STAND. COM. REP. NO. 506
RE: S.B. No. 1171
Honorable Ronald D. Kouchi
President of the Senate
Thirtieth State Legislature
Regular Session of 2019
State of Hawaii
Your Committee on Commerce, Consumer Protection, and Health, to which was referred S.B. No. 1171 entitled:
"A BILL FOR AN ACT RELATING TO NONPROFIT CORPORATIONS,"
begs leave to report as follows:
The purpose and intent of this measure is to:
(1) Clarify that a public benefit corporation may not purchase its memberships;
(2) Clarify that a person who does not have authority to vote as a member of the board is not a director;
(3) Clarify that a corporation with members may designate its directors;
(4) Increase the length of time that the Attorney General has to review proposed sale of substantially all of the assets of public benefit corporations other than in the regular course of its activities; and
(5) Makes other housekeeping amendments.
Your Committee received testimony in support of this measure from the Department of the Attorney General, University of Hawai‘i Foundation, and Hawai‘i Alliance of Nonprofit Organizations.
Your Committee finds that public benefit corporations are normally prohibited from making any distributions other than for charitable purposes under existing law. Unlike shareholders of a corporation or partners of a partnership, members of a public benefit corporation do not have an economic ownership interest in the public benefit corporation. Therefore, a public benefit corporation's use of its charitable assets to purchase its memberships would amount to a distribution to its members and would evade the rules against distributing charitable assets for non-charitable purposes. This measure explicitly prohibits public benefit corporations from purchasing its memberships, prevents charitable assets from being used for non-charitable purposes, and conforms the Hawaii Nonprofit Corporations Act to the Revised Model Nonprofit Corporation Act of 1987.
Your Committee additionally finds that existing law is unclear as to whether ex-officio directors, or individuals named as directors based on their position or status, who do not have any authority to vote as a member of the board, are in fact directors of a nonprofit corporation. Non-voting directors would be unable to perform their fiduciary duties as directors if they are unable to vote to take any action. This measure further clarifies that the term "directors" as used in the Hawaii Nonprofit Corporations Act only includes those who have authority to vote as a member of the board. This measure lastly makes additional housekeeping amendments, for consistency with existing model acts and state law.
Your Committee has amended this measure by:
(1) Clarifying that an electronic or digital signature shall constitute a form of written consent by a board of directors; and
(2) Making technical, nonsubstantive amendments for the purposes of clarity and consistency.
As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection, and Health that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1171, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1171, S.D. 1, and be referred to your Committee on Judiciary.
Respectfully submitted on behalf of the members of the Committee on Commerce, Consumer Protection, and Health,
ROSALYN H. BAKER, Chair