaws or an agreement to which any of 4292

the directors or members are parties, adopted or entered into before [the effective date of 4293 this subchapter], applies to a merger of the corporation and that document does not refer 4294 to a domestication of the corporation, the provision shall be deemed to apply to a 4295 domestication of the corporation until such time as the provision is amended subsequent 4296 to that date. 4297


4301 4302 § 9.22. ARTICLES OF DOMESTICATION 4303 4304

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(a) Articles of domestication must be signed on behalf of the domesticating corporation by 4305 any officer or other duly authorized representative. The articles shall set forth: 4306

4307 (1) the name and jurisdiction of incorporation of the domesticating corporation; 4308 4309 (2) the name and jurisdiction of incorporation of the domesticated entity; and 4310 4311 (3) if the domesticating corporation is a domestic nonprofit corporation, a statement 4312

that the plan of domestication was approved in accordance with this subchapter 4313 or, if the domesticating corporation is a foreign nonprofit corporation, a statement 4314 that the domestication was approved in accordance with the law of its jurisdiction 4315 of incorporation. 4316 4317

(b) If the domesticated corporation is a domestic nonprofit corporation, the articles of 4318 domestication shall either contain all of the provisions that section 2.02(a) requires to be 4319 set forth in articles of incorporation and any other desired provisions that section 2.02(b) 4320 permits to be included in articles of incorporation, or shall have attached articles of 4321 incorporation. In either case, provisions that would not be required to be included in 4322 restated articles of incorporation may be omitted. The name of the domesticated 4323 corporation must satisfy the requirements of section 4.01. 4324

4325 (c) The articles of domestication must be delivered to the secretary of state for filing, and 4326

take effect at the effective time provided in section 1.23. 4327 4328 (d) If the domesticating corporation is a qualified foreign nonprofit corporation, its certificate 4329

of authority is cancelled automatically on the effective date of its domestication. 4330 4331


4334 4335 § 9.23. EFFECT OF DOMESTICATION 4336 4337 (a) [Except as otherwise provided in section 9.03, when] When a domestication becomes 4338

effective: 4339 4340

(1) the title to all real and personal property, both tangible and intangible, of the 4341 domesticating corporation remains in the domesticated corporation without 4342 reversion or impairment; 4343

4344 (2) the liabilities of the domesticating corporation remain the liabilities of the 4345

domesticated corporation; 4346 4347 (3) an action or proceeding pending against the domesticating corporation continues 4348

against the domesticated corporation as if the domestication had not occurred; 4349 4350

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(4) the articles of domestication, or the articles of incorporation attached to the 4351 articles of domestication, constitute the articles of incorporation of a foreign 4352 corporation domesticating in this state; 4353

4354 (5) the memberships in the domesticating corporation are reclassified into 4355

memberships, securities, obligations, rights to acquire memberships or securities, 4356 or cash or other property in accordance with the terms of the domestication, and 4357 the members are entitled only to the rights provided by those terms; and 4358

4359 (6) the domesticating corporation is deemed to: 4360 4361

(i) be incorporated under and subject to the organic law of the domesticated 4362 corporation for all purposes; and 4363

4364 (ii) be the same corporation without interruption as the domesticating 4365

corporation. 4366 4367

(b) The interest holder liability of a member in a foreign nonprofit corporation that is 4368 domesticated in this state is as follows: 4369

4370 (1) The domestication does not discharge any interest holder liability under the laws 4371

of the foreign jurisdiction to the extent any such interest holder liability arose 4372 before the effective time of the articles of domestication. 4373

4374 (2) The member does not have interest holder liability under the laws of the foreign 4375

jurisdiction for any debt, obligation or liability of the corporation that arises after 4376 the effective time of the articles of domestication. 4377

4378 (3) The provisions of the laws of the foreign jurisdiction continue to apply to the 4379

collection or discharge of any interest holder liability preserved by paragraph (1), 4380 as if the domestication had not occurred. 4381

4382 (4) The member has whatever rights of contribution from other members are 4383

provided by the laws of the foreign jurisdiction with respect to any interest holder 4384 liability preserved by paragraph (1), as if the domestication had not occurred. 4385

4386 [(c) A member who becomes subject to interest holder liability for some or all of the debts, 4387

obligations or liabilities of the domesticated corporation as a result of its domestication 4388 in this state has interest holder liability only for those debts, obligations, or liabilities of 4389 the corporation that arise after the effective time of the articles of domestication.] 4390


4394 4395 § 9.24. ABANDONMENT OF A DOMESTICATION 4396

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4397 (a) Unless otherwise provided in a plan of domestication of a domestic nonprofit 4398

corporation, after the plan has been adopted and approved as required by this subchapter, 4399 and at any time before the domestication has become effective, it may be abandoned by 4400 the board of directors without action by the members. 4401

4402 (b) If a domestication is abandoned under subsection (a) after articles of domestication have 4403

been filed with the secretary of state but before the domestication has become effective, a 4404 statement that the domestication has been abandoned in accordance with this section, 4405 signed by an officer or other duly authorized representative, must be delivered to the 4406 secretary of state for filing prior to the effective date of the domestication. The statement 4407 takes effect upon filing and the domestication is abandoned and does not become 4408 effective. 4409

4410 (c) If the domestication of a foreign nonprofit corporation in this state is abandoned in 4411

accordance with the laws of the foreign jurisdiction after articles of domestication have 4412 been filed with the secretary of state, a statement that the domestication has been 4413 abandoned, signed by an officer or other duly authorized representative, must be 4414 delivered to the secretary of state for filing. The statement takes effect upon filing and 4415 the domestication is abandoned and does not become effective. 4416


4420 4421 Subchapter C 4422 FOR-PROFIT CONVERSION 4423 4424 Section 4425 9.30. For-profit conversion. 4426 9.31. Action on a plan of for-profit conversion. 4427 9.32. Articles of for-profit conversion. 4428 9.33. Effect of for-profit conversion. 4429 9.34. Abandonment of a for-profit conversion. 4430 4431 4432 § 9.30. FOR-PROFIT CONVERSION 4433 4434 (a) A domestic nonprofit corporation may become a domestic business corporation pursuant 4435

to a plan of for-profit conversion. 4436 4437 (b) A domestic nonprofit corporation may become a foreign business corporation if the for-4438

profit conversion is permitted by the laws of the foreign jurisdiction. Regardless of 4439 whether the laws of the foreign jurisdiction require the adoption of a plan of for-profit 4440 conversion, the foreign for-profit conversion shall be approved by the adoption by the 4441 domestic nonprofit corporation of a plan of for-profit conversion in the manner provided 4442

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in this subchapter. 4443 4444 (c) The plan of for-profit conversion must include: 4445

4446 (1) the terms and conditions of the conversion; 4447 4448 (2) the manner and basis of: 4449 4450

(i) issuing at least one share in the corporation following its conversion; and 4451 4452 (ii) otherwise reclassifying the memberships in the corporation, if any, 4453

following its conversion into shares and other securities, obligations, 4454 rights to acquire shares or other securities, cash, other property, or any 4455 combination of the foregoing; 4456

4457 (3) any desired amendments to the articles of incorporation of the corporation 4458

following its conversion; and 4459 4460 (4) if the domestic nonprofit corporation is to be converted to a foreign business 4461

corporation, a statement of the jurisdiction in which the corporation will be 4462 incorporated after the conversion. 4463

4464 (d) The plan of for-profit conversion may also include a provision that the plan may be 4465

amended prior to filing articles of for-profit conversion, except that subsequent to 4466 approval of the plan by the members the plan may not be amended to change: 4467

4468 (1) the amount or kind of shares and other securities, obligations, rights to acquire 4469

shares or other securities, cash, or other property to be received by the members 4470 under the plan; 4471

4472 (2) the articles of incorporation as they will be in effect immediately following the 4473

conversion, except for changes permitted by section 10.05; or 4474 4475 (3) any of the other terms or conditions of the plan if the change would adversely 4476

affect any of the members in any material respect. 4477 4478 (e) Terms of a plan of for-profit conversion may be made dependent upon facts objectively 4479

ascertainable outside the plan in accordance with section 1.20(c). 4480 4481 (f) If any debt security, note or similar evidence of indebtedness for money borrowed, 4482

whether secured or unsecured, or a contract of any kind, issued, incurred or executed by a 4483 domestic nonprofit corporation before [the effective date of this subchapter] contains a 4484 provision applying to a merger of the corporation and the document does not refer to a 4485 for-profit conversion of the corporation, the provision shall be deemed to apply to a for-4486 profit conversion of the corporation until such time as the provision is amended 4487 subsequent to that date. 4488

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4492 4493 § 9.31. ACTION ON A PLAN OF FOR-PROFIT CONVERSION 4494 4495 In the case of a conversion of a domestic nonprofit corporation to a domestic or foreign business 4496 corporation: 4497 4498

(1) The plan of for-profit conversion must be adopted by the board of directors. 4499 4500

(2) After adopting the plan of for-profit conversion, the board of directors must 4501 submit the plan to the members for their approval if there are members entitled to 4502 vote on the plan. The board of directors must also transmit to the members a 4503 recommendation that the members approve the plan, unless the board of directors 4504 makes a determination that because of conflicts of interest or other special 4505 circumstances it should not make such a recommendation, in which case the 4506 board of directors must transmit to the members the basis for that determination. 4507

4508 (3) The board of directors may condition its submission of the plan of for-profit 4509

conversion to the members on any basis. 4510 4511

(4) If the approval of the members is to be given at a meeting, the corporation must 4512 notify each member of the meeting of members at which the plan of for-profit 4513 conversion is to be submitted for approval. The notice must state that the 4514 purpose, or one of the purposes, of the meeting is to consider the plan and must 4515 contain or be accompanied by a copy or summary of the plan. The notice shall 4516 include or be accompanied by a copy of the articles of incorporation as they will 4517 be in effect immediately after the for-profit conversion. 4518

4519 (5) Unless the articles of incorporation, or the board of directors acting pursuant to 4520

paragraph (3), require a greater vote or a greater number of votes to be present, 4521 approval of the plan of for-profit conversion requires the approval of each class of 4522 members of the corporation voting as a separate voting group at a meeting at 4523 which a quorum of the voting group exists consisting of at least a majority of the 4524 votes entitled to be cast on the for-profit conversion by that voting group. 4525

4526 (6) If any provision of the articles of incorporation, bylaws or an agreement to which 4527

any of the directors or members are parties, adopted or entered into before [the 4528 effective date of this subchapter], applies to a merger of the corporation and the 4529 document does not refer to a for-profit conversion of the corporation, the 4530 provision shall be deemed to apply to a for-profit conversion of the corporation 4531 until such time as the provision is amended subsequent to that date. 4532

4533 Source Note: Patterned after Model Business 4534

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Corporation Act, 3d Ed. (2002) § 9.31. 4535 4536 4537 § 9.32. ARTICLES OF FOR-PROFIT CONVERSION 4538 4539 (a) Articles of for-profit conversion must be signed on behalf of the converting corporation 4540

by any officer or other duly authorized representative. The articles shall set forth: 4541 4542

(1) if the surviving corporation is a domestic business corporation, the name of the 4543 corporation immediately before the filing of the articles of for-profit conversion 4544 and if that name does not satisfy the requirements of [the Model Business 4545 Corporation Act], or the corporation desires to change its name in connection 4546 with the conversion, a name that satisfies the requirements of [the Model Business 4547 Corporation Act]; 4548

4549 (2) if the surviving corporation is a foreign business corporation, its name after the 4550

conversion and its jurisdiction of incorporation; and 4551 4552 (3) a statement that the plan of for-profit conversion was duly approved by the 4553

members in the manner required by this Act and the articles of incorporation. 4554 4555

(b) If the surviving corporation is a domestic business corporation, the articles of for-profit 4556 conversion shall either contain all of the provisions that [the Model Business Corporation 4557 Act] requires to be set forth in articles of incorporation of a domestic business corporation 4558 and any other desired provisions permitted by [the Model Business Corporation Act], or 4559 shall have attached articles of incorporation that satisfy the requirements of [the Model 4560 Business Corporation Act]. In either case, provisions that would not be required to be 4561 included in restated articles of incorporation of a domestic business corporation may be 4562 omitted. 4563

4564 (c) The articles of for-profit conversion must be delivered to the secretary of state for filing, 4565

and take effect at the effective time provided in section 1.23. 4566 4567


4570 4571 § 9.33. EFFECT OF FOR-PROFIT CONVERSION 4572 4573 (a) [Except as otherwise provided in section 9.03, when] When a conversion of a domestic 4574

nonprofit corporation to a domestic or foreign business corporation becomes effective: 4575 4576

(1) the title to all real and personal property, both tangible and intangible, of the 4577 corporation remains in the corporation without reversion or impairment; 4578

4579 (2) the liabilities of the corporation remain the liabilities of the corporation; 4580

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4581 (3) an action or proceeding pending against the corporation continues against the 4582

corporation as if the conversion had not occurred; 4583 4584 (4) the articles of incorporation of the domestic or foreign business corporation 4585

become effective; 4586 4587 (5) the memberships of the corporation are reclassified into shares or other securities, 4588

obligations, rights to acquire shares or other securities, or into cash or other 4589 property in accordance with the plan of conversion, and the members are entitled 4590 only to the rights provided in the plan of for-profit conversion; and 4591

4592 (6) the corporation is deemed to: 4593 4594

(i) be a domestic or foreign business corporation for all purposes; and 4595 4596 (ii) be the same corporation without interruption as the nonprofit corporation. 4597

4598 [(b) The interest holder liability of a member in a domestic nonprofit corporation that 4599

converts to a domestic business corporation is as follows: 4600 4601

(1) The conversion does not discharge any interest holder liability of the member as a 4602 member of the nonprofit corporation to the extent any such interest holder 4603 liability arose before the effective time of the articles of for-profit conversion. 4604

4605 (2) The member does not have interest holder liability for any debt, obligation or 4606

liability of the business corporation that arises after the effective time of the 4607 articles of for-profit conversion. 4608

4609 (3) The laws of this state continue to apply to the collection or discharge of any 4610

interest holder liability preserved by paragraph (1), as if the conversion had not 4611 occurred. 4612


provided by the laws of this state with respect to any interest holder liability 4615 preserved by paragraph (1), as if the conversion had not occurred. 4616

4617 (c) A member who becomes subject to interest holder liability for some or all of the debts, 4618

obligations or liabilities of the business corporation has interest holder liability only for 4619 those debts, obligations or liabilities of the business corporation that arise after the 4620 effective time of the articles of for-profit conversion.] 4621


4625 4626

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§ 9.34. ABANDONMENT OF A FOR-PROFIT CONVERSION 4627 4628 (a) Unless otherwise provided in a plan of for-profit conversion of a domestic nonprofit 4629

corporation, after the plan has been adopted and approved as required by this subchapter, 4630 and at any time before the for-profit conversion has become effective, it may be 4631 abandoned by the board of directors without action by the members. 4632

4633 (b) If a for-profit conversion is abandoned under subsection (a) after articles of for-profit 4634

conversion have been filed with the secretary of state but before the for-profit conversion 4635 has become effective, a statement that the for-profit conversion has been abandoned in 4636 accordance with this section, signed by an officer or other duly authorized representative, 4637 must be delivered to the secretary of state for filing prior to the effective date of the for-4638 profit conversion. The statement takes effect upon filing and the for-profit conversion is 4639 abandoned and does not become effective. 4640


4644 4645 Subchapter D 4646 FOREIGN FOR-PROFIT DOMESTICATION AND CONVERSION 4647 4648 Section 4649 9.40. Foreign for-profit domestication and conversion. 4650 9.41. Articles of domestication and conversion. 4651 9.42. Effect of foreign for-profit domestication and conversion. 4652 9.43. Abandonment of a foreign for-profit domestication and conversion. 4653 4654 4655 § 9.40. FOREIGN FOR-PROFIT DOMESTICATION AND CONVERSION 4656 4657 A foreign business corporation may become a domestic nonprofit corporation if the 4658 domestication and conversion is permitted by the law of the foreign jurisdiction. 4659 4660


4663 4664 § 9.41. ARTICLES OF DOMESTICATION AND CONVERSION 4665 4666 (a) After the conversion of a foreign business corporation to a domestic nonprofit 4667

corporation has been authorized as required by the laws of the foreign jurisdiction, 4668 articles of domestication and conversion shall be signed by any officer or other duly 4669 authorized representative. The articles shall set forth: 4670

4671 (1) the name of the corporation immediately before the filing of the articles of 4672

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domestication and conversion and, if that name is unavailable for use in this state 4673 or the corporation desires to change its name in connection with the domestication 4674 and conversion, a name that satisfies the requirements of section 4.01; 4675

4676 (2) the jurisdiction of incorporation of the corporation immediately before the filing 4677

of the articles of domestication and conversion and the date the corporation was 4678 incorporated in that jurisdiction; and 4679

4680 (3) a statement that the domestication and conversion of the corporation in this state 4681

was duly authorized as required by the laws of the jurisdiction in which the 4682 corporation was incorporated immediately before its domestication and 4683 conversion in this state. 4684 4685

(b) The articles of domestication and conversion shall either contain all of the provisions that 4686 section 2.02(a) requires to be set forth in articles of incorporation and any other desired 4687 provisions that section 2.02(b) permits to be included in articles of incorporation, or shall 4688 have attached articles of incorporation. In either case, provisions that would not be 4689 required to be included in restated articles of incorporation may be omitted. 4690

4691 (c) The articles of domestication and conversion must be delivered to the secretary of state 4692

for filing, and take effect at the effective time provided in section 1.23. 4693 4694 (d) If the foreign business corporation is authorized to transact business in this state under 4695

[the foreign qualification provision of the Model Business Corporation Act], its certificate 4696 of authority shall be cancelled automatically on the effective date of its domestication and 4697 conversion. 4698


4702 4703 § 9.42. EFFECT OF FOREIGN FOR-PROFIT DOMESTICATION AND 4704

CONVERSION 4705 4706 (a) [Except as otherwise provided in section 9.03, when] When a domestication and 4707

conversion of a foreign business corporation to a domestic nonprofit corporation becomes 4708 effective: 4709

