Assembly Member Papan introduces AB 501 to amend nonprofit corporation formation rules

The California Assembly convened on February 10, 2025, to introduce Assembly Bill 501, proposed by Assembly Member Papan. This bill seeks to amend Section 7120 of the Corporations Code, specifically addressing the formation of nonprofit mutual benefit corporations.

The primary purpose of AB 501 is to modify the requirements for signing articles of incorporation when initial directors are not named. Currently, the law allows for one or more persons to form a nonprofit mutual benefit corporation, but if initial directors are not specified, only one person is required to sign the articles. AB 501 proposes that in such cases, the articles must instead be signed by two or more persons, thereby increasing the number of incorporators necessary for the formation of these corporations.

This amendment aims to enhance accountability and ensure a broader base of participation in the establishment of nonprofit mutual benefit corporations. By requiring multiple incorporators, the bill seeks to foster collaboration and shared responsibility among those forming these entities.

As of now, there has been limited debate surrounding the bill, and no significant opposition has been reported. The bill does not carry any fiscal implications, nor does it require appropriations or local programs, which may contribute to its smooth passage through the legislative process.

The implications of AB 501 could be significant for the nonprofit sector in California. By mandating multiple incorporators, the bill may encourage more robust governance structures within nonprofit mutual benefit corporations, potentially leading to improved operational transparency and community engagement.

In summary, Assembly Bill 501 represents a procedural adjustment aimed at strengthening the formation process of nonprofit mutual benefit corporations in California. As the bill progresses through the legislative session, its impact on the nonprofit landscape will be closely monitored by stakeholders in the sector.