Unincorporated Non-profit Associations Statement of Principles 2007

F. Internal Governance, Fiduciary Duties and Agency Authority.

Principle #26. In the absence of provisions to the contrary in the UNA’s governing principles, members of a UNA have equal governance rights and a majority of votes cast on a matter by members present and voting at a properly called meeting shall govern as to that matter.

Comments:

1. Principles #26, 28-37 are what are known as internal affairs rules. They apply to UNAs formed in the enacting jurisdiction. The internal rules for UNAs formed in other jurisdictions are determined under Principle #6.

2. The three principles set forth in this paragraph (all members have governing rights, members vote on a per capita basis, and majority vote for approval of actions) are all default rules. They apply unless there are different rules in the UNA’s governing principles. Thus, if a UNA’s bylaws specified that only some members have voting rights, then only those so designated would have voting rights. Similarly, if the bylaws specified that all members are entitled to vote on specific actions (e.g., election of a board of directors), but a subset of members (e.g., the board of directors) is the approving authority for all other matters the bylaws would trump the default rules. In addition, bylaw provisions that provided for a higher (or lower) voting percentage rather than the majority vote required by the statutory default rule would control.

3. The enacting jurisdiction may decide to require supermajority voting (e.g., two-thirds majority) for transactions that are not in the ordinary course of business such as dissolution, merger or conversion, or amendment of the UNA’s governing principles. The default voting requirements for similar transactions under the enacting jurisdiction’s nonprofit corporation law would be an appropriate model for structuring the voting requirements for a UNA.

Because it is often quite difficult to locate and to get a majority of all members together for voting purposes in a UNA, the requirement of supermajority voting for any issue may not be appropriate.

Principle #27. Members solely in their capacity as members of a UNA are not agents of the UNA and have no power to bind the UNA. Only managers have the power to bind the UNA in accordance with general agency principles.

Comments:

A member is personally liable for his or her own actions. The UNA, however, is not liable for the actions of a member who is not a manager or authorized agent. An exception would be a case where a member is deemed to be a manager or agent under an estoppel or holding out theory. The enacting jurisdiction will have to determine whether this exception needs to be expressed in the statute.

Principle #28. A manager becomes a manager in accordance with the UNA’s governing principles. If the UNA’s governing principles do not provide a method for selecting managers or if they do but no managers have been selected, all the members shall be deemed to be managers.

Comments:

1. “Manager” is a defined term. See Principle #4.

2. The default rule is all members are managers. In UNAs such as churches with large numbers of members, this default rule will rarely be applicable because the governing principles (see Principle 2) will in most situations provide a selection process for managers.

3. The agency authority to convey real estate is a significant issue in many jurisdictions. In order to facilitate transfer of interests in real estate owned by a UNA, an enacting jurisdiction may want to consider adopting a provision similar to Section 5 of the UUNAA in the Appendix.

4. The intent is to allow maximum flexibility. The UNA’s governing principles can provide for any type of managerial structure the UNA wants to have. Choices range from a traditional board of directors or board of trustees, to third parties who manage the UNA under a contract. The managerial responsibilities can be split between the various managers (e.g., one manager in charge of finances, another in charge of programs). Members who are also managers will have a dual status and their duties and liabilities will be based on the capacity in which they are acting at the time an action (or omission) takes place.

5. See Principles #35 and 36 concerning suspension, dismissal, expulsion and resignation of members.

Principle #29. In the absence of provisions to the contrary in a UNA’s governing principles, managers of a UNA have equal rights in the management and conduct of the UNA’s activities. A difference arising among the managers may be decided by a majority of the managers, unless otherwise provided in the UNA’s governing principles.

Comments:

This is the same set of rules that apply to members’ governance rights in Principle #26. Principle #30. The notice and quorum requirements for meetings of members and managers are determined by the UNA’s governing principles.

Comments:

1. A UNA will undoubtedly have some kind of notice and quorum requirements in its

governing principles, which as is pointed out in Principle #2, includes its established practices. If a UNA does not have any such requirements (i.e., it is newly formed and is holding its initial meeting), it can create them at that meeting and those requirements, even if oral, become the established practices and therefore part of the UNA’s governing principles.

2. The use of proxies in member or manager meetings will be determined by other

applicable law. (See Principle #9.) As a general rule directors or other persons performing managerial responsibilities are not authorized to give another person a proxy to vote on a matter.

Principle #31. Managers of a UNA have the same duties of loyalty, good faith and care that directors and officers of a nonprofit corporation have under the enacting jurisdiction’s nonprofit corporation law.