4710 (1) the title to all real and personal property, both tangible and intangible, of the 4711

corporation remains in the corporation without reversion or impairment; 4712 4713 (2) the liabilities of the corporation remain the liabilities of the corporation; 4714 4715 (3) an action or proceeding pending against the corporation continues against the 4716

corporation as if the domestication and conversion had not occurred; 4717 4718

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(4) the articles of domestication and conversion, or the articles of incorporation 4719 attached to the articles of domestication and conversion, constitute the articles of 4720 incorporation of the corporation; 4721

4722 (5) memberships, securities, obligations, rights to acquire memberships or securities 4723

of the corporation, or cash or other property shall be issued or paid as provided 4724 pursuant to the laws of the foreign jurisdiction; and 4725

4726 (6) the corporation is deemed to: 4727 4728

(i) be a domestic corporation for all purposes; and 4729 4730 (ii) be the same corporation without interruption as the foreign business 4731

corporation. 4732 4733 (b) The interest holder liability of a shareholder of a foreign business corporation that 4734

domesticates and converts to a domestic nonprofit corporation is as follows: 4735 4736

(1) The domestication and conversion does not discharge any interest holder liability 4737 under the laws of the foreign jurisdiction to the extent any such interest holder 4738 liability arose before the effective time of the articles of domestication and 4739 conversion. 4740

4741 (2) The member does not have interest holder liability under the laws of the foreign 4742

jurisdiction for any debt, obligation or liability of the corporation that arises after 4743 the effective time of the articles of domestication and conversion. 4744

4745 (3) The provisions of the laws of the foreign jurisdiction continue to apply to the 4746

collection or discharge of any interest holder liability preserved by paragraph (1), 4747 as if the domestication and conversion had not occurred. 4748


provided by the laws of the foreign jurisdiction with respect to any interest holder 4751 liability preserved by paragraph (1), as if the domestication and conversion had 4752 not occurred. 4753

4754 [(c) A shareholder of a foreign business corporation who becomes subject to interest holder 4755

liability for some or all of the debts, obligations or liabilities of the corporation as a 4756 result of its domestication and conversion in this state has interest holder liability only 4757 for those debts, obligations or liabilities of the corporation that arise after the effective 4758 time of the articles of domestication and conversion.] 4759


4763 4764

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§ 9.43. ABANDONMENT OF A FOREIGN FOR-PROFIT DOMESTICATION AND 4765 CONVERSION 4766

4767 If the domestication and conversion of a foreign business corporation to a domestic nonprofit 4768 corporation is abandoned in accordance with the laws of the foreign jurisdiction after articles of 4769 domestication and conversion have been filed with the secretary of state, a statement that the 4770 domestication and conversion has been abandoned, signed by an officer or other duly authorized 4771 representative, must be delivered to the secretary of state for filing. The statement takes effect 4772 upon filing and the domestication and conversion is abandoned and does not become effective. 4773 4774


4777 4778 Subchapter E 4779 ENTITY CONVERSION 4780 4781 Section 4782 9.50. Entity conversion authorized. 4783 9.51. Plan of entity conversion. 4784 9.52. Action on a plan of entity conversion. 4785 9.53. Articles of entity conversion. 4786 9.54. Effect of entity conversion. 4787 9.55. Abandonment of an entity conversion. 4788 4789 4790 § 9.50. ENTITY CONVERSION AUTHORIZED 4791 4792 (a) A domestic nonprofit corporation may become a domestic unincorporated entity pursuant 4793

to a plan of entity conversion. 4794 4795 (b) A domestic nonprofit corporation may become a foreign unincorporated entity if the 4796

entity conversion is permitted by the laws of the foreign jurisdiction. 4797 4798 (c) A domestic unincorporated entity may become a domestic nonprofit corporation. If the 4799

organic law of a domestic unincorporated entity does not provide procedures for the 4800 approval of an entity conversion, the conversion must be adopted and approved, and the 4801 entity conversion effectuated, in the same manner as a merger of the unincorporated 4802 entity, and its interest holders will be entitled to appraisal rights if appraisal rights are 4803 available upon any type of merger under the organic law of the unincorporated entity. If 4804 the organic law of a domestic unincorporated entity does not provide procedures for the 4805 approval of either an entity conversion or a merger, a plan of entity conversion must be 4806 adopted and approved, the entity conversion effectuated, and appraisal rights exercised, 4807 in accordance with the procedures in this subchapter. Without limiting the provisions of 4808 this subsection, a domestic unincorporated entity whose organic law does not provide 4809 procedures for the approval of an entity conversion is subject to subsection (e) and 4810

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section 9.52(7). For purposes of applying this subchapter: 4811 4812

(1) the unincorporated entity, its interest holders, interests and organic documents 4813 taken together, are deemed to be a domestic nonprofit corporation, members, 4814 memberships and articles of incorporation, respectively and vice versa, as the 4815 context may require; and 4816

4817 (2) if the business and affairs of the unincorporated entity are managed by a group of 4818

persons that is not identical to the interest holders, that group is deemed to be the 4819 board of directors. 4820

4821 (d) A foreign unincorporated entity may become a domestic nonprofit corporation if the law 4822

of the foreign jurisdiction authorizes it to become a nonprofit corporation in another 4823 jurisdiction. 4824

4825 (e) If any debt security, note or similar evidence of indebtedness for money borrowed, 4826

whether secured or unsecured, or a contract of any kind, issued, incurred or executed by a 4827 domestic nonprofit corporation before [the effective date of this subchapter], applies to a 4828 merger of the corporation and the document does not refer to an entity conversion of the 4829 corporation, the provision shall be deemed to apply to an entity conversion of the 4830 corporation until such time as the provision is amended subsequent to that date. 4831


4835 4836 § 9.51. PLAN OF ENTITY CONVERSION 4837 4838 (a) A plan of entity conversion must include: 4839

4840 (1) a statement of the type of unincorporated entity the surviving entity will be and, if 4841

it will be a foreign unincorporated entity, its jurisdiction of organization; 4842 4843

(2) the terms and conditions of the conversion; 4844 4845

(3) the manner and basis of converting the memberships in the domestic nonprofit 4846 corporation following its conversion into interests or other securities, obligations, 4847 rights to acquire interests or other securities, cash, other property, or any 4848 combination of the foregoing; and 4849 4850

(4) the full text, as they will be in effect immediately following the conversion, of the 4851 organic documents of the surviving entity. 4852 4853

(b) The plan of entity conversion may also include a provision that the plan may be amended 4854 prior to filing articles of entity conversion, except that subsequent to approval of the plan 4855 by the members the plan may not be amended to change: 4856

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4857 (1) the amount or kind of memberships or other securities, interests, obligations, 4858

rights to acquire memberships, securities or interests, cash, or other property to be 4859 received under the plan by the members; 4860

4861 (2) the organic documents that will be in effect immediately following the 4862

conversion, except for changes permitted by a provision of the organic law of the 4863 surviving entity comparable to section 10.05; or 4864

4865 (3) any of the other terms or conditions of the plan if the change would adversely 4866

affect any of the members in any material respect. 4867 4868 (c) Terms of a plan of entity conversion may be made dependent upon facts objectively 4869

ascertainable outside the plan in accordance with section 1.20(c). 4870 4871


4874 4875 § 9.52. ACTION ON A PLAN OF ENTITY CONVERSION 4876 4877 In the case of an entity conversion of a domestic nonprofit corporation to a domestic or foreign 4878 unincorporated entity: 4879 4880

(1) The plan of entity conversion must be adopted by the board of directors. 4881 4882

(2) After adopting the plan of entity conversion, the board of directors must submit 4883 the plan to the members for their approval if there are members entitled to vote on 4884 the plan. The board of directors must also transmit to the members a 4885 recommendation that the members approve the plan, unless the board of directors 4886 makes a determination that because of conflicts of interest or other special 4887 circumstances it should not make such a recommendation, in which case the 4888 board of directors must transmit to the members the basis for that determination. 4889

4890 (3) The board of directors may condition its submission of the plan of entity 4891

conversion to the members on any basis. 4892 4893

(4) If the approval of the members is to be given at a meeting, the corporation must 4894 notify each member, whether or not entitled to vote, of the meeting of members at 4895 which the plan of entity conversion is to be submitted for approval. The notice 4896 must state that the purpose, or one of the purposes, of the meeting is to consider 4897 the plan and must contain or be accompanied by a copy or summary of the plan. 4898 The notice shall include or be accompanied by a copy of the organic documents as 4899 they will be in effect immediately after the entity conversion. 4900

4901 (5) Unless the articles of incorporation, or the board of directors acting pursuant to 4902

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paragraph (3), requires a greater vote or a greater number of votes to be present, 4903 approval of the plan of entity conversion requires the approval of each class of 4904 members of the corporation voting as a separate voting group at a meeting at 4905 which a quorum of the voting group exists consisting of at least a majority of the 4906 votes entitled to be cast on the conversion by that voting group. 4907

4908 (6) If any provision of the articles of incorporation, bylaws or an agreement to which 4909

any of the directors or members are parties, adopted or entered into before [the 4910 effective date of this subchapter], applies to a merger of the corporation and the 4911 document does not refer to an entity conversion of the corporation, the provision 4912 shall be deemed to apply to an entity conversion of the corporation until such time 4913 as the provision is subsequently amended. 4914

4915 (7) If as a result of the conversion one or more members of the corporation would 4916

become subject to interest holder liability for the debts, obligations or liabilities of 4917 any other person or entity, approval of the plan of conversion shall require the 4918 execution, by each such member, of a separate written consent to become subject 4919 to such interest holder liability. 4920


4924 4925 § 9.53. ARTICLES OF ENTITY CONVERSION 4926 4927 (a) After the conversion of a domestic nonprofit corporation to a domestic or foreign 4928

unincorporated entity has been adopted and approved as required by this Act, articles of 4929 entity conversion must be signed on behalf of the converting corporation by any officer 4930 or other duly authorized representative. The articles must: 4931

4932 (1) set forth the name of the corporation immediately before the filing of the articles 4933

of entity conversion and the name to which the name of the corporation is to be 4934 changed, which shall be a name that satisfies the organic law of the surviving 4935 entity if the surviving entity is a domestic entity; 4936

4937 (2) state the type of unincorporated entity that the surviving entity will be and its 4938

jurisdiction of organization; 4939 4940

(3) state that the plan of entity conversion was duly approved by the members in the 4941 manner required by this Act and the articles of incorporation; 4942

4943 (4) if the surviving entity is a domestic filing entity, either contain all of the 4944

provisions required to be set forth in its public organic document and any other 4945 desired provisions that are permitted, or have attached a public organic document; 4946 except that, in either case, provisions that would not be required to be included in 4947 a restated public organic document may be omitted. 4948

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4949 (b) After the conversion of a domestic unincorporated entity to a domestic nonprofit 4950

corporation has been adopted and approved as required by the organic law of the 4951 unincorporated entity, articles of entity conversion must be signed on behalf of the 4952 unincorporated entity by any officer or other duly authorized representative. The articles 4953 shall: 4954

4955 (1) set forth the name of the unincorporated entity immediately before the filing of 4956

the articles of entity conversion and the name to which the name of the 4957 unincorporated entity is to be changed, which shall be a name that satisfies the 4958 requirements of section 4.01; 4959

4960 (2) set forth a statement that the plan of entity conversion was duly approved in 4961

accordance with the organic law of the unincorporated entity; 4962 4963

(3) either contain all of the provisions that section 2.02(a) requires to be set forth in 4964 articles of incorporation and any other desired provisions that section 2.02(b) 4965 permits to be included in articles of incorporation, or have attached articles of 4966 incorporation; except that, in either case, provisions that would not be required to 4967 be included in restated articles of incorporation of a domestic nonprofit 4968 corporation may be omitted. 4969 4970

(c) After the conversion of a foreign unincorporated entity to a domestic nonprofit 4971 corporation has been authorized as required by the laws of the foreign jurisdiction, 4972 articles of entity conversion shall be executed on behalf of the foreign unincorporated 4973 entity by any officer or other duly authorized representative. The articles shall: 4974

4975 (1) set forth the name of the unincorporated entity immediately before the filing of 4976

the articles of entity conversion and the name to which the name of the 4977 unincorporated entity is to be changed, which shall be a name that satisfies the 4978 requirements of section 4.01; 4979

4980 (2) set forth the jurisdiction under the laws of which the unincorporated entity was 4981

organized immediately before the filing of the articles of entity conversion and the 4982 date on which the unincorporated entity was organized in that jurisdiction; 4983

4984 (3) set forth a statement that the conversion of the unincorporated entity was duly 4985

approved in the manner required by the law of the foreign jurisdiction; and 4986 4987

(4) either contain all of the provisions that section 2.02(a) requires to be set forth in 4988 articles of incorporation and any other desired provisions that section 2.02(b) 4989 permits to be included in articles of incorporation, or have attached articles of 4990 incorporation; except that, in either case, provisions that would not be required to 4991 be included in restated articles of incorporation of a domestic nonprofit 4992 corporation may be omitted. 4993

4994

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(d) The articles of entity conversion must be delivered to the secretary of state for filing, and 4995 take effect at the effective time provided in section 1.23. Articles of entity conversion 4996 filed under section 9.53(a) or (b) may be combined with any required conversion filing 4997 under the organic law of the domestic unincorporated entity if the combined filing 4998 satisfies the requirements of both this section and the other organic law. 4999

5000 (e) If the converting entity is a foreign unincorporated entity that is authorized to transact 5001

business in this state under a provision of law similar to chapter 15, its certificate of 5002 authority or other type of foreign qualification is cancelled automatically on the effective 5003 date of its conversion. 5004


5008 5009 § 9.54. EFFECT OF ENTITY CONVERSION 5010 5011 (a) [Except as otherwise provided in section 9.03, when] When a conversion under this 5012

subchapter becomes effective: 5013 5014

(1) the title to all real and personal property, both tangible and intangible, of the 5015 converting entity remains in the surviving entity without reversion or impairment; 5016

5017 (2) the liabilities of the converting entity remain the liabilities of the surviving entity; 5018 5019 (3) an action or proceeding pending against the converting entity continues against 5020

the surviving entity as if the conversion had not occurred; 5021 5022 (4) in the case of a surviving entity that is a filing entity, its articles of incorporation 5023

or public organic document and its private organic document become effective; 5024 5025 (5) in the case of a surviving entity that is a nonfiling entity, its private organic 5026

document becomes effective; 5027 5028 (6) the memberships or interests of the converting entity are reclassified into 5029

memberships, interests, other securities, obligations, rights to acquire 5030 memberships, interests or securities, or into cash or other property in accordance 5031 with the plan of conversion; and the members or interest holders of the converting 5032 entity are entitled only to the rights provided to them under the terms of the 5033 conversion and to any appraisal rights they may have under the organic law of the 5034 converting entity; and 5035

5036 (7) the surviving entity is deemed to: 5037 5038

(i) be incorporated or organized under and subject to the organic law of the 5039 converting entity for all purposes; and 5040

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5041 (ii) be the same nonprofit corporation or unincorporated entity without 5042

interruption as the converting entity. 5043 5044

(b) A member who becomes subject to interest holder liability for some or all of the debts, 5045 obligations or liabilities of the surviving entity has interest holder liability only for those 5046 debts, obligations or liabilities of the surviving entity that arise after the effective time of 5047 the articles of entity conversion. 5048

5049 (c) The interest holder liability of an interest holder in an unincorporated entity that converts 5050

to a domestic nonprofit corporation is as follows: 5051 5052

(1) The conversion does not discharge any interest holder liability under the organic 5053 law of the unincorporated entity to the extent any such interest holder liability 5054 arose before the effective time of the articles of entity conversion. 5055

5056 (2) The interest holder does not have interest holder liability under the organic law of 5057

the unincorporated entity for any debt, obligation or liability of the corporation 5058 that arises after the effective time of the articles of entity conversion. 5059

5060 (3) The provisions of the organic law of the unincorporated entity continue to apply 5061

to the collection or discharge of any interest holder liability preserved by 5062 paragraph (1), as if the conversion had not occurred. 5063

5064 (4) The interest holder has whatever rights of contribution from other interest holders 5065

are provided by the organic law of the unincorporated entity with respect to any 5066 interest holder liability preserved by paragraph (1), as if the conversion had not 5067 occurred. 5068


5072 5073 § 9.55. ABANDONMENT OF AN ENTITY CONVERSION 5074 5075 (a) Unless otherwise provided in a plan of entity conversion of a domestic nonprofit 5076

corporation, after the plan has been adopted and approved as required by this subchapter, 5077 and at any time before the entity conversion has become effective, it may be abandoned 5078 by the board of directors without action by the members. 5079

5080 (b) If an entity conversion is abandoned after articles of entity conversion have been filed 5081

with the secretary of state but before the entity conversion has become effective, a 5082 statement that the entity conversion has been abandoned in accordance with this section, 5083 signed by an officer or other duly authorized representative, must be delivered to the 5084 secretary of state for filing prior to the effective date of the entity conversion. Upon 5085 filing, the statement takes effect and the entity conversion is abandoned and does not 5086

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become effective. 5087 5088


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CHAPTER 10 5091 AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS 5092 5093 Subchapter 5094 A. Amendment of Articles of Incorporation 5095 B. Amendment of Bylaws 5096 C. Special Rights 5097 5098 Subchapter A 5099 AMENDMENT OF ARTICLES OF INCORPORATION 5100 5101 Section 5102 10.01. Authority to amend. 5103 10.02. Amendment before issuance of memberships. 5104 10.03. Amendment by board of directors and members. 5105 10.04. Voting on amendments by voting groups. 5106 10.05. Amendment by board of directors. 5107 10.06. Articles of amendment. 5108 10.07. Restated articles of incorporation. 5109 10.08. Amendment pursuant to reorganization. 5110 10.09. Effect of amendment. 5111 5112 5113 § 10.01. AUTHORITY TO AMEND 5114 5115 A nonprofit corporation may amend its articles of incorporation at any time to add or change a 5116 provision that is required or permitted in the articles as of the effective date of the amendment or 5117 to delete a provision that is not required to be contained in the articles. 5118 5119

Source Note: Patterned after Model Business 5120 Corporation Act, 3d Ed. (2002) § 10.01. Derived 5121 from Revised Model Nonprofit Corporation Act 5122 (1987) § 10.01. 5123

5124 5125 § 10.02. AMENDMENT BEFORE ISSUANCE OF MEMBERSHIPS 5126 5127 If a nonprofit corporation has not yet issued memberships, its board of directors, or its 5128 incorporators if it has no board of directors, may adopt one or more amendments to the articles of 5129 incorporation. 5130 5131

Source Note: Patterned after Model Business 5132 Corporation Act, 3d Ed. (2002) § 10.02. Derived 5133 from Revised Model Nonprofit Corporation Act 5134 (1987) § 10.02(b) (first sentence). 5135

5136

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5137 § 10.03. AMENDMENT BY BOARD OF DIRECTORS AND MEMBERS 5138 5139 An amendment to the articles of incorporation of a membership corporation shall be adopted in 5140 the following manner: 5141 5142 (a) The proposed amendment must be adopted by the board of directors. 5143 5144 (b) Except as provided in sections 10.05, 10.07, and 10.08, after adopting the proposed 5145

amendment the board of directors must submit the amendment to the members for their 5146 approval. The board of directors must also transmit to the members a recommendation 5147 that the members approve the amendment, unless the board of directors makes a 5148 determination that because of conflicts of interest or other special circumstances it should 5149 not make such a recommendation, in which case the board of directors must transmit to 5150 the members the basis for that determination. 5151

5152 (c) The board of directors may condition its submission of the amendment to the members on 5153

any basis. 5154 5155 (d) If the amendment is required to be approved by the members, and the approval is to be 5156

given at a meeting, the corporation must notify each member, whether or not entitled to 5157 vote, of the meeting of members at which the amendment is to be submitted for approval. 5158 The notice must state that the purpose, or one of the purposes, of the meeting is to 5159 consider the amendment and must contain or be accompanied by a copy of the 5160 amendment. 5161

5162 (e) Unless the articles of incorporation, or the board of directors acting pursuant to 5163

subsection (c), requires a greater vote or a greater number of members to be present, 5164 approval of the amendment requires the approval of the members at a meeting at which a 5165 quorum exists consisting of at least a majority of the votes entitled to be cast on the 5166 amendment, and, if any class of members is entitled to vote as a separate group on the 5167 amendment, except as provided in section 10.04(c), the approval of each such separate 5168 voting group at a meeting at which a quorum of the voting group exists consisting of at 5169 least a majority of the votes entitled to be cast on the amendment by that voting group. 5170

5171 (f) In addition to the adoption and approval of the amendment by the board of directors and 5172

members as required by this section, the amendment must also be approved in a record 5173 by any person or persons whose approval is required by section 10.30. 5174

5175 Source Note: Patterned after Model Business 5176 Corporation Act, 3d Ed. (2002) § 10.03. Derived 5177 from Revised Model Nonprofit Corporation Act 5178 (1987) § 10.03. Required vote of the members 5179 reduced from two-thirds of the votes cast or an 5180 absolute majority of the outstanding voting power 5181 to a majority of the votes cast. 5182

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5183 5184 § 10.04. VOTING ON AMENDMENTS BY VOTING GROUPS 5185 5186 Except as provided in the articles of incorporation or bylaws, if a nonprofit corporation has more 5187 than one class of members, the members of each class are entitled to vote as a separate voting 5188 group (if member voting is otherwise required by this [act]) on a proposed amendment to the 5189 articles of incorporation if the amendment would: 5190 5191

(1) effect an exchange or reclassification of all or part of the memberships of the class 5192 into memberships of another class; 5193

5194 (2) effect an exchange or reclassification, or create the right of exchange, of all or 5195

part of the memberships of another class into memberships of the class; 5196 5197 (3) change the rights, preferences, or limitations of all or part of the memberships of 5198

the class in a manner different than the amendment would affect another class; 5199 5200 (4) change the rights, preferences, or limitations of all or part of the memberships of 5201

the class by changing the rights, preferences, or limitations of another class; 5202 5203 (5) increase or decrease the number of memberships authorized for that class; 5204 5205 (6) increase the number of memberships authorized for another class; or 5206 5207 (7) authorize a new class of memberships. 5208 5209

Source Note: Patterned after Model Business 5210 Corporation Act, 3d Ed. (2002) § 10.04(a), except 5211 subsection (a)(5)-(8). Derived from Revised Model 5212 Nonprofit Corporation Act (1987) § 10.04. 5213

5214 5215 §10.05. AMENDMENT BY BOARD OF DIRECTORS 5216 5217 Unless the articles of incorporation provide otherwise, the board of directors of a nonprofit 5218 corporation may adopt amendments to the corporation’s articles of incorporation without 5219 approval of the members: 5220 5221

(1) to extend the duration of the corporation if it was incorporated at a time when 5222 limited duration was required by law; 5223

5224 (2) to delete the names and addresses of the initial directors or members of a 5225

designated body; 5226 5227 (3) to delete the name and address of the initial registered agent or registered office, if 5228

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a statement of change is on file with the secretary of state; or 5229 5230 (4) to change the corporation name by substituting or deleting the word 5231

“corporation,” “incorporated,” “company,” “limited,” or the abbreviation “corp.,” 5232 “inc.,” “co.,” or “ltd.,” for a similar word or abbreviation in the name. 5233

5234 Source Note: Patterned after Model Business 5235 Corporation Act, 3d Ed. (2002) § 10.05(1)-(4). 5236 Derived from Revised Model Nonprofit 5237 Corporation Act (1987) § 10.02(a). 5238

5239 5240 § 10.06 ARTICLES OF AMENDMENT 5241 5242 After an amendment to the articles of incorporation has been adopted and approved in the 5243 manner required by this [Act] and by the articles of incorporation, the nonprofit corporation must 5244 deliver to the secretary of state, for filing, articles of amendment, which must set forth: 5245 5246

(1) the name of the corporation; 5247 5248 (2) the text of the amendment adopted; 5249 5250 (3) if the amendment provides for an exchange, reclassification, or cancellation of 5251

memberships, provisions for implementing the amendment if not contained in the 5252 amendment itself, (which may be made dependent upon facts objectively 5253 ascertainable outside the articles of amendment in accordance with section 5254 1.20(c); 5255

5256 (4) the date of the amendment’s adoption; 5257 5258 (5) if the amendment: 5259 5260

(a) was adopted by the incorporators, board of directors, or a designated body 5261 without member approval, a statement that the amendment was adopted by 5262 the incorporators or by the board of directors or designated body, as the 5263 case may be, and that member approval was not required; or 5264

5265 (b) required approval by the members, a statement that the amendment was 5266

duly approved by the members in the manner required by this [act] and by 5267 the articles of incorporation; and 5268

5269 (6) if approval of the amendment by a specified person was required pursuant to 5270

section 10.30, a statement that the approval was obtained. 5271 5272

Source Note: Patterned after Model Business 5273 Corporation Act, 3d Ed. (2002) § 10.06. Derived 5274

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from Revised Model Nonprofit Corporation Act 5275 (1987) § 10.05, except that the requirement that the 5276 articles of amendment state the number of votes cast 5277 for and against an amendment by the members has 5278 been omitted. 5279

5280 5281 § 10.07. RESTATED ARTICLES OF INCORPORATION 5282 5283 (a) The board of directors of a nonprofit corporation may restate its articles of incorporation 5284

at any time, with or without approval by the members or any other person, to consolidate 5285 all amendments into a single document. 5286 5287

(b) If the restated articles include one or more new amendments that require member 5288 approval, the amendments must be adopted and approved as provided in section 10.03. 5289 5290

(c) A nonprofit corporation that restates its articles of incorporation shall deliver to the 5291 secretary of state for filing articles of restatement setting forth the name of the 5292 corporation and the text of the restated articles of incorporation together with a certificate 5293 which states that the restated articles consolidate all amendments into a single document 5294 and, if a new amendment is included in the restated articles, which also includes the 5295 statements required under section 10.06. 5296 5297

(d) Duly adopted restated articles of incorporation supersede the original articles of 5298 incorporation and all amendments thereto. 5299 5300

(e) The secretary of state may certify restated articles of incorporation as the articles of 5301 incorporation currently in effect, without including the certificate information required by 5302 subsection (c). 5303 5304


5309 5310 § 10.08. AMENDMENT PURSUANT TO REORGANIZATION 5311 5312 (a) A corporation’s articles of incorporation may be amended without action by the board of 5313

directors, a designated body, or the members to carry out a plan of reorganization ordered 5314 or decreed by a court of competent jurisdiction under the authority of a law of the United 5315 States. 5316 5317

(b) The individual or individuals designated by the court shall deliver to the secretary of state 5318 for filing articles of amendment setting forth: 5319 5320

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(1) the name of the corporation; 5321 5322 (2) the text of each amendment approved by the court; 5323 5324 (3) the date of the court’s order or decree approving the articles of amendment; 5325 5326 (4) the title of the reorganization proceeding in which the order or decree was 5327

entered; and 5328 5329 (5) a statement that the court had jurisdiction of the proceeding under federal statute. 5330

5331 (c) This section does not apply after entry of a final decree in the reorganization proceeding 5332

even though the court retains jurisdiction of the proceeding for limited purposes unrelated 5333 to consummation of the reorganization plan. 5334 5335


5340 5341 § 10.09 EFFECT OF AMENDMENT 5342 5343 (a) An amendment to the articles of incorporation does not affect a cause of action existing 5344

against or in favor of the nonprofit corporation, a proceeding to which the corporation is a 5345 party, or the existing rights of persons other than members of the corporation. An 5346 amendment changing a corporation’s name does not abate a proceeding brought by or 5347 against the corporation in its former name. 5348

5349 (b) The existing rights of persons other than members of the nonprofit corporation and any 5350

restriction imposed upon a nonprofit corporation may not be affected, and property held 5351 in trust or otherwise dedicated to a charitable purpose may not be diverted, by an 5352 amendment of the articles of incorporation unless and until the corporation obtains an 5353 order of [court] [the attorney general] approving the amendment to the extent required by 5354 and pursuant to [cite state cy pres or other nondiversion statute]. 5355

5356 Source Note: Subsection (a) is patterned after 5357 Model Business Corporation Act, 3d Ed. (2002) 5358 § 10.09. Derived from Revised Model Nonprofit 5359 Corporation Act (1987) § 10.08. Subsection (b) is 5360 new. 5361

5362 5363 Subchapter B 5364 AMENDMENT OF BYLAWS 5365 5366

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Section 5367 10.20. Amendment by board of directors or members. 5368 10.21. Bylaw increasing quorum or voting requirement for board of directors or designated 5369

body. 5370 10.22. Amendments requiring member approval. 5371 5372 5373 § 10.20. AMENDMENT BY BOARD OF DIRECTORS OR MEMBERS 5374 5375 (a) Except as provided in the articles of incorporation or bylaws, the members of a nonprofit 5376

corporation may amend or repeal the corporation’s bylaws. 5377 5378 (b) The board of directors of a nonprofit corporation may amend or repeal the corporation’s 5379

bylaws, unless: 5380 5381 (1) the articles of incorporation or sections 10.21 or 10.22 reserve that power 5382

exclusively to the members in whole or part; or 5383 5384 (2) the members in amending, repealing, or adopting a bylaw expressly provide that 5385

the board of directors may not amend, repeal, or reinstate that bylaw. 5386 5387

Source Note: Patterned after Model Business 5388 Corporation Act, 3d Ed. (2002) § 10.20. Derived 5389 generally from Revised Model Nonprofit 5390 Corporation Act (1987) §§ 10.20 and 10.21. 5391

5392 Drafting Note: This section follows the simplified 5393 style of the MBCA. The MNCA provisions on 5394 bylaw amendments largely follow the provisions on 5395 articles amendments, including, among other things, 5396 a detailed set of provisions requiring class voting on 5397 bylaw amendments. 5398

5399 5400 § 10.21. BYLAW INCREASING QUORUM OR VOTING REQUIREMENT FOR 5401

BOARD OF DIRECTORS OR DESIGNATED BODY 5402 5403 (a) A bylaw that increases a quorum or voting requirement for the board of directors or a 5404

designated body may be amended or repealed: 5405 5406 (1) if originally adopted by the members, only by the members, unless the bylaws 5407

otherwise provide; 5408 5409 (2) if adopted by the board of directors or designated body, either by the members or 5410

by the board of directors or designated body. 5411 5412

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(b) A bylaw adopted or amended by the members that increases a quorum or voting 5413 requirement for the board of directors or a designated body may provide that it can be 5414 amended or repealed only by a specified vote of either the members or the board of 5415 directors or designated body. 5416 5417

(c) Action by the board of directors or a designated body under subsection (a) to amend or 5418 repeal a bylaw that changes the quorum or voting requirement for the board of directors 5419 or a designated body must meet the same quorum requirement and be adopted by the 5420 same vote required to take action under the quorum and voting requirement then in effect 5421 or proposed to be adopted, whichever is greater. 5422 5423


5426 5427 § 10.22. AMENDMENTS REQUIRING MEMBER APPROVAL 5428 5429 (a) Except as provided in the articles of incorporation or bylaws, the board of directors or 5430

designated body of a nonprofit corporation that has one or more members at the time may 5431 not adopt or amend a bylaw under: 5432

5433 (1) section 6.10 providing that some of the members shall have different rights or 5434

obligations than other members with respect to voting, dissolution, transfer of 5435 memberships or other matters; 5436

5437 (2) section 6.13 levying dues, assessments, or fees on some or all of the members; 5438 5439 (3) section 6.21 relating to the termination or suspension of members; 5440 5441 (4) section 6.22 authorizing the purchase of memberships; 5442 5443 (5) section 8.08(a) requiring cause to remove a director; 5444 5445 (6) section 8.08(e) relating to the removal of a director who is designated in a manner 5446

other than election or appointment; or 5447 5448 (7) section 8.12. 5449 5450

(b) If a nonprofit corporation has more than one class of members, the members of a class 5451 are entitled to vote as a separate voting group on an amendment described in subsection 5452 (a) if the amendment would affect the members of that class differently than the members 5453 of another class. 5454

5455 (c) If a class of members will be divided into two or more classes by an amendment to the 5456

bylaws, the amendment must be approved by a majority of the members of each class that 5457 will be created. 5458

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5459 Source Note: Subsection (c) is derived from 5460 Revised Model Nonprofit Corporation Act (1987), § 5461 10.22(d). 5462

5463 5464 Subchapter C 5465 SPECIAL RIGHTS 5466 5467 Section 5468 10.30. Approval by third persons. 5469 5470 5471 § 10.30 APPROVAL BY THIRD PERSONS 5472 5473 The articles of incorporation may require an amendment to the articles or bylaws to be approved 5474 in record form by a specified person or persons other than the board of directors or a designated 5475 body. Such a provision of the articles may only be amended with the approval in record form of 5476 such person or persons. 5477 5478

Source Note: Substantially a reenactment of 5479 Revised Model Nonprofit Corporation Act (1987), § 5480 10.30. 5481

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CHAPTER 11 5482 MERGERS AND MEMBERSHIP EXCHANGES 5483 5484 Section 5485 11.01. Preliminary provisions. 5486 11.02. Merger. 5487 11.03. Membership exchange. 5488 11.04. Action on a plan of merger or membership exchange. 5489 11.05. Merger with controlled corporation or between controlled corporations. 5490 11.06. Articles of merger or membership exchange. 5491 11.07. Effect of merger or membership exchange. 5492 11.08. Abandonment of a merger or membership exchange. 5493 5494 5495 §11.01. PRELIMINARY PROVISIONS 5496 5497 (a) As used in this chapter: 5498 5499

(1) “Exchanging entity” means the domestic or foreign nonprofit corporation or 5500 eligible entity in which all of one or more classes of memberships or classes or 5501 series of eligible interests are to be acquired in a membership exchange. 5502

5503 (2) "Membership exchange" means a transaction pursuant to section 11.03. 5504 5505 (3) "Merger" means a combination pursuant to section 11.02. 5506 5507 (4) "Party to a merger" or "party to a membership exchange" means any domestic or 5508

foreign nonprofit corporation or eligible entity that: 5509 5510 (i) will merge under a plan of merger; 5511 5512 (ii) will acquire memberships or eligible interests of another corporation or an 5513

eligible entity in a membership exchange; or 5514 5515 (iii) is an exchanging entity. 5516 5517

(5) "Survivor" in a merger means the corporation or eligible entity into which one or 5518 more other corporations or eligible entities are merged. A survivor of a merger 5519 may preexist the merger or be created by the merger. 5520

5521 (b) Property held in trust or otherwise dedicated to a charitable purpose may not be diverted 5522

from that purpose by a transaction under this chapter unless the corporation obtains an 5523 appropriate order of [court] [the attorney general] specifying the disposition of the 5524 property to the extent required by and pursuant to [cite state cy pres or other 5525 nondiversion statute]. 5526 5527

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Source Note: Subsection (a) is patterned after 5528 Model Business Corporation Act, 3d. Ed. (2002) § 5529 11.01. Subsection (b) is patterned after 15 Pa.C.S. § 5530 5547(b). 5531

5532 5533 § 11.02. MERGER 5534 5535 (a) One or more domestic nonprofit corporations may merge with one or more domestic or 5536

foreign nonprofit corporations or eligible entities pursuant to a plan of merger or two or 5537 more foreign nonprofit corporations or domestic or foreign eligible entities may merge 5538 into a new domestic nonprofit corporation to be created in the merger in the manner 5539 provided in this chapter. 5540

5541 (b) A foreign nonprofit corporation, or a foreign eligible entity, may be a party to a merger 5542

with a domestic nonprofit corporation, or may be created by the terms of the plan of 5543 merger, only if the merger is permitted by the organic law of the corporation or eligible 5544 entity. 5545