Comments:

1. Principles #31-33 deal with what are generally referred to as fiduciary duties.

2. Only individuals exercising managerial authority have fiduciary duties under business entity laws. Thus, members of a UNA would not have any fiduciary duties to the other members or to the UNA or the managers, unless the member was also a manager. In that event, the individual would have the fiduciary duties of loyalty, good faith and care that other managers have.

3. The enacting jurisdiction’s nonprofit corporation law is used as the reference point for determining the type and scope of fiduciary duties and the liability for breach of any fiduciary duties.

Principle #32. Members and managers of a UNA shall have the same rights to inspect and copy the UNA’s books and records and to disclosure of information about the UNA’s operations as members and directors and officers of nonprofit corporations have under the enacting jurisdiction’s nonprofit corporation code. These rights may be limited or conditioned, if not manifestly unreasonable, but not wholly eliminated by the governing principles of the UNA.

Comments:

The Act does not require a UNA to keep any books and records, but if it does have them, they must be made available under this Principle. The term “books and records” is intended to cover all types and forms of data, including electronic data. An enacting jurisdiction may want to specifically include this concept in the Act if there is any uncertainty about this in the jurisdiction’s laws.

Principle #33. Managers of a UNA are liable for breaches of the duties specified in Principle 31 to the same extent as directors and/or officers of a nonprofit corporation are liable under the enacting jurisdiction’s nonprofit corporation law.

Comments:

1. If an enacting jurisdiction’s nonprofit corporation code contains a provision allowing a maximum limit for liability for monetary damages, a similar provision should be included in this Act.

2. Members and managers of a UNA should have the same defenses (e.g., the business judgment rule (which is sometimes referred to as the best judgment rule in cases involving nonprofit organizations) to liability as members and managers of nonprofit corporations in the enacting jurisdiction’s nonprofit corporation code. Whether those defenses need to be set forth in the Act depends on the clarity of the law on these issues in the enacting jurisdiction.

3. This Principle governs the liability of a UNA manager to the UNA and its members. Therefore, the volunteer liability statutes referred to in the Comment to Principle #23 are probably not applicable because they generally apply only to liability to third parties.

4. As is pointed out in Comment 1 to Principle #26, this Principle comes within the

ambit of what are known as internal affairs rules. Therefore, it only applies to UNAs formed in the enacting jurisdiction. The liability for breach of fiduciary duties of a UNA formed in another jurisdiction is determined under Principle #6.

Principle #34. A UNA should have the same right to indemnify and advance attorneys’ fees and other costs of litigation to its members and managers as a nonprofit corporation has under the enacting jurisdiction’s nonprofit corporation law to indemnify and advance costs to its members, directors and officers.

Comments:

The right to indemnification and advancement of costs varies greatly from jurisdiction to jurisdiction. Tying the indemnification and advancement right to the enacting jurisdiction’s nonprofit corporation act creates consistency of policy between UNAs and nonprofit corporations in the enacting jurisdiction.

Principle #35. A person becomes a member of a UNA and can be suspended, dismissed or expelled from a UNA in accordance with the UNA’s governing principles. In the absence of applicable governing principles, a person can become a member or be suspended, dismissed or expelled from a UNA by majority vote of the members as set forth in Principle #26. A member who is suspended, dismissed or expelled shall remain liable for any damages or obligation the member owes to the UNA.

Comments:

1. Some jurisdictions have existing statutes governing election and expulsion of a

member. If those statutes continue in effect, they would trump this principle. See Principle 11.

2. See Sections 18310 and 18320 of the California Corporation Code in the

Appendix for examples of statutory provisions that incorporate Principles 33 and 34.

Principle #36. A member may voluntarily withdraw or resign from membership in a UNA in accordance with the UNA’s governing principles. In the absence of applicable governing principles, a member may withdraw at any time but shall remain liable for any monetary or other obligation the member owes to the UNA at the time of withdrawal.

Comments:

Preventing someone from voluntarily withdrawing from a UNA would in all probability be void on public policy grounds. A UNA should, however, be able to impose reasonable restrictions on the resignations, for example, requiring 30 days’ advance notice.

Principle #37. Unless otherwise provided in the UNA’s governing principles, a member cannot transfer any of the member’s membership interest in the UNA.

Comments:

This is a basic common sense rule. A member of a church, for example, should not be able to transfer his or her membership to someone else. There may be situations where the UNA might be willing to allow transfers. In those situations, the transfer could be made in accordance with the UNA’s governing principles.

Next Annual Meeting

2018 Conference (Centennial)

Delta Hotel

Québec City, QC

August 12 - 16, 2018