5546 (c) If the organic law of a domestic eligible entity does not prohibit a merger with a 5547

nonprofit corporation but does not provide procedures for the approval of such a merger, 5548 a plan of merger may be adopted and approved, and the merger may be effectuated, in 5549 accordance with the procedures in this chapter. For the purposes of applying this 5550 chapter: 5551

5552 (1) the eligible entity, its interest holders, eligible interests and organic documents 5553

taken together, shall be deemed to be a domestic nonprofit corporation, members, 5554 memberships and articles of incorporation, respectively, as the context may 5555 require; and 5556

5557 (2) if the business and affairs of the eligible entity are managed by a group of persons 5558

that is not identical to the interest holders, that group shall be deemed to be the 5559 board of directors. 5560

5561 (d) Subject to subsection (g), the plan of merger must be in a record and include: 5562 5563

(1) the name of each domestic or foreign nonprofit corporation or eligible entity that 5564 will merge and the name of the domestic or foreign nonprofit corporation or 5565 eligible entity that will be the survivor of the merger; 5566

5567 (2) the terms and conditions of the merger; 5568 5569 (3) the manner and basis of converting the memberships of each merging domestic or 5570

foreign nonprofit membership corporation and the eligible interests of each 5571 merging domestic or foreign eligible entity into memberships, eligible interests, 5572 securities, or obligations; rights to acquire memberships, eligible interests, 5573

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securities, or obligations; cash; other property or other consideration; or any 5574 combination of the foregoing; 5575

5576 (4) the articles of incorporation of any corporation, or the organic documents of any 5577

eligible entity, to be created by the merger, or if a new corporation or eligible 5578 entity is not to be created by the merger, any amendments to the survivor's articles 5579 of incorporation or organic documents; and 5580

5581 (5) any other provisions relating to the merger that the parties desire be included in 5582

the plan of merger. 5583 5584 (e) The plan of merger may also include a provision that the plan may be amended prior to 5585

filing articles of merger, but if the members of a domestic corporation that is a party to 5586 the merger are required or permitted to vote on the plan, the plan must provide that 5587 subsequent to approval of the plan by such members the plan may not be amended to 5588 change: 5589

5590 (1) the amount or kind of memberships, eligible interests, securities, or obligations; 5591

rights to acquire memberships, eligible interests, securities, or obligations; cash; 5592 or other property or other consideration to be received by the members of or 5593 owners of eligible interests in any party to the merger; 5594

5595 (2) the articles of incorporation of any corporation, or the organic documents of any 5596

unincorporated entity, that will survive or be created as a result of the merger, 5597 except for changes permitted by section 10.05 or by comparable provisions of the 5598 organic law of any such foreign nonprofit or business corporation or domestic or 5599 foreign unincorporated entity; or 5600

5601 (3) any of the other terms or conditions of the plan, if the change would adversely 5602

affect such members in any material respect. 5603 5604

(f) Terms of a plan of merger may be made dependent on facts objectively ascertainable 5605 outside the plan in accordance with section 1.20(c). 5606

5607 (g) Unless and until a party to a merger obtains an appropriate order of [court] [the attorney 5608

general] under [cite state cy pres or other nondiversion statute], the merger shall not 5609 affect: 5610

5611 (1) any restriction imposed upon the party to the merger by its organic documents; 5612 5613 (2) any restriction imposed upon property held by the party to the merger by virtue of 5614

any trust under which it holds that property; or 5615 5616 (3) the existing rights of persons other than members or interest holders of the party 5617

to the merger. 5618 5619

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(h) A person who is a member or otherwise affiliated with an exempt organization may not 5620 receive a direct or indirect financial benefit in connection with a merger to which the 5621 exempt organization is a party unless the person is itself an exempt organization. 5622

5623 Source Note: Patterned after Model Business 5624 Corporation Act, 3d. Ed. (2002) § 11.02. 5625 Subsection (a) derived from Revised Model 5626 Nonprofit Corporation Act (1987) § 11.01(a). 5627 Subsection (b) derived from Revised Model 5628 Nonprofit Corporation Act (1987) § 11.06. 5629 Subsection (d) derived from Revised Model 5630 Nonprofit Corporation Act (1987) § 11.01(b) and 5631 (c). Subsection (g) patterned in part after Revised 5632 Model Nonprofit Corporation Act (1987) § 10.08. 5633 Subsection (h) is new. 5634

5635 5636 § 11.03. MEMBERSHIP EXCHANGE 5637 5638 (a) Through a membership exchange: 5639 5640

(1) a domestic nonprofit corporation may acquire, pursuant to a plan of membership 5641 exchange, all of the memberships of one or more classes of another domestic or 5642 foreign nonprofit corporation, or all of the eligible interests of one or more classes 5643 or series of eligible interests of a domestic or foreign eligible entity, in exchange 5644 for memberships, eligible interests, securities, or obligations; rights to acquire 5645 memberships, eligible interests, securities, or obligations; cash; other property or 5646 other consideration; or any combination of the foregoing; 5647

5648 (2) all of the memberships of one or more classes of a domestic nonprofit corporation 5649

may be acquired by another domestic or foreign nonprofit corporation or eligible 5650 entity, in exchange for memberships, eligible interests, securities, obligations; 5651 rights to acquire memberships, eligible interests, securities, or obligations; cash; 5652 other property or other consideration; or any combination of the foregoing, 5653 pursuant to a plan of membership exchange; 5654

5655 (b) A foreign corporation or eligible entity may be a party to a membership exchange only if 5656

the membership exchange is permitted by the organic law of the corporation or eligible 5657 entity. 5658

5659 (c) If the organic law of a domestic eligible entity does not prohibit a membership exchange 5660

with a nonprofit corporation but does not provide procedures for the approval of an 5661 exchange of interests similar to a membership exchange, a plan of membership exchange 5662 may be adopted and approved, and the membership exchange effectuated, in accordance 5663 with the procedures, if any, for a merger. If the organic law of a domestic eligible entity 5664 does not provide procedures for either an interest exchange or a merger, a plan of 5665

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membership exchange may be adopted and approved, and the membership exchange 5666 effectuated, in accordance with the procedures in this chapter. For the purposes of 5667 applying this chapter: 5668

5669 (1) the eligible entity, its interest holders, eligible interests and organic documents 5670

taken together shall be deemed to be a domestic nonprofit corporation, members, 5671 memberships and articles of incorporation, respectively, as the context may 5672 require; and 5673

5674 (2) if the business and affairs of the eligible entity are managed by a group of persons 5675

that is not identical to the interest holders, that group shall be deemed to be the 5676 board of directors. 5677

5678 (d) The plan of membership exchange must be in a record and include: 5679 5680

(1) the name of each corporation or eligible entity whose memberships or eligible 5681 interests will be acquired and the name of the corporation or eligible entity that 5682 will acquire those memberships or eligible interests; 5683

5684 (2) the terms and conditions of the membership exchange; 5685 5686 (3) the manner and basis of exchanging the memberships of a corporation or the 5687

eligible interests in an eligible entity whose memberships or eligible interests will 5688 be acquired under the membership exchange into memberships, eligible interests, 5689 securities, or obligations; rights to acquire memberships, eligible interests, 5690 securities, or obligations; cash; other property or other consideration; or any 5691 combination of the foregoing; 5692

5693 (4) any changes desired to be made in the organic documents of the exchanging 5694

entity; and 5695 5696 (5) any other provisions relating to the membership exchange that the parties desire 5697

be included in the plan of exchange. 5698 5699 (e) The plan of membership exchange may also include a provision that the plan may be 5700

amended prior to filing articles of membership exchange, but if the members of a 5701 domestic corporation that is a party to the membership exchange are required or 5702 permitted to vote on the plan, the plan must provide that subsequent to approval of the 5703 plan by such members the plan may not be amended to change: 5704

5705 (1) the amount or kind of memberships, eligible interests, securities, or obligations; 5706

rights to acquire memberships, eligible interests, securities, or obligations; cash; 5707 or other property or other consideration to be issued by the domestic corporation 5708 or to be received by the members of the domestic corporation, as the case may be; 5709 or 5710

5711

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(2) any of the other terms or conditions of the plan if the change would adversely 5712 affect such members in any material respect. 5713

5714 (f) Terms of a plan of membership exchange may be made dependent on facts objectively 5715

ascertainable outside the plan in accordance with Section 1.20(c). 5716 5717 (g) Section 11.03 does not limit the power of a domestic corporation to acquire memberships 5718

in another corporation or eligible interests in an eligible entity in a transaction other than 5719 a membership exchange. 5720

5721 (h) Unless and until the exchanging entity obtains an appropriate order of [court] [the 5722

attorney general] under [cite state cy pres or other nondiversion statute] a membership 5723 exchange may not affect: 5724

5725 (1) any restriction imposed upon the exchanging entity by its organic documents; 5726 5727 (2) any restriction imposed upon property held by the exchanging entity; or 5728 5729 (3) the existing rights of persons other than members, shareholders, or interest 5730

holders of the exchanging entity. 5731 5732 (i) A person who is a member, interest holder, or otherwise affiliated with a select exempt 5733

organization may not receive a direct or indirect financial benefit in connection with a 5734 membership exchange to which the exempt organization is a party unless the person is 5735 itself an exempt organization. 5736

5737 (j) If any debt security, note or similar evidence of indebtedness for money borrowed, 5738

whether secured or unsecured, or a contract of any kind, issued, incurred or signed by a 5739 domestic exchanging entity before [the effective date of this section] contains a provision 5740 applying to a merger or change in control of the exchanging entity that does not refer to a 5741 membership exchange, the provision shall be deemed to apply to a membership exchange 5742 of the exchanging entity until such time as the provision is amended subsequent to that 5743 date. 5744

5745 Source Note: Patterned after Model Business 5746 Corporation Act, 3d. Ed. (2002) § 11.03. 5747 Subsection (h) is patterned in part after Revised 5748 Model Nonprofit Corporation Act (1987) § 10.08. 5749 Subsection (j) is patterned after Model Inter-Entity 5750 Transactions Act, § 301(d). 5751

5752 5753 § 11.04. ACTION ON A PLAN OF MERGER OR MEMBERSHIP EXCHANGE 5754 5755 In the case of a nonprofit corporation that is a party to a merger or membership exchange: 5756 5757

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(a) The plan of merger or membership exchange must be adopted by the board of directors. 5758 5759 (b) Except as provided in subsection (h), section 11.05 or the articles of incorporation, after 5760

adopting the plan of merger or membership exchange the board of directors must submit 5761 the plan to the members for their approval. The board of directors must also transmit to 5762 the members a recommendation that the members approve the plan, unless the board of 5763 directors makes a determination that because of conflicts of interest or other special 5764 circumstances it should not make such a recommendation, in which case the board of 5765 directors must transmit to the members the basis for that determination. 5766

5767 (c) The board of directors may condition its submission of the plan of merger or membership 5768

exchange to the members on any basis. 5769 5770 (d) If the plan of merger or membership exchange is required to be approved by the 5771

members, and if the approval is to be given at a meeting, the nonprofit corporation must 5772 notify each member entitled to vote on the merger or membership exchange of the 5773 meeting of members at which the plan is to be submitted for approval. The notice must 5774 state that the purpose, or one of the purposes, of the meeting is to consider the plan and 5775 must contain or be accompanied by a copy or summary of the plan. If the corporation is 5776 to be merged into an existing corporation or eligible entity, the notice shall also include 5777 or be accompanied by a copy or summary of the articles of incorporation or organic 5778 documents of that corporation or eligible entity. If the corporation is to be merged into a 5779 corporation or eligible entity that is to be created pursuant to the merger, the notice shall 5780 include or be accompanied by a copy or a summary of the articles of incorporation or 5781 organic documents of the new corporation or eligible entity. 5782

5783 (e) Unless the articles of incorporation, or the board of directors acting pursuant to 5784

subsection (c), requires a greater vote or a greater number of votes to be present, approval 5785 of the plan of merger or membership exchange requires the approval of the members at a 5786 meeting at which a quorum exists consisting of at least a majority of the votes entitled to 5787 be cast on the plan, and, if any class of memberships is entitled to vote as a separate 5788 group on the plan of merger or membership exchange, the approval of each such separate 5789 voting group at a meeting at which a quorum of the voting group exists consisting of at 5790 least a majority of the votes entitled to be cast on the merger or membership exchange by 5791 that voting group. 5792

5793 (f) Separate voting by voting groups is required: 5794

5795 (1) on a plan of merger, by each class of memberships that: 5796 5797

(i) are to be converted into memberships, eligible interests, securities, or 5798 obligations; rights to acquire memberships, eligible interests, securities, or 5799 obligations; cash; other property or other consideration; or any 5800 combination of the foregoing; or 5801

5802 (ii) would be entitled to vote as a separate group on a provision in the plan 5803

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that, if contained in a proposed amendment to articles of incorporation, 5804 would require action by separate voting groups under section 10.04. 5805

5806 (2) on a plan of membership exchange, by each class of memberships included in the 5807

exchange, with each class constituting a separate voting group; and 5808 5809

(3) on a plan of merger or membership exchange, if the voting group is entitled under 5810 the articles of incorporation to vote as a voting group to approve a plan of merger 5811 or membership exchange. 5812

5813 (g) If as a result of a merger or membership exchange one or more members of a domestic 5814

nonprofit corporation would become subject to owner liability for the debts, obligations 5815 or liabilities of any other person or entity, approval of the plan of merger or membership 5816 exchange requires the signature, by each such member, of a separate record consenting to 5817 become subject to such owner liability. 5818

5819 (h) If a domestic nonprofit corporation that is a party to a merger does not have any members 5820

entitled to vote thereon, a plan of merger shall be deemed adopted by the corporation 5821 when it has been adopted by the board of directors pursuant to subsection (a). 5822

5823 (i) In addition to the adoption and approval of the plan of merger by the board of directors 5824

and members as required by this section, the plan of merger must also be approved in a 5825 record by any person or persons whose approval is required to amend the articles of 5826 incorporation by section 10.30. 5827

5828 Source Note: Subsections (a) – (g) patterned after 5829 Model Business Corporation Act, 3d. Ed. (2002) § 5830 11.04. Subsection (h) patterned after 15 Pa.C.S. § 5831 5924(b). Derived from Revised Model Nonprofit 5832 Corporation Act (1987) § 11.03. 5833

5834 5835 § 11.05. MERGER WITH CONTROLLED CORPORATION OR BETWEEN 5836

CONTROLLED CORPORATIONS 5837 5838 (a) A domestic or foreign entity that holds a membership in a domestic nonprofit corporation 5839

that carries at least 80 percent of the voting power of each class of membership of the 5840 controlled corporation that has voting power may merge the controlled corporation into 5841 itself or into another such controlled corporation, or merge itself into the controlled 5842 corporation, without the approval of the board of directors, designated body or members 5843 of the controlled corporation, unless the articles of incorporation of any of the 5844 corporations or the organic documents of a controlling unincorporated entity otherwise 5845 provide. 5846

5847 (b) If under subsection (a) approval of a merger by the members of a controlled corporation 5848

is not required, the controlling entity shall, within ten days after the effective date of the 5849

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merger, notify each of the members of the controlled corporation that the merger has 5850 become effective. 5851

5852 (c) Except as provided in subsections (a) and (b), a merger between a controlling entity and a 5853

controlled corporation is governed by the provisions of chapter 11 applicable to mergers 5854 generally. 5855

5856 (d) A merger pursuant to this section must also be approved in a record by any person or 5857

persons whose approval is required to amend the articles of incorporation of the 5858 controlled corporation by section 10.30. 5859

5860 Source Note: Patterned after Model Business 5861 Corporation Act, 3d. Ed. (2002) § 11.05. 5862 Subsection (d) is derived from Revised Model 5863 Nonprofit Corporation Act (1987), § 11.03(a)(3). 5864

5865 5866 § 11.06. ARTICLES OF MERGER OR MEMBERSHIP EXCHANGE 5867 5868 (a) After a plan of merger or membership exchange has been adopted and approved as 5869

required by this Act, articles of merger or membership exchange shall be executed on 5870 behalf of each party to the merger or membership exchange by any officer or other duly 5871 authorized representative. The articles shall set forth: 5872

5873 (1) the names of the parties to the merger or membership exchange; 5874 5875 (2) if the articles of incorporation of the survivor of a merger or an exchanging 5876

nonprofit corporation are amended, or if a new corporation is created as a result 5877 of a merger, the amendments to the articles of incorporation of the survivor or 5878 exchanging corporation or the articles of incorporation of the new corporation; 5879

5880 (3) if the plan of merger or membership exchange required approval by the members 5881

of a domestic nonprofit corporation that was a party to the merger or membership 5882 exchange, a statement that the plan was duly approved by the members and, if 5883 voting by any separate voting group was required, by each such separate voting 5884 group, in the manner required by this Act and the articles of incorporation; 5885

5886 (4) if the plan of merger or membership exchange did not require approval by the 5887

members of a domestic nonprofit corporation that was a party to the merger or 5888 membership exchange, a statement to that effect; and 5889

5890 (5) as to each foreign nonprofit corporation or eligible entity that was a party to the 5891

merger or membership exchange, a statement that the participation of the foreign 5892 corporation or eligible entity was duly authorized as required by the organic law 5893 of the corporation or eligible entity. 5894

5895

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(b) Terms of articles of merger or membership exchange may be made dependent on facts 5896 objectively ascertainable outside the articles in accordance with section 1.20(c). 5897

5898 (c) Articles of merger or membership exchange shall be delivered to the secretary of state for 5899

filing by the survivor of the merger or the acquiring corporation or eligible entity in a 5900 membership exchange and shall take effect at the effective time provided in section 1.23. 5901 Articles of merger or membership exchange filed under this section may be combined 5902 with any filing required under the organic law of any domestic eligible entity involved in 5903 the transaction if the combined filing satisfies the requirements of both this section and 5904 the other organic law. 5905

5906 Source Note: Subsections (a) and (c) are patterned 5907 after Model Business Corporation Act, 3d. Ed. 5908 (2002) § 11.06 and are derived from Revised Model 5909 Nonprofit Corporation Act (1987) § 11.04. 5910 Subsection (b) is new. 5911

5912 5913 § 11.07. EFFECT OF MERGER OR MEMBERSHIP EXCHANGE 5914 5915 (a) Subject to sections 11.01(b), 11.02(g) and (h) and 11.03(h) and (i), when a merger 5916

becomes effective: 5917 5918

(1) the domestic or foreign nonprofit corporation or eligible entity that is designated 5919 in the plan of merger as the survivor continues or comes into existence, as the 5920 case may be; 5921

5922 (2) the separate existence of every domestic or foreign nonprofit corporation or 5923

eligible entity that is merged into the survivor ceases; 5924 5925 (3) all property owned by, and every contract and other right possessed by, each 5926

domestic or foreign nonprofit corporation or eligible entity that merges into the 5927 survivor is vested in the survivor without reversion or impairment; 5928

5929 (4) all liabilities of each domestic or foreign nonprofit corporation or eligible entity 5930

that is merged into the survivor are vested in the survivor; 5931 5932 (5) the name of the survivor may, but need not be, substituted in any pending 5933

proceeding for the name of any party to the merger whose separate existence 5934 ceased in the merger; 5935

5936 (6) the articles of incorporation or organic documents of the survivor are amended to 5937

the extent provided in the plan of merger; 5938 5939 (7) the articles of incorporation or organic documents of a survivor that is created by 5940

the merger become effective; and 5941

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5942 (8) the memberships of each corporation that is a party to the merger, and the eligible 5943

interests in an eligible entity that is a party to a merger, that are to be converted 5944 under the plan of merger into memberships, eligible interests, securities, or 5945 obligations; rights to acquire memberships, eligible interests, securities, or 5946 obligations; cash; other property or other consideration; or any combination of the 5947 foregoing; are converted. 5948

5949 (b) When a membership exchange becomes effective, the memberships of each domestic 5950

nonprofit corporation that are to be exchanged for memberships, eligible interests, 5951 securities, or obligations; rights to acquire memberships, eligible interests, securities, or 5952 obligations; cash; other property or other consideration; or any combination of the 5953 foregoing, are entitled only to the rights provided to them in the plan of membership 5954 exchange. 5955

5956 (c) A person who becomes subject to owner liability for some or all of the debts, obligations 5957

or liabilities of any entity as a result of a merger or membership exchange shall have 5958 owner liability only to the extent provided in the organic law of the entity and only for 5959 those debts, obligations and liabilities that arise after the effective time of the articles of 5960 merger or membership exchange. 5961

5962 (d) The effect of a merger or membership exchange on the owner liability of a person who 5963

had owner liability for some or all of the debts, obligations or liabilities of a party to the 5964 merger or membership exchange shall be as follows: 5965

5966 (1) The merger or membership exchange does not discharge any owner liability 5967

under the organic law of the entity in which the person was a member, 5968 shareholder or interest holder to the extent any such owner liability arose before 5969 the effective time of the articles of merger or membership exchange. 5970

5971 (2) The person shall not have owner liability under the organic law of the entity in 5972

which the person was a member, shareholder or interest holder prior to the merger 5973 or membership exchange for any debt, obligation or liability that arises after the 5974 effective time of the articles of merger or membership exchange. 5975

5976 (3) The provisions of the organic law of any entity for which the person had owner 5977

liability before the merger or membership exchange shall continue to apply to the 5978 collection or discharge of any owner liability preserved by paragraph (1), as if the 5979 merger or membership exchange had not occurred. 5980

5981 (4) The person shall have whatever rights of contribution from other persons are 5982

provided by the organic law of the entity for which the person had owner liability 5983 with respect to any owner liability preserved by paragraph (1), as if the merger or 5984 membership exchange had not occurred. 5985

5986 (e) A devise, bequest, gift, grant or promise contained in a will or other instrument, in trust 5987

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or otherwise, made before or after a merger, to or for any of the parties to the merger, 5988 shall inure to the survivor, subject to the express terms of the will or other instrument. 5989

5990 Source Note: Patterned after Model Business 5991 Corporation Act, 3d. Ed. (2002) § 11.07. 5992 Subsection (a) derived from Revised Model 5993 Nonprofit Corporation Act (1987) § 11.05. 5994 Subsection (e) derived from Revised Model 5995 Nonprofit Corporation Act (1987) § 11.07. 5996

5997 5998 § 11.08. ABANDONMENT OF A MERGER OR MEMBERSHIP EXCHANGE 5999 6000 (a) Unless otherwise provided in a plan of merger or membership exchange or in the organic 6001

law of a foreign nonprofit corporation or a domestic or foreign eligible entity that is a 6002 party to a merger or a membership exchange, after the plan has been adopted and 6003 approved as required by this chapter, and at any time before the merger or membership 6004 exchange has become effective, it may be abandoned by a domestic nonprofit corporation 6005 that is a party thereto without action by its members, in accordance with any procedures 6006 set forth in the plan of merger or membership exchange or, if no such procedures are set 6007 forth in the plan, in the manner determined by the board of directors, subject to any 6008 contractual rights of other parties to the merger or membership exchange. 6009

6010 (b) If a merger or membership exchange is abandoned under subsection (a) after articles of 6011

merger or membership exchange have been filed with the secretary of state but before the 6012 merger or membership exchange has become effective, a statement that the merger or 6013 membership exchange has been abandoned in accordance with this section, executed on 6014 behalf of a party to the merger or membership exchange by an officer or other duly 6015 authorized representative, shall be delivered to the secretary of state for filing prior to the 6016 effective date of the merger or membership exchange. Upon filing, the statement shall 6017 take effect and the merger or membership exchange shall be deemed abandoned and shall 6018 not become effective. 6019

6020 Source Note: Patterned after Model Business 6021 Corporation Act, 3d. Ed. (2002) § 11.08. 6022

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CHAPTER 12 6023 DISPOSITION OF ASSETS 6024 6025 Section 6026 12.01. Disposition of assets not requiring member approval. 6027 12.02. Member approval of certain dispositions. 6028 12.03. Nondiversion of charitable property. 6029 6030 6031 §12.01 DISPOSITION OF ASSETS NOT REQUIRING MEMBER APPROVAL 6032 6033 Approval of the members of a membership corporation is not required, unless the articles of 6034 incorporation or bylaws otherwise provide: 6035 6036

(1) to sell, lease, exchange, or otherwise dispose of any or all of the corporation’s 6037 assets in the usual and regular course of its activities; 6038

6039 (2) to mortgage, pledge, dedicate to the repayment of indebtedness (whether with or 6040

without recourse), or otherwise encumber any or all of the corporation’s assets, 6041 whether or not in the usual and regular course of business its activities; or 6042

6043 (3) to transfer any or all of the corporation’s assets to one or more corporations or 6044

other entities all of the memberships or interests of which are owned by the 6045 corporation. 6046

6047 Source Note: Patterned after Model Business 6048 Corporation Act, 3d Ed. (2002) § 12.01(1)–(3). 6049 Provision permitting distribution of assets pro rata 6050 to shareholders omitted as inappropriate in the 6051 context of nonprofit corporations. Derived from 6052 Revised Model Nonprofit Corporation Act (1987) § 6053 12.01. 6054

6055 6056 §12.02 MEMBER APPROVAL OF CERTAIN DISPOSITIONS 6057 6058 (a) Except as provided in the articles of incorporation or bylaws, a sale, lease, exchange, or 6059

other disposition of assets, other than a disposition described in section 12.01, requires 6060 approval of the members of a nonprofit corporation if the disposition would leave the 6061 corporation without a significant continuing activity. If a corporation and its 6062 consolidated subsidiaries retain an activity that represented or was supported by at least 6063 25 percent of total assets at the end of the most recently completed fiscal year, the 6064 corporation will conclusively be deemed to have retained a significant continuing 6065 activity. 6066

6067

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(b) A disposition that requires approval of the members under subsection (a) shall be 6068 initiated by a resolution by the board of directors authorizing the disposition. After 6069 adoption of such a resolution, the board of directors shall submit the proposed disposition 6070 to the members for their approval. The board of directors shall also transmit to the 6071 members a recommendation that the members approve the proposed disposition, unless 6072 the board of directors makes a determination that because of conflicts of interest or other 6073 special circumstances it should not make such a recommendation, in which case the 6074 board of directors shall transmit to the members the basis for that determination. 6075

6076 (c) The board of directors may condition its submission of a disposition to the members 6077

under subsection (b) on any basis. 6078 6079 (d) If a disposition is required to be approved by the members under subsection (a), and if the 6080

approval is to be given at a meeting, the corporation shall notify each member, whether 6081 or not entitled to vote, of the meeting of members at which the disposition is to be 6082 submitted for approval. The notice shall state that the purpose, or one of the purposes, of 6083 the meeting is to consider the disposition and shall contain a description of the 6084 disposition, including the terms and conditions thereof and the consideration to be 6085 received by the corporation. 6086

6087 (e) Unless the articles of incorporation or the board of directors acting pursuant to subsection 6088

(c) requires a greater vote, or a greater number of votes to be present, the approval of a 6089 disposition by the members shall require the approval of the members at a meeting at 6090 which a quorum consisting of at least a majority of the votes entitled to be cast on the 6091 disposition exists. 6092

6093 (f) After a disposition has been approved by the members under subsection (b), and at any 6094

time before the disposition has been consummated, it may be abandoned by the nonprofit 6095 corporation without action by the members, subject to any contractual rights of other 6096 parties to the disposition. 6097

6098 (g) A disposition of assets in the course of dissolution under chapter 14 is not governed by 6099

this section. 6100 6101 (h) The assets of a direct or indirect consolidated subsidiary shall be deemed the assets of the 6102

parent nonprofit corporation for the purposes of this section. 6103 6104 Source Note: Patterned after Model Business 6105 Corporation Act, 3d Ed. (2002) § 12.02. Derived 6106 from Revised Model Nonprofit Corporation Act 6107 (1987) § 12.02, except that the required vote of 6108 members has been reduced from two-thirds to a 6109 majority of the votes cast. 6110

6111 6112 § 12.03. NONDIVERISON OF CHARITABLE PROPERTY 6113

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6114 Property held in trust or otherwise dedicated to a charitable purpose may not be diverted from 6115 that purpose by a transaction described in section 12.01 or 12.02 unless the nonprofit corporation 6116 obtains an appropriate order from [court] [the attorney general] specifying the disposition of the 6117 property to the extent required by and pursuant to [cite state cy pres or other nondiversion 6118 statute]. 6119 6120

Source Note: Patterned after 15 Pa.C.S. § 5547(b). 6121 Derived from Revised Model Nonprofit 6122 Corporation Act (1987) § 12.02(g). 6123

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CHAPTER 14 6124 DISSOLUTION 6125 6126 Subchapter 6127 A. Voluntary Dissolution 6128 B. Administrative Dissolution 6129 C. Judicial Dissolution 6130 D. Miscellaneous 6131 6132 Subchapter A 6133 VOLUNTARY DISSOLUTION 6134 6135 Section 6136 14.01. Dissolution by incorporators or initial directors. 6137 14.02. Dissolution by board of directors and members. 6138 14.03. Articles of dissolution. 6139 14.04. Revocation of dissolution. 6140 14.05. Effect of dissolution. 6141 14.06. Known claims against dissolved corporation. 6142 14.07. Other claims against dissolved corporation. 6143 14.08. Court proceedings. 6144 14.09. Director duties. 6145 6146 6147 § 14.01. DISSOLUTION BY INCORPORATORS OR INITIAL DIRECTORS 6148 6149 A majority of the incorporators or initial directors of a nonprofit corporation that has not 6150 commenced business or of a membership corporation that has not admitted any members may 6151 dissolve the corporation by delivering to the secretary of state of state for filing articles of 6152 dissolution that set forth: 6153 6154

(1) the name of the corporation; 6155 6156

(2) the date of its incorporation; 6157 6158

(3) either: 6159 6160

(i) that the corporation has not commenced activity; or 6161

(ii) that the corporation is a membership corporation and has not admitted any 6162 members; 6163

(4) that no debt of the corporation remains unpaid; 6164 6165

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(5) that, except as provided in the articles of incorporation or bylaws, the net assets of 6166 the corporation remaining after winding up have been distributed to the members, 6167 if members were admitted; and 6168

6169 (6) that a majority of the incorporators or initial directors authorized the dissolution. 6170

6171 Source Note: Patterned after Model Business 6172 Corporation Act, 3d Ed. (2002) § 14.01. Subsection 6173 (a) derived from Revised Model Nonprofit 6174 Corporation Act (1987) § 14.01(a). 6175

6176 6177 § 14.02. DISSOLUTION BY BOARD OF DIRECTORS AND MEMBERS 6178 6179 (a) The board of directors of a membership corporation may propose dissolution for 6180

submission to the members. 6181 6182 (b) For a proposal to dissolve to be adopted: 6183 6184

(1) the board of directors must recommend dissolution to the members unless the 6185 board of directors determines that because of conflict of interest or other special 6186 circumstances it should make no recommendation and communicates the basis for 6187 its determination to the members; and 6188

6189 (2) the members entitled to vote must approve the proposal to dissolve as provided in 6190

subsection (e). 6191 6192 (c) The board of directors may condition its submission of the proposal for dissolution on 6193

any basis. 6194 6195 (d) The nonprofit corporation shall notify each member, whether or not entitled to vote, of 6196

the proposed meeting of members. The notice must also state: 6197 6198

(1) that the purpose, or one of the purposes, of the meeting is to consider dissolving 6199 the corporation; and 6200

6201 (2) how the assets of the corporation will be distributed after all creditors have been 6202

paid, or how the distribution of assets will be determined. 6203 6204 (e) Unless the articles of incorporation, the bylaws, or the board of directors acting pursuant 6205

to subsection (c) require a greater vote, a greater number of members to be present, or a 6206 vote by voting groups, adoption of the proposal to dissolve requires the approval of the 6207 members at a meeting at which a quorum consisting of at least a majority of the votes 6208 entitled to be cast exists. 6209

6210

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Source Note: Patterned after Model Business 6211 Corporation Act, 3d Ed. (2002) § 14.02. Derived 6212 generally from Revised Model Nonprofit Corporation 6213 Act (1987) § 14.02. 6214

6215 6216 § 14.03. ARTICLES OF DISSOLUTION 6217 6218 (a) At any time after dissolution is authorized, the nonprofit corporation may dissolve by 6219

delivering to the secretary of state for filing articles of dissolution setting forth: 6220 6221 (1) the name of the corporation; 6222 6223 (2) the date dissolution was authorized; and 6224 6225 (3) the dissolution was approved in the manner required by this Act and by the 6226

articles of incorporation and bylaws. 6227 6228 (b) A nonprofit corporation is dissolved upon the effective date of its articles of dissolution. 6229 6230 (c) For purposes of this subchapter, “dissolved corporation” means a nonprofit corporation 6231

whose articles of dissolution have become effective and includes a successor entity to 6232 which the remaining assets of the corporation are transferred subject to its liabilities for 6233 purposes of liquidation. 6234

6235 Source Note: Patterned after Model Business 6236 Corporation Act, 3d Ed. (2002) § 14.03. Subsections 6237 (a) and (b) derived from Revised Model Nonprofit 6238 Corporation Act (1987) § 14.04. 6239

6240 6241 § 14.04. REVOCATION OF DISSOLUTION 6242

6243 (a) A nonprofit corporation may revoke its dissolution within 120 days of its effective date. 6244 6245 (b) Revocation of dissolution must be authorized in the same manner as the dissolution was 6246

authorized unless that authorization permitted revocation by action of the board of 6247 directors alone, in which event the board of directors may revoke the dissolution without 6248 action by the members. 6249

6250 (c) After the revocation of dissolution is authorized, the nonprofit corporation may revoke 6251

the dissolution by delivering to the secretary of state for filing articles of revocation of 6252 dissolution, together with a copy of its articles of dissolution, that set forth: 6253

6254 (1) the name of the corporation; 6255

6256

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(2) the effective date of the dissolution that was revoked; 6257 6258 (3) the date that the revocation of dissolution was authorized; 6259

6260 (4) that the revocation of dissolution was approved in the manner required by this Act 6261

and by the articles of incorporation and bylaws. 6262 6263 (d) Revocation of dissolution is effective upon the effective date of the articles of revocation 6264

of dissolution. 6265 6266 (e) When the revocation of dissolution is effective, it relates back to and takes effect as of the 6267

effective date of the dissolution and the corporation resumes carrying on its activities as if 6268 dissolution had never occurred. 6269

6270 Source Note: Patterned after Model Business 6271 Corporation Act, 3d Ed. (2002) § 14.04. Derived from 6272 Revised Model Nonprofit Corporation Act (1987) § 6273 14.05. 6274

6275 6276 § 14.05. EFFECT OF DISSOLUTION 6277 6278 (a) A dissolved nonprofit corporation continues its corporate existence but may not carry on 6279

any activities except that appropriate to wind up and liquidate its affairs, including: 6280 6281

(b) collecting its assets; 6282 6283 (c) disposing of its properties that will not be distributed in kind; 6284 6285 (d) discharging or making provision for discharging its liabilities; 6286 6287 (e) distributing its remaining property as required by law and its articles of incorporation and 6288

bylaws; and otherwise as approved when the dissolution was approved or among the 6289 members per capita; and 6290 6291

(f) doing every other act necessary to wind up and liquidate its business and affairs. 6292 6293

(b) Dissolution of a nonprofit corporation does not: 6294 6295 (1) transfer title to the corporation’s property; 6296

6297 (2) subject its directors or officers to standards of conduct different from those 6298

prescribed in chapter 8; 6299 6300

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(3) change quorum or voting requirements for its board of directors or members; 6301 change provisions for selection, resignation, or removal of its directors or officers 6302 or both; or change provisions for amending its bylaws; 6303

6304 (4) prevent commencement of a proceeding by or against the corporation in its 6305

corporate name; 6306 6307

(5) abate or suspend a proceeding pending by or against the corporation on the 6308 effective date of dissolution; or 6309

6310 (6) terminate the authority of the registered agent of the corporation. 6311


6317 6318 § 14.06. KNOWN CLAIMS AGAINST DISSOLVED CORPORATION 6319

6320 (a) A dissolved nonprofit corporation may dispose of the known claims against it by 6321

notifying its known claimants in a record of the dissolution at any time after its effective 6322 date. 6323 6324

(b) The notice must: 6325 6326 (1) describe information that must be included in a claim; 6327

6328 (2) provide a mailing address where a claim may be sent; 6329

6330 (3) state the deadline, which may not be fewer than 120 days from the effective date 6331

of the written notice, by which the dissolved nonprofit corporation must receive 6332 the claim; and 6333

6334 (4) state that the claim will be barred if not received by the deadline. 6335

6336 (c) A claim against the dissolved nonprofit corporation is barred: 6337

6338 (1) if a claimant who was given notice under subsection (b) does not deliver the claim 6339

to the dissolved corporation by the deadline; or 6340 6341 (2) if a claimant whose claim was rejected by the dissolved corporation does not 6342

commence a proceeding to enforce the claim within 90 days from the effective 6343 date of the rejection notice. 6344

6345

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(d) For purposes of this section, “claim” does not include a contingent liability or a claim 6346 based on an event occurring after the effective date of dissolution. 6347


6353 6354 § 14.07. OTHER CLAIMS AGAINST DISSOLVED CORPORATION 6355

6356 (a) A dissolved nonprofit corporation may also publish notice of its dissolution and request 6357

that persons with claims against the dissolved corporation present them in accordance 6358 with the notice. 6359

(b) The notice must: 6360

(1) be published one time in a newspaper of general circulation in the county where 6361 the principal office of the dissolved nonprofit corporation (or, if none in this state, 6362 its registered office) is or was last located; 6363

(2) describe the information that must be included in a claim and provide a mailing 6364 address where the claim must be sent; and 6365

(3) state that a claim against the dissolved corporation will be barred unless a 6366 proceeding to enforce the claim is commenced within three years after the 6367 publication of the notice. 6368

(c) If the dissolved nonprofit corporation publishes a newspaper notice in accordance with 6369 subsection (b), the claim of each of the following claimants is barred unless the claimant 6370 commences a proceeding to enforce the claim against the dissolved corporation within 6371 three years after the publication date of the newspaper notice: 6372

(1) a claimant who was not given notice in a record under section 14.06; 6373

(2) a claimant whose claim was timely sent to the dissolved corporation but not acted 6374 on; 6375

(3) a claimant whose claim is contingent or based on an event occurring after the 6376 effective date of dissolution. 6377

(d) A claim that is not barred by section 14.06(b) or section 14.07(c) may be enforced: 6378

(1) against the dissolved nonprofit corporation, to the extent of its undistributed 6379 assets; or 6380

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(2) except as provided in section 14.08(d), if the assets have been distributed in 6381 liquidation, against any person, other than a creditor of the dissolved corporation, 6382 to whom the corporation distributed its property to the extent of the distributee’s 6383 pro rata share of the claim or the corporate assets distributed to the distribute in 6384 liquidation, whichever is less, but a distributee’s total liability for all claims under 6385 this section may not exceed the total amount of assets distributed to the 6386 distributee. 6387

Source Note: Patterned after Model Business 6388 Corporation Act, 3d Ed. (2002) § 14.07. 6389 Substantially a reenactment of Revised Model 6390 Nonprofit Corporation Act (1987) § 14.08, except 6391 that the limitations period has been reduced from 6392 five years to three years. 6393

6394 6395 § 14.08. COURT PROCEEDINGS 6396

(a) A dissolved nonprofit corporation that has published a notice under section 14.07 may 6397 file an application with the [name or describe] court of the county where the dissolved 6398 corporation’s principal office (or, if none in this state, its registered office) is located for a 6399 determination of the amount and form of security to be provided for payment of claims 6400 that are contingent or have not been made known to the dissolved corporation or that are 6401 based on an event occurring after the effective date of dissolution but that, based on the 6402 facts known to the dissolved corporation, are reasonably estimated to arise after the 6403 effective date of dissolution. Provision need not be made for any claim that is or is 6404 reasonably anticipated to be barred under section 14.07(c). 6405

(b) Within 10 days after the filing of the application, notice of the proceeding shall be given 6406 by the dissolved nonprofit corporation to each claimant holding a contingent claim whose 6407 contingent claim is shown on the records of the dissolved corporation. 6408

(c) The court may appoint a guardian ad litem to represent all claimants whose identities are 6409 unknown in any proceeding brought under this section. The reasonable fees and 6410 expenses of such guardian, including all reasonable expert witness fees, shall be paid by 6411 the dissolved nonprofit corporation. 6412

(d) Provision by the dissolved nonprofit corporation for security in the amount and the form 6413 ordered by the court under section 14.08(a) shall satisfy the dissolved corporation’s 6414 obligations with respect to claims that are contingent, have not been made known to the 6415 dissolved corporation or are based on an event occurring after the effective date of 6416 dissolution, and such claims may not be enforced against a person who received assets in 6417 liquidation. 6418


6421

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6422 § 14.09. DIRECTOR DUTIES 6423

(a) Directors shall cause the dissolved nonprofit corporation to discharge or make reasonable 6424 provision for the payment of claims and make distributions of assets after payment or 6425 provision for claims. 6426

(b) Directors of a dissolved nonprofit corporation that has disposed of claims under sections 6427 14.06, 14.07, or 14.08 shall not be liable for breach of section 14.09(a) with respect to 6428 claims against the dissolved corporation that are barred or satisfied under sections 14.06, 6429 14.07, or 14.08. 6430


6433 6434 Subchapter B 6435 ADMINISTRATIVE DISSOLUTION 6436 6437 Section 6438 14.20. Grounds for administrative dissolution. 6439 14.21. Procedure for administrative dissolution. 6440 14.22. Reinstatement following administrative dissolution. 6441 14.23. Appeal from denial of reinstatement. 6442 6443 6444 § 14.20. GROUNDS FOR ADMINISTRATIVE DISSOLUTION 6445

The secretary of state may commence a proceeding under section 14.21 to administratively 6446 dissolve a nonprofit corporation if: 6447

6448 (1) the corporation does not pay within 120 days after they are due any taxes or 6449

penalties imposed by this Act or other law; 6450

(2) the corporation does not deliver its annual report to the secretary of state within 6451 120 days after it is due; 6452

(3) the corporation is without a registered agent or registered office in this state for 6453 120 days or more; 6454

(4) the corporation does not notify the secretary of state within 120 days that its 6455 registered agent or registered office has been changed, that its registered agent has 6456 resigned, or that its registered office has been discontinued; or 6457

(5) the corporation’s period of duration, if any, stated in its articles of incorporation 6458 expires. 6459

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Source Note: Patterned after Model Business 6460 Corporation Act, 3d Ed. (2002) § 14.20. Derived 6461 from Revised Model Nonprofit Corporation Act 6462 (1987) § 14.20, except that the period in paragraph 6463 (4) has been reduced from 120 days. 6464

6465 6466 § 14.21. PROCEDURE FOR ADMINISTRATIVE DISSOLUTION 6467

(a) If the secretary of state determines that one or more grounds exist under section 14.20 for 6468 dissolving a nonprofit corporation, the secretary of state shall serve the corporation with 6469 notice in a record of that determination under section 5.04. 6470

(b) If the nonprofit corporation does not correct each ground for dissolution or demonstrate 6471 to the reasonable satisfaction of the secretary of state that each ground determined by the 6472 secretary of state does not exist within 60 days after service of the notice is perfected 6473 under section 5.04, the secretary of state shall administratively dissolve the corporation 6474 by signing a certificate of dissolution that recites the ground or grounds for dissolution 6475 and its effective date. The secretary of state shall file the original of the certificate and 6476 serve a copy on the corporation under section 5.04. 6477

(c) The administrative dissolution of a nonprofit corporation does not terminate the authority 6478 of its registered agent. 6479

Source Note: Patterned after Model Business 6480 Corporation Act, 3d Ed. (2002) § 14.21. Derived 6481 from Revised Model Nonprofit Corporation Act 6482 (1987) § 14.21. Required notice to attorney general 6483 in the case of public benefit corporations omitted. 6484

6485 6486 § 14.22. REINSTATEMENT FOLLOWING ADMINISTRATIVE DISSOLUTION 6487

(a) A nonprofit corporation administratively dissolved under section 14.21 may apply to the 6488 secretary of state for reinstatement. The application must: 6489

(1) recite the name of the corporation and the effective date of its administrative 6490 dissolution; 6491

(2) state that the ground or grounds for dissolution either did not exist or have been 6492 eliminated; 6493

(3) state that the corporation’s name satisfies the requirements of section 4.01; and 6494

(4) contain a certificate from the [appropriate taxing authority, if any] reciting that all 6495 taxes owed by the corporation have been paid. 6496

6497

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(b) If the secretary of state determines that the application contains the information required 6498 by subsection (a) and that the information is correct, the secretary of state shall cancel the 6499 certificate of dissolution and prepare a certificate of reinstatement that recites that 6500 determination and the effective date of reinstatement, file the original of the certificate, 6501 and serve a copy on the nonprofit corporation under section 5.04. 6502

(c) When the reinstatement is effective, it relates back to and takes effect as of the effective 6503 date of the administrative dissolution and the nonprofit corporation resumes carrying on 6504 its activities as if the administrative dissolution had never occurred. 6505


6510 6511 § 14.23. APPEAL FROM DENIAL OF REINSTATEMENT 6512

(a) If the secretary of state denies a nonprofit corporation’s application for reinstatement 6513 following administrative dissolution, the secretary of state shall serve the corporation 6514 under section 5.04 with a notice in a record that explains the reason or reasons for denial. 6515

(b) The nonprofit corporation may appeal the denial of reinstatement to the [name or 6516 describe] court within 90 days after service of the notice of denial is perfected. The 6517 corporation appeals by petitioning the court to set aside the dissolution and attaching to 6518 the petition copies of the secretary of state’s certificate of dissolution, the corporation’s 6519 application for reinstatement, and the secretary of state’s notice of denial. 6520

(c) The court may summarily order the secretary of state to reinstate the dissolved nonprofit 6521 corporation or may take other action the court considers appropriate. 6522

(d) The court’s final decision may be appealed as in other civil proceedings. 6523


6528 6529 Subchapter C 6530 JUDICIAL DISSOLUTION 6531 6532 Section 6533 14.30. Grounds for judicial dissolution. 6534 14.31. Procedure for judicial dissolution. 6535 14.32. Receivership or custodianship. 6536 14.33. Decree of dissolution. 6537

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6538 6539 § 14.30. GROUNDS FOR JUDICIAL DISSOLUTION 6540

The [name or describe court or courts] may dissolve a nonprofit corporation: 6541 6542

(1) in a proceeding by the attorney general if it is established that: 6543

(i) the corporation obtained its articles of incorporation through fraud; or 6544 6545

(ii) the corporation has continued to exceed or abuse the authority conferred 6546 upon it by law; 6547

6548

(2) except as provided in the articles of incorporation or bylaws, in a proceeding by 6549 50 members or members holding at least 5% of the voting power, whichever is 6550 less, or by a director, if it is established that: 6551

(i) the directors are deadlocked in the management of the corporate affairs, 6552 the members, if any, are unable to break the deadlock, and irreparable 6553 injury to the corporation or its mission is threatened or being suffered 6554 because of the deadlock; 6555

6556 (ii) the directors or those in control of the corporation have acted, are acting, 6557

or will act in a manner that is illegal, oppressive, or fraudulent; 6558 6559

(iii) the members are deadlocked in voting power and have failed, for a period 6560 that includes at least two consecutive annual meeting dates, to elect 6561 successors to directors whose terms have, or otherwise would have, 6562 expired; 6563

6564 (iv) the corporate assets are being misapplied or wasted; or 6565

6566 (v) the corporation has insufficient assets to continue its activities and it is no 6567

longer able to assemble a quorum of directors or members; 6568 6569 (3) in a proceeding by a creditor if it is established that: 6570

(i) the creditor’s claim has been reduced to judgment, the execution on the 6571 judgment returned unsatisfied, and the corporation is insolvent; or 6572

(ii) the corporation has admitted in a record that the creditor’s claim is due 6573 6574 (iii) and owing and the corporation is insolvent; or 6575

6576

(4) in a proceeding by the corporation to have its voluntary dissolution continued 6577 under court supervision. 6578

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Source Note: Patterned after Model Business 6579 Corporation Act, 3d Ed. (2002) § 14.30. Derived 6580 from Revised Model Nonprofit Corporation Act 6581 (1987) § 14.30(a). 6582

6583 6584 § 14.31. PROCEDURE FOR JUDICIAL DISSOLUTION 6585

6586 (a) Venue for a proceeding by the attorney general to dissolve a nonprofit corporation lies in 6587

[name the county or counties]. Venue for a proceeding brought by any other party named 6588 in section 14.30 lies in the county where a corporation’s principal office (or, if none in 6589 this state, its registered office) is or was last located. 6590

6591 (b) It is not necessary to make directors or members parties to a proceeding to dissolve a 6592

nonprofit corporation unless relief is sought against them individually. 6593 6594

(c) A court in a proceeding brought to dissolve a nonprofit corporation may issue 6595 injunctions, appoint a receiver or custodian pendente lite with all powers and duties the 6596 court directs, take other action required to preserve the corporate assets wherever located, 6597 and carry on the activities of the corporation until a full hearing can be held. 6598

6599 Source Note: Patterned after Model Business 6600 Corporation Act, 3d Ed. (2002) § 14.31(a)-(c). 6601 Reenactment of Revised Model Nonprofit 6602 Corporation Act (1987) § 14.31(a)-(c). 6603

6604 6605 § 14.32. RECEIVERSHIP OR CUSTODIANSHIP 6606

6607 (a) A court in a judicial proceeding brought to dissolve a nonprofit corporation may appoint 6608

one or more receivers to wind up and liquidate, or one or more custodians to manage, the 6609 affairs of the corporation. The court shall hold a hearing, after notifying all parties to the 6610 proceeding and any interested persons designated by the court, before appointing a 6611 receiver or custodian. The court appointing a receiver or custodian has exclusive 6612 jurisdiction over the corporation and all of its property wherever located. 6613

6614 (b) The court may appoint an individual or a domestic or foreign corporation (authorized to 6615

transact business in this state) as a receiver or custodian. The court may require the 6616 receiver or custodian to post bond, with or without sureties, in an amount the court 6617 directs. 6618

6619 (c) The court shall describe the powers and duties of the receiver or custodian in its 6620

appointing order, which may be amended from time to time. Among other powers: 6621 6622

(1) the receiver: 6623 6624

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(i) may dispose of all or any part of the assets of the nonprofit corporation 6625 wherever located, at a public or private sale, if authorized by the court; 6626 and 6627

(ii) may sue and defend in his own name as receiver of the corporation in all 6628 courts of this state; and 6629

(2) the custodian may exercise all of the powers of the corporation, through or in 6630 place of its board of directors, to the extent necessary to manage the affairs of the 6631 corporation in the best interests of its shareholders and creditors. 6632

6633 (d) The court during a receivership may redesignate the receiver a custodian, and during a 6634

custodianship may redesignate the custodian a receiver, if doing so is in the best interests 6635 of the nonprofit corporation, its members, and creditors. 6636

6637 (e) The court from time to time during the receivership or custodianship may order 6638

compensation paid and expense disbursements or reimbursements made to the receiver or 6639 custodian and counsel from the assets of the nonprofit corporation or proceeds from the 6640 sale of the assets. 6641

6642 (f) This section does not apply to a nonprofit corporation engaged in religious activity. 6643

6644 Source Note: Patterned after Model Business 6645 Corporation Act, 3d Ed. (2002) § 14.32. 6646 Subsections (a)-(e) are substantially a reenactment 6647 of Revised Model Nonprofit Corporation Act 6648 (1987) § 14.32, except that section has been 6649 generalized to apply to all nonprofit corporations 6650 and not just public benefit and mutual benefit 6651 corporations. Subsection (f) is new. 6652

6653 6654 § 14.33. DECREE OF DISSOLUTION 6655

6656 (a) If after a hearing the court determines that one or more grounds for judicial dissolution 6657

described in section 14.30 exist, it may enter a decree dissolving the nonprofit 6658 corporation and specifying the effective date of the dissolution, and the clerk of the court 6659 shall deliver a certified copy of the decree to the secretary of state, who shall file it. 6660

6661 (b) After entering the decree of dissolution, the court shall direct the winding-up and 6662

liquidation of the nonprofit corporation’s affairs in accordance with section 14.05 and the 6663 notification of claimants in accordance with sections 14.06 and 14.07. 6664


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6670 6671 Subchapter D 6672 MISCELLANEOUS 6673 6674 Section 6675 14.40. Deposit with state treasurer. 6676 6677 6678 § 14.40. DEPOSIT WITH STATE TREASURER 6679

6680 Assets of a dissolved nonprofit corporation that should be transferred to a creditor, claimant, or 6681 member of the corporation who cannot be found or who is not competent to receive them shall 6682 be reduced to cash and deposited with the state treasurer or other appropriate state official for 6683 safekeeping. When the creditor, claimant, or member furnishes satisfactory proof of entitlement 6684 to the amount deposited, the state treasurer or other appropriate state official shall pay the 6685 amount held. 6686 6687


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CHAPTER 15 6692 FOREIGN CORPORATIONS 6693 6694 Subchapter 6695 6696 A. Certificate of Authority 6697 B. Withdrawal or Transfer of Authority 6698 C. Revocation of Certificate of Authority 6699 6700 Subchapter A 6701 CERTIFICATE OF AUTHORITY 6702 6703 Section 6704 15.01. Authority to transact business required. 6705 15.02. Consequences of transacting business without authority. 6706 15.03. Application for certificate of authority. 6707 15.04. Amended certificate of authority. 6708 15.05. Effect of certificate of authority. 6709 15.06. Corporate name of foreign corporation. 6710 15.07. Registered office and registered agent of foreign corporation. 6711 15.08. Change of registered office or registered agent of foreign corporation. 6712 15.09. Resignation of registered agent of foreign corporation. 6713 15.10. Service on foreign corporation. 6714 6715 6716 § 15.01. AUTHORITY TO TRANSACT BUSINESS REQUIRED 6717 6718 (a) A foreign nonprofit corporation may not transact business in this state until it obtains a 6719

certificate of authority from the secretary of state. 6720 6721 (b) The following activities, among others, do not constitute transacting business within the 6722

meaning of subsection (a): 6723 6724

(1) maintaining, defending, or settling any proceeding; 6725 6726

(2) holding meetings of the board of directors or members or carrying on other 6727 activities concerning internal corporate affairs; 6728

6729 (3) maintaining bank accounts; 6730

6731 (4) maintaining offices or agencies for the transfer, exchange, and registration of 6732

memberships or securities or maintaining trustees or depositaries with respect to 6733 those securities; 6734

6735 (5) selling through independent contractors; 6736

6737

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(6) soliciting or obtaining orders, whether by mail or through employees or agents or 6738 otherwise, if the orders require acceptance outside this state before they become 6739 contracts; 6740

6741 (7) creating or acquiring indebtedness, mortgages, and security interests in real or 6742

personal property; 6743 6744

(8) securing or collecting debts or enforcing mortgages and security interests in 6745 property securing the debts; 6746

6747 (9) owning, without more, real or personal property; 6748

6749 (10) conducting an isolated transaction that is completed within 30 days and that is not 6750

one in the course of repeated transactions of a like nature; 6751 6752

(11) transacting business in interstate commerce. 6753 6754 (c) The list of activities in subsection (b) is not exhaustive. 6755 6756


6761 6762 § 15.02. CONSEQUENCES OF TRANSACTING BUSINESS WITHOUT AUTHORITY 6763 6764 (a) A foreign nonprofit corporation transacting business in this state without a certificate of 6765

authority may not maintain a proceeding in any court in this state until it obtains a 6766 certificate of authority. 6767

6768 (b) The successor to a foreign nonprofit corporation that transacted business in this state 6769

without a certificate of authority and the assignee of a cause of action arising out of that 6770 business may not maintain a proceeding based on that cause of action in any court in this 6771 state until the foreign corporation or its successor obtains a certificate of authority. 6772

6773 (c) A court may stay a proceeding commenced by a foreign nonprofit corporation, its 6774

successor, or assignee until it determines whether the foreign corporation or its successor 6775 requires a certificate of authority. If it so determines, the court may further stay the 6776 proceeding until the foreign corporation or its successor obtains the certificate. 6777

6778 (d) Notwithstanding subsections (a) and (b), the failure of a foreign corporation to obtain a 6779

certificate of authority does not impair the validity of its corporate acts or prevent it from 6780 defending any proceeding in this state. 6781

6782

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Source Note: Patterned after Model Business 6783 Corporation Act, 3d Ed. (2002) § 15.02(a)-(c) and 6784 (e). Reenactment of Revised Model Nonprofit 6785 Corporation Act (1987) § 15.02(a)-(c) and (e). 6786 Prior subsection (d) providing for a civil penalty for 6787 noncompliance omitted. 6788

6789 6790 § 15.03. APPLICATION FOR CERTIFICATE OF AUTHORITY 6791 6792 (a) A foreign nonprofit corporation may apply for a certificate of authority to transact 6793

business in this state by delivering an application to the secretary of state for filing. The 6794 application must set forth: 6795

6796 (1) the name of the foreign corporation or, if its name is unavailable for use in this 6797

state, a corporate name that satisfies the requirements of section 15.06; 6798 6799

(2) the name of the state or country under whose law it is incorporated; 6800 6801

(3) its date of incorporation and period of duration, if any; 6802 6803

(4) the street address of its principal office; and 6804 6805

(5) the address of its registered office in this state and the name of its registered agent 6806 at that office; and 6807

6808 (6) the names and usual business addresses of its current directors and officers. 6809

6810 (b) The foreign corporation shall deliver with the completed application a certificate of 6811

existence (or a document of similar import) duly authenticated by the secretary of state or 6812 other official having custody of corporate records in the state or country under whose law 6813 it is incorporated. 6814

6815 Source Note: Patterned after Model Business 6816 Corporation Act, 3d Ed. (2002) § 15.03. 6817 Reenactment of Revised Model Nonprofit 6818 Corporation Act (1987) § 15.03, except paragraphs 6819 (a)(7) and (8) which have been omitted. 6820

6821 6822 § 15.04. AMENDED CERTIFICATE OF AUTHORITY 6823 6824 (a) A foreign nonprofit corporation authorized to transact business in this state must obtain 6825

an amended certificate of authority from the secretary of state if it changes: 6826 6827

(1) its corporate name; 6828

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6829 (2) the period of its duration; or 6830

6831 (3) the state or country of its incorporation. 6832

6833 (b) The requirements of section 15.03 for obtaining an original certificate of authority apply 6834

to obtaining an amended certificate under this section. 6835 6836


6841 6842 § 15.05. EFFECT OF CERTIFICATE OF AUTHORITY 6843 6844 (a) A certificate of authority authorizes the foreign nonprofit corporation to which it is issued 6845

to transact business in this state subject, however, to the right of the state to revoke the 6846 certificate as provided in this Act. 6847

6848 (b) A foreign nonprofit corporation with a valid certificate of authority has the same but no 6849

greater rights and has the same but no greater privileges as, and except as otherwise 6850 provided by this Act is subject to the same duties, restrictions, penalties, and liabilities 6851 now or later imposed on, a domestic nonprofit corporation of like character. 6852

6853 (c) This Act does not authorize this state to regulate the organization or internal affairs of a 6854

foreign nonprofit corporation authorized to transact business in this state. 6855 6856


6861 6862 § 15.06. CORPORATE NAME OF FOREIGN CORPORATION 6863 6864 (a) If the corporate name of a foreign nonprofit corporation does not satisfy the requirements 6865

of section 4.01, the foreign corporation to obtain or maintain a certificate of authority to 6866 transact business in this state: 6867

6868 (1) may add the word “corporation,” “incorporated,” “company,” or “limited,” or the 6869

abbreviation “corp.,” “inc.,” “co.,” or “ltd.,” to its corporate name for use in this 6870 state; or 6871

6872 (2) may use a fictitious name to transact business in this state if its real name is 6873

unavailable and it delivers to the secretary of state for filing a copy of the 6874

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resolution of its board of directors, certified by its secretary, adopting the 6875 fictitious name. 6876

6877 (b) Except as authorized by subsections (c) and (d), the corporate name (including a fictitious 6878

name) of a foreign nonprofit corporation must be distinguishable upon the records of the 6879 secretary of state from: 6880

6881 (1) the corporate name of a nonprofit or business corporation incorporated or 6882

authorized to transact business in this state; 6883 6884

(2) a corporate name reserved or registered under section 4.02 or 4.03 or other law of 6885 this state; 6886

6887 (3) the fictitious name of another foreign nonprofit or business corporation authorized 6888

to transact business in this state. 6889 6890 (c) A foreign nonprofit corporation may apply to the secretary of state for authorization to 6891

use in this state the name of another nonprofit or business corporation (incorporated or 6892 authorized to transact business in this state) that is not distinguishable upon the records of 6893 the secretary of state from the name applied for. The secretary of state shall authorize use 6894 of the name applied for if: 6895

6896 (1) the other corporation consents to the use in writing and submits an undertaking in 6897

form satisfactory to the secretary of state to change its name to a name that is 6898 distinguishable upon the records of the secretary of state from the name of the 6899 applying corporation; or 6900

6901 (2) the applicant delivers to the secretary of state a certified copy of a final judgment 6902

of a court of competent jurisdiction establishing the applicant’s right to use the 6903 name applied for in this state. 6904

6905 (d) A foreign nonprofit corporation may use in this state the name (including the fictitious 6906

name) of another domestic or foreign nonprofit or business corporation that is used in this 6907 state if the other corporation is incorporated or authorized to transact business in this state 6908 and the foreign corporation: 6909

6910 (1) has merged with the other corporation; 6911

6912 (2) has been formed by reorganization of the other corporation; or 6913

6914 (3) has acquired all or substantially all of the assets, including the corporate name, of 6915

the other corporation. 6916 6917 (e) If a foreign nonprofit corporation authorized to transact business in this state changes its 6918

corporate name to one that does not satisfy the requirements of section 4.01, it may not 6919 transact business in this state under the changed name until it adopts a name satisfying 6920

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the requirements of section 4.01 and obtains an amended certificate of authority under 6921 section 15.04. 6922

6923 Source Note: Patterned after Model Business 6924 Corporation Act, 3d Ed. (2002) § 15.06. 6925 Substantially a reenactment of Revised Model 6926 Nonprofit Corporation Act (1987) § 15.06, except 6927 that subsection (a)(1) is new. 6928

6929 6930 § 15.07. REGISTERED OFFICE AND REGISTERED AGENT OF FOREIGN 6931

CORPORATION 6932 6933 Each foreign nonprofit corporation authorized to transact business in this state must continuously 6934 maintain in this state: 6935 6936

(1) a registered office that may be the same as any of its places of business; and 6937 6938

(2) a registered agent, who may be: 6939 6940

(i) an individual who resides in this state and whose business office is 6941 identical with the registered office; 6942

6943 (ii) a domestic nonprofit or business corporation whose business office is 6944

identical with the registered office; or 6945 6946

(iii) a foreign nonprofit or business corporation authorized to transact business 6947 in this state whose business office is identical with the registered office. 6948


6954 6955 § 15.08. CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OF 6956

FOREIGN CORPORATION 6957 6958 (a) A foreign nonprofit corporation authorized to transact business in this state may change 6959

its registered office or registered agent by delivering to the secretary of state for filing a 6960 statement of change that sets forth: 6961

6962 (1) its name; 6963

6964 (2) the street address of its current registered office; 6965

6966

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(3) if the current registered office is to be changed, the street address of its new 6967 registered office; 6968

6969 (4) the name of its current registered agent; 6970

6971 (5) if the current registered agent is to be changed, the name of its new registered 6972

agent and the new agent’s written consent (either on the statement or attached to 6973 it) to the appointment; and 6974

6975 (6) that after the change or changes are made, the street addresses of its registered 6976

office and the business office of its registered agent will be identical. 6977 6978 (b) If a registered agent changes the street address of its business office, the agent may 6979

change the street address of the registered office of any foreign nonprofit corporation for 6980 which the person is the registered agent by notifying the corporation in writing of the 6981 change and signing (either manually or in facsimile) and delivering to the secretary of 6982 state for filing a statement of change that complies with the requirements of subsection 6983 (a) and recites that the corporation has been notified of the change. 6984


6990 6991 § 15.09. RESIGNATION OF REGISTERED AGENT OF FOREIGN CORPORATION 6992 6993 (a) The registered agent of a foreign nonprofit corporation may resign as agent by signing 6994

and delivering to the secretary of state for filing the original and two exact or conformed 6995 copies of a statement of resignation. The statement of resignation may include a 6996 statement that the registered office is also discontinued. 6997

6998 (b) After filing the statement, the secretary of state shall attach the filing receipt to one copy 6999

and mail the copy and receipt to the registered office if not discontinued. The secretary 7000 of state shall mail the other copy to the foreign nonprofit corporation at its principal 7001 office address shown in its most recent annual report. 7002

7003 (c) The agency appointment is terminated, and the registered office discontinued if so 7004

provided, on the 31st day after the date on which the statement was filed. 7005 7006


7011 7012

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§ 15.10. SERVICE ON FOREIGN CORPORATION 7013 7014 (a) The registered agent of a foreign corporation authorized to transact business in this state 7015

is the corporation’s agent for service of process, notice, or demand required or permitted 7016 by law to be served on the foreign corporation. 7017

7018 (b) A foreign corporation may be served by registered or certified mail, return receipt 7019

requested, addressed to the secretary of the foreign corporation at its principal office 7020 shown in its application for a certificate of authority or in its most recent annual report if 7021 the foreign corporation: 7022

7023 (1) has no registered agent or its registered agent cannot with reasonable diligence be 7024

served; 7025 7026

(2) has withdrawn from transacting business in this state under section 15.20; or 7027 7028

(3) has had its certificate of authority revoked under section 15.31. 7029 7030 (c) Service is perfected under subsection (b) at the earliest of: 7031 7032

(1) the date the foreign corporation receives the mail; 7033 7034

(2) the date shown on the return receipt, if signed on behalf of the foreign 7035 corporation; or 7036

7037 (3) five days after its deposit in the United States mail, as evidenced by the postmark, 7038

if mailed postpaid and correctly addressed. 7039 7040 (d) This section does not prescribe the only means, or necessarily the required means, of 7041

serving a foreign corporation. 7042 7043


7048 7049 Subchapter B 7050 WITHDRAWAL OR TRANSFER OF AUTHORITY 7051 7052 Section 7053 15.20. Withdrawal of foreign corporation. 7054 15.21. Automatic withdrawal upon certain conversions. 7055 15.22. Withdrawal upon conversion to a nonfiling entity. 7056 15.23. Transfer of authority. 7057 7058

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7059 § 15.20. WITHDRAWAL OF FOREIGN CORPORATION 7060 7061 (a) A foreign nonprofit corporation authorized to transact business in this state may apply for 7062

a certificate of withdrawal by delivering an application to the secretary of state for filing. 7063 The application must set forth: 7064

7065 (1) the name of the foreign corporation and the name of the state or country under 7066

whose law it is incorporated; 7067 7068

(2) that it is not transacting business in this state and that it surrenders its authority to 7069 transact business in this state; 7070

7071 (3) that it revokes the authority of its registered agent to accept service on its behalf 7072

and appoints the secretary of state as its agent for service of process in any 7073 proceeding based on a cause of action arising during the time it was authorized to 7074 transact business in this state; 7075

7076 (4) a mailing address to which the secretary of state may mail a copy of any process 7077

served on him under paragraph (3). 7078 7079 (b) After the withdrawal of the foreign nonprofit corporation is effective, service of process 7080

on the secretary of state under this section with respect to activities of the foreign 7081 corporation in this state prior to withdrawal is service on the foreign corporation. Upon 7082 receipt of process, the secretary of state shall mail a copy of the process to the foreign 7083 corporation at the mailing address set forth under subsection (b). 7084


7090 7091 § 15.21. AUTOMATIC WITHDRAWAL UPON CERTAIN CONVERSIONS 7092 7093 A foreign nonprofit corporation authorized to transact business in this state that converts to a 7094 domestic business corporation or any form of domestic filing entity shall be deemed to have 7095 withdrawn on the effective date of the conversion. 7096 7097


7100 7101 § 15.22. WITHDRAWAL UPON CONVERSION TO A NONFILING ENTITY 7102 7103

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(a) A foreign nonprofit corporation authorized to transact business in this state that converts 7104 to a domestic or foreign nonfiling entity must apply for a certificate of withdrawal by 7105 delivering an application to the secretary of state for filing. The application must set 7106 forth: 7107

7108 (1) the name of the foreign nonprofit corporation and the name of the state or country 7109

under whose law it was incorporated before the conversion; 7110 7111

(2) that it surrenders its authority to transact business in this state as a foreign 7112 nonprofit corporation; 7113

7114 (3) the type of unincorporated entity to which it has been converted and the 7115

jurisdiction whose laws govern its internal affairs; 7116 7117

(4) if it has been converted to a foreign unincorporated entity: 7118 7119

(i) that it revokes the authority of its registered agent to accept service on its 7120 behalf and appoints the secretary of state as its agent for service of process 7121 in any proceeding based on a cause of action arising during the time it was 7122 authorized to transact business in this state; 7123

7124 (ii) a mailing address to which the secretary of state may mail a copy of any 7125

process served on the secretary of state under paragraph (i); and 7126 7127

(iii) a commitment to notify the secretary of state in the future of any change in 7128 its mailing address. 7129

7130 (b) After the withdrawal under this section of a corporation that has converted to a foreign 7131

unincorporated entity is effective, service of process on the secretary of state is service on 7132 the foreign unincorporated entity. Upon receipt of process, the secretary of state must 7133 mail a copy of the process to the foreign unincorporated entity at the mailing address set 7134 forth under subsection (a)(4). 7135

7136 (c) After the withdrawal under this section of a corporation that has converted to a domestic 7137

unincorporated entity is effective, service of process must be made on the unincorporated 7138 entity in accordance with the regular procedures for service of process on the form of 7139 unincorporated entity to which the corporation was converted. 7140


7144 7145 § 15.23. TRANSFER OF AUTHORITY 7146 7147 (a) A foreign nonprofit corporation authorized to transact business in this state that converts 7148

to a foreign business corporation or to any form of foreign unincorporated entity that is 7149

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required to obtain a certificate of authority or make a similar type of filing with the 7150 secretary of state if it transacts business in this state must file with the secretary of state 7151 an application for transfer of authority executed by any officer or other duly authorized 7152 representative. The application must set forth: 7153

7154 (1) the name of the corporation; 7155

7156 (2) the type of entity to which it has been converted and the jurisdiction whose laws 7157

govern its internal affairs; 7158 7159

(3) any other information that would be required in a filing under the laws of this 7160 state by an entity of the type the corporation has become seeking authority to 7161 transact business in this state. 7162

7163 (b) The application for transfer of authority shall be delivered to the secretary of state for 7164

filing and shall take effect at the effective time provided in section 1.23. 7165 7166 (c) Upon the effectiveness of the application for transfer of authority, the authority of the 7167

corporation under this chapter to transact business in this state shall be transferred 7168 without interruption to the converted entity which shall thereafter hold such authority 7169 subject to the provisions of the laws of this state applicable to that type of entity. 7170


7174 7175 Subchapter C 7176 REVOCATION OF CERTIFICATE OF AUTHORITY 7177 7178 Section 7179 15.30. Grounds for revocation. 7180 15.31. Procedure for and effect of revocation. 7181 15.32. Appeal from revocation. 7182 7183 7184 § 15.30. GROUNDS FOR REVOCATION 7185 7186 The secretary of state may commence a proceeding under section 15.31 to revoke the certificate 7187 of authority of a foreign nonprofit corporation authorized to transact business in this state if: 7188 7189

(1) the foreign corporation does not deliver its annual report to the secretary of state 7190 within 120 days after it is due; 7191

7192 (2) the foreign corporation does not pay within 120 days after they are due any taxes 7193

or penalties imposed by this Act or other law; 7194 7195

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(3) the foreign corporation is without a registered agent or registered office in this 7196 state for 120 days or more; 7197

7198 (4) the foreign corporation does not inform the secretary of state under section 15.08 7199

or 15.09 that its registered agent or registered office has changed, that its 7200 registered agent has resigned, or that its registered office has been discontinued 7201 within 120 days of the change, resignation, or discontinuance; 7202

7203 (5) an incorporator, director, officer, or agent of the foreign corporation signed a 7204

document the person knew was false in any material respect with intent that the 7205 document be delivered to the secretary of state for filing; or 7206

7207 (6) the secretary of state receives a duly authenticated certificate from the secretary of 7208

state or other official having custody of corporate records in the state or country 7209 under whose law the foreign corporation is incorporated stating that it has been 7210 dissolved or disappeared as the result of a merger. 7211

7212 Source Note: Patterned after Model Business 7213 Corporation Act, 3d Ed. (2002) § 15.30. 7214 Substantially a reenactment of Revised Model 7215 Nonprofit Corporation Act (1987) § 15.30(a). 7216

7217 7218 § 15.31. PROCEDURE FOR AND EFFECT OF REVOCATION 7219 7220 (a) The secretary of state, upon determining that one or more grounds exist under section 7221

15.30 for revocation of a certificate of authority, shall serve the foreign nonprofit 7222 corporation with written notice of that determination under section 15.10. 7223

7224 (b) If the foreign nonprofit corporation does not correct each ground for revocation or 7225

demonstrate to the reasonable satisfaction of the secretary of state that each ground 7226 determined by the secretary of state does not exist within 60 days after service of the 7227 notice is perfected under section 15.10, the secretary of state may revoke the foreign 7228 nonprofit corporation’s certificate of authority by signing a certificate of revocation that 7229 recites the ground or grounds for revocation and its effective date. The secretary of state 7230 shall file the original of the certificate and serve a copy on the foreign corporation under 7231 section 15.10. 7232

7233 (c) The authority of a foreign nonprofit corporation to transact business in this state ceases 7234

on the date shown on the certificate revoking its certificate of authority. 7235 7236 (d) The secretary of state’s revocation of a foreign nonprofit corporation’s certificate of 7237

authority appoints the secretary of state the foreign corporation’s agent for service of 7238 process in any proceeding based on a cause of action that arose during the time the 7239 foreign corporation was authorized to transact business in this state. Service of process 7240 on the secretary of state under this subsection is service on the foreign corporation. Upon 7241

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receipt of process, the secretary of state shall mail a copy of the process to the secretary 7242 of the foreign corporation at its principal office shown in its most recent annual report or 7243 in any subsequent communication received from the corporation stating the current 7244 mailing address of its principal office, or, if none are on file, in its application for a 7245 certificate of authority. 7246

7247 (e) Revocation of a foreign nonprofit corporation’s certificate of authority does not terminate 7248

the authority of the registered agent of the corporation. 7249 7250

Source Note: Patterned after Model Business 7251 Corporation Act, 3d Ed. (2002) § 15.31. Derived 7252 from Revised Model Nonprofit Corporation Act 7253 (1987) § 15.31(a) and (c) – (f). 7254

7255 7256 § 15.32. APPEAL FROM REVOCATION 7257 7258 (a) A foreign nonprofit corporation may appeal the secretary of state’s revocation of its 7259

certificate of authority to the [name or describe] court within 90 days after service of the 7260 certificate of revocation is perfected under section 15.10. The foreign corporation 7261 appeals by petitioning the court to set aside the revocation and attaching to the petition 7262 copies of its certificate of authority and the secretary of state’s certificate of revocation. 7263

7264 (b) The court may summarily order the secretary of state to reinstate the certificate of 7265

authority or may take any other action the court considers appropriate. 7266 7267 (c) The court’s final decision may be appealed as in other civil proceedings. 7268 7269


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CHAPTER 16 7274 RECORDS AND REPORTS 7275 7276 Subchapter 7277 7278 A. Records 7279 B. Reports 7280 7281 Subchapter A 7282 RECORDS 7283 7284 Section 7285 16.01. Corporate records. 7286 16.02. Inspection of records by members. 7287 16.03. Scope of inspection right. 7288 16.04. Court-ordered inspection. 7289 16.05. Inspection of records by directors. 7290 16.06. Exception to notice requirements. 7291 16.07. Limitations on use of membership list. 7292 7293 7294 § 16.01. CORPORATE RECORDS 7295 7296 (a) A nonprofit corporation must keep as permanent records minutes of all meetings of its 7297

members, board of directors, and any designated body, a record of all actions taken by 7298 the members, board of directors, or members of a designated body without a meeting, and a 7299 record of all actions taken by a committee of the board of directors or a designated 7300 body on behalf of the corporation. 7301

7302 (b) A nonprofit corporation must maintain appropriate accounting records. 7303 7304 (c) A membership corporation or its agent must maintain a record of its members, in a form 7305

that permits preparation of a list of the names and addresses of all members, in 7306 alphabetical order by class, showing the number of votes each member is entitled to 7307 cast. 7308

7309 (d) A nonprofit corporation must maintain its records in a record. 7310 7311 (e) A nonprofit corporation must keep a copy of the following records at its principal office: 7312 7313

(1) its articles of incorporation or restated articles of incorporation and all 7314 amendments to them currently in effect; 7315

7316 (2) its bylaws or restated bylaws and all amendments to them currently in effect; 7317

7318

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(3) the minutes of all meetings of members, and records of all action taken by 7319 members without a meeting, for the past three years; 7320

7321 (4) all communications in a record to members generally within the past three 7322

years, including the financial statements furnished for the past three years 7323 under section 16.20; 7324

7325 (5) a list of the names and business addresses of its current directors and officers; and 7326

7327 (6) its most recent annual report delivered to the secretary of state under section 7328

16.21. 7329 7330


7335 7336 § 16.02. INSPECTION OF RECORDS BY MEMBERS 7337 7338 (a) A member of a nonprofit corporation is entitled to inspect and copy, during regular 7339

business hours at the corporation’s principal office, any of the records of the corporation 7340 described in section 16.01(e) if the member gives the corporation written notice at least 7341 five business days before the date on which the member wishes to inspect and copy. 7342

7343 (b) A member of a nonprofit corporation is entitled to inspect and copy, during regular 7344

business hours at a reasonable location specified by the corporation, any of the following 7345 records of the corporation if the member meets the requirements of subsection (c) and 7346 gives the corporation written notice at least five business days before the date on which 7347 the member wishes to inspect and copy: 7348

7349 (1) excerpts from any records required to be maintained under section 16.01(a), to the 7350

extent not subject to inspection under section 16.02(a); 7351 7352

(2) accounting records of the corporation; and 7353 7354

(3) subject to section 16.07, the membership list. 7355 7356 (c) A member may inspect and copy the records described in subsection (b) only if: 7357 7358

(1) the member’s demand is made in good faith and for a proper purpose; 7359 7360

(2) the member describes with reasonable particularity the purpose and the records 7361 the member desires to inspect; and 7362

7363 (3) the records are directly connected with this purpose. 7364

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7365 (d) The right of inspection granted by this section may not be abolished or limited by a 7366

nonprofit corporation’s articles of incorporation or bylaws. 7367 7368 (e) This section does not affect: 7369 7370

(1) the right of a member to inspect records under section 7.20 or, if the member is in 7371 litigation with the corporation, to the same extent as any other litigant; or 7372

7373 (2) the power of a court, independently of this Act, to compel the production of 7374

corporate records for examination. 7375 7376


7381 7382 § 16.03. SCOPE OF INSPECTION RIGHT 7383 7384 (a) A member’s agent or attorney has the same inspection and copying rights as the member 7385

represented. 7386 7387 (b) The right to copy records under section 16.02 includes, if reasonable, the right to receive 7388

copies. Copies may be provided through an electronic transmission if available and so 7389 requested by the member. 7390

7391 (c) The nonprofit corporation may comply at its expense with a member’s demand to inspect 7392

the record of members under section 16.02(b)(3) by providing the member with a list of 7393 members that was compiled no earlier than the date of the member’s demand. 7394

7395 (d) The nonprofit corporation may impose a reasonable charge, covering the costs of labor 7396

and material, for copies of any documents provided to the member. The charge may not 7397 exceed the estimated cost of production, reproduction, or transmission of the records. 7398 7399


7404 7405 § 16.04. COURT-ORDERED INSPECTION 7406 7407 (a) If a nonprofit corporation does not allow a member who complies with section 16.02(a) 7408

to inspect and copy any records required by that subsection to be available for inspection, 7409 the [name or describe court] of the county where the corporation’s principal office (or, if 7410

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none in this state, its registered office) is located may summarily order inspection and 7411 copying of the records demanded at the corporation’s expense upon application of the 7412 member. 7413

7414 (b) If a nonprofit corporation does not within a reasonable time allow a member to inspect 7415

and copy any other record, the member who complies with sections 16.02(b) and (c) may 7416 apply to the [name or describe court] in the county where the corporation’s principal 7417 office (or, if none in this state, its registered office) is located for an order to permit 7418 inspection and copying of the records demanded. The court shall dispose of an 7419 application under this subsection on an expedited basis. 7420

7421 (c) If the court orders inspection and copying of the records demanded, it shall also order the 7422

nonprofit corporation to pay the member’s costs (including reasonable counsel fees) 7423 incurred to obtain the order unless the corporation proves that it refused inspection in 7424 good faith because it had a reasonable basis for doubt about the right of the member to 7425 inspect the records demanded. 7426

7427 (d) If the court orders inspection and copying of the records demanded, it may impose 7428

reasonable restrictions on the use or distribution of the records by the demanding 7429 member. 7430


7436 7437 § 16.05. INSPECTION OF RECORDS BY DIRECTORS 7438 7439 (a) A director of a nonprofit corporation is entitled to inspect and copy the books, records, 7440

and documents of the corporation at any reasonable time to the extent reasonably related 7441 to the performance of the director’s duties as a director, including duties as a member of a 7442 committee, but not for any other purpose or in any manner that would violate any duty to 7443 the corporation. 7444

7445 (b) The [name or describe the court] of the county where the nonprofit corporation’s 7446

principal office (or if none in this state, its registered office) is located may order 7447 inspection and copying of the books, records, and documents at the corporation’s 7448 expense, upon application of a director who has been refused such inspection rights, 7449 unless the corporation establishes that the director is not entitled to such inspection rights. 7450 The court shall dispose of an application under this subsection on an expedited basis. 7451

7452 (c) If an order is issued, the court may include provisions protecting the nonprofit 7453

corporation from undue burden or expense, and prohibiting the director from using 7454 information obtained upon exercise of the inspection rights in a manner that would 7455 violate a duty to the corporation, and may also order the corporation to reimburse the 7456

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director for the director’s costs (including reasonable counsel fees) incurred in connection 7457 with the application. 7458


7462 7463 § 16.06. EXCEPTION TO NOTICE REQUIREMENT 7464 7465 (a) Whenever notice is required to be given under any provision of this Act to any member, 7466

the notice need not be given if notice of two consecutive annual meetings, and all notices 7467 of meetings during the period between such two consecutive annual meetings have been 7468 sent to the member at the member’s address as shown on the records of the nonprofit 7469 corporation and have been returned undeliverable. 7470

7471 (b) If a member delivers to the nonprofit corporation a written notice setting forth the 7472

member’s then-current address, the requirement that notice be given to that member is 7473 reinstated. 7474


7478 7479 § 16.07. LIMITATIONS ON USE OF MEMBERSHIP LIST 7480 7481 Without consent of the board of directors, a membership list or any part thereof may not be 7482 obtained or used by any person for any purpose unrelated to a member’s interest as a member. 7483 Without limiting the generality of the foregoing, without the consent of the board a membership 7484 list or any part thereof may not be: 7485 7486

(1) used to solicit money or property unless the money or property will be used solely 7487 to solict the votes of the members in an election to be held by the nonprofit 7488 corporation; 7489

7490 (2) used for any commercial purpose; or 7491

7492 (3) sold to or purchased by any person. 7493

7494 Source Note: Reenactment of Revised Model 7495 Nonprofit Corporation Act (1987) § 16.05. 7496

7497 7498 Subchapter B 7499 REPORTS 7500 7501 Section 7502

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16.20. Financial statements for members. 7503 16.21. Annual report for secretary of state. 7504 7505 7506 § 16.20. FINANCIAL STATEMENTS FOR MEMBERS 7507 7508 (a) A nonprofit corporation, upon a demand in a record from a member, must furnish that 7509

member with annual financial statements, which may be consolidated or combined 7510 statements of the corporation and one or more of its subsidiaries, as appropriate, that 7511 include a balance sheet as of the end of the fiscal year and a statement of operations for 7512 the year. If financial statements are prepared for the corporation on the basis of generally 7513 accepted accounting principles, the annual financial statements must also be prepared on 7514 that basis. 7515

7516 (b) If the annual financial statements are reported upon by a certified public accountant, the 7517

accountant’s report must accompany them. If not, the statements must be accompanied 7518 by a statement of the president or the person responsible for the nonprofit corporation’s 7519 accounting records: 7520 7521 (1) stating the reasonable belief of the president or other person as to whether the 7522

statements were prepared on the basis of generally accepted accounting principles 7523 and, if not, describing the basis of preparation; and 7524

7525 (2) describing any respects in which the statements were not prepared on a basis of 7526

accounting consistent with the statements prepared for the preceding year. 7527 7528


7533 7534 § 16.21. ANNUAL REPORT FOR SECRETARY OF STATE 7535 7536 (a) Each domestic nonprofit corporation, and each foreign nonprofit corporation authorized 7537

to transact business in this state, must deliver to the secretary of state for filing an annual 7538 report that sets forth: 7539

7540 (1) the name of the corporation and the state or country under whose law it is 7541

incorporated; 7542 7543

(2) the address of its registered office and the name of its registered agent at that 7544 office in this state; 7545

7546 (3) the address of its principal office; and 7547

7548

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(4) the names and business addresses of its directors and principal officers. 7549 7550 (b) Information in the annual report must be current as of the date the annual report is 7551

executed on behalf of the nonprofit corporation. 7552 7553 (c) The first annual report must be delivered to the secretary of state between January 1 and 7554

April 1 of the year following the calendar year in which a domestic nonprofit corporation 7555 was incorporated or a foreign nonprofit corporation was authorized to transact business. 7556 Subsequent annual reports must be delivered to the secretary of state between January 1 7557 and April 1 of the following calendar years. 7558

7559 (d) If an annual report does not contain the information required by this section, the secretary 7560

of state shall promptly notify the reporting domestic or foreign nonprofit corporation in 7561 writing and return the report to it for correction. If the report is corrected to contain the 7562 information required by this section and delivered to the secretary of state within 30 days 7563 after the effective date of notice, it is deemed to be timely filed. 7564


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CHAPTER 17 7570 TRANSITION PROVISIONS 7571 7572 Section 7573 17.01. Application to existing domestic corporations. 7574 17.02. Application to qualified foreign corporations. 7575 17.03. Saving provisions. 7576 17.05. Repeal. 7577 17.06. Effective date. 7578 7579 7580 § 17.01. APPLICATION TO EXISTING DOMESTIC CORPORATIONS 7581 7582 This Act applies to all domestic corporations in existence on its effective date that were 7583 incorporated under any general statute of this state providing for incorporation of corporations 7584 for profit if power to amend or repeal the statute under which the corporation was incorporated 7585 was reserved. 7586 7587


7592 7593 § 17.02. APPLICATION TO QUALIFIED FOREIGN CORPORATIONS 7594 7595 A foreign corporation authorized to transact business in this state on the effective date of this Act 7596 is subject to this Act but is not required to obtain a new certificate of authority to transact 7597 business under this Act. 7598 7599


7604 7605 § 17.03. SAVING PROVISIONS 7606 7607 (a) Except as provided in subsection (b), the repeal of a statute by this Act does not affect: 7608

(1) the operation of the statute or any action taken under it before its repeal; 7609 7610 (2) any ratification, right, remedy, privilege, obligation, or liability acquired, accrued, 7611

or incurred under the statute before its repeal; 7612 7613

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(3) any violation of the statute, or any penalty, forfeiture, or punishment incurred 7614 because of the violation, before its repeal; 7615

7616 (4) any proceeding, reorganization, or dissolution commenced under the statute 7617

before its repeal, and the proceeding, reorganization, or dissolution may be 7618 completed in accordance with the statute as if it had not been repealed. 7619

7620 (b) If a penalty or punishment imposed for violation of a statute repealed by this Act is 7621

reduced by this Act, the penalty or punishment if not already imposed shall be imposed in 7622 accordance with this Act. 7623

7624 (c) Members of a nonprofit corporation who were entitled to cumulate their votes for the 7625

election of directors on [the date of enactment of this Act] shall continue to be entitled to 7626 cumulate their votes for the election of directors until otherwise provided in the articles of 7627 incorporation or bylaws of the corporation. 7628

7629 Source Note: Subsections (a) and (b) are patterned 7630 after Model Business Corporation Act, 3d Ed. 7631 (2002) § 17.03; and are substantially a reenactment 7632 of Revised Model Nonprofit Corporation Act 7633 (1987) § 17.03. 7634

7635 7636 § 17.04. SEVERABILITY 7637 7638 If any provision of this Act or its application to any person or circumstance is held invalid by a 7639 court of competent jurisdiction, the invalidity does not affect other provisions or applications of 7640 the Act that can be given effect without the invalid provision or application, and to this end the 7641 provisions of the Act are severable. 7642 7643


7648 7649 § 17.05. REPEAL 7650 7651 The following laws and parts of laws are repealed: [to be inserted]. 7652 7653


7658 7659

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177

§ 17.06. EFFECTIVE DATE 7660 7661 This Act takes effect . 7662 7663
