AB765: Bill Text

LRB-4838/1

KSH:kmg:hmh

1997 - 1998 LEGISLATURE

1997 Assembly BILL 765

February 3, 1998 - Introduced by Representatives Walker, Green, Porter, Staskunas, Huber, Cullen, Murat, Olsen, Sykora, Kelso, Ladwig, Jeskewitz, Vrakas, Urban, Gunderson, Goetsch, Grothman and Albers, cosponsored by Senators Huelsman, Rude, Rosenzweig, Drzewiecki, Panzer, Weeden, Fitzgerald, Darling, Farrow and George. Referred to Committee on Judiciary.

AB765,3,2 An Act to repeal 611.07 (3), 612.21 (5), 612.22 (5), 613.07 (3), 613.81 and 614.07 (3); to renumber and amend 611.73 (1) and 611.73 (2); to amend 13.482 (2) (a), 16.30 (1) (a), 16.334 (2) (d), 16.352 (1) (b) 4., 19.32 (1), 19.62 (8), 19.82 (1), 30.92 (1) (br) 5., 32.19 (4) (a) (intro.), 32.19 (4) (b) (intro.), 32.22 (12) (a) (intro.), 36.54 (2) (a) 1., 44.03 (3), 44.60 (1) (b), 45.052 (1) (b), 45.38 (1) (c), 46.035 (1) (c), 46.036 (5m) (a) 1., 46.21 (2) (nm), 46.27 (1) (a) 3., 46.27 (1) (bm), 46.81 (1) (a) 3., 46.82 (1) (a) 3., 46.93 (1m) (c), 46.997 (1) (d), 49.134 (1) (c), 49.34 (5m) (a) 1., 59.43 (2) (ag) 1., 59.57 (2) (e) 2., 59.82 (1) (a), 66.501 (6), 66.504 (1) (b), 95.14 (4), 106.13 (4) (a) 1., 146.50 (1) (k), 146.55 (1) (f), 157.62 (1) (b), 157.62 (2) (b) 1., 157.62 (2) (b) 2., 157.62 (2) (b) 7., 180.0401 (2) (a) 2., 180.0401 (2) (a) 3., 180.0401 (2) (a) 4., 180.0501 (3), 180.1506 (2) (a) 2., 180.1506 (2) (a) 3., 180.1506 (2) (a) 4., 182.031 (2), 185.033 (1), 187.01 (7), 187.22 (3), 188.08 (3), 188.085, 188.09 (3), 188.11 (3), 188.13 (3), 188.15 (3), 188.16 (3), 188.17 (3), 188.18 (2), 188.19 (3), 188.20, 188.21 (3), 188.22 (3), 188.23 (3), 188.235 (3), 188.24 (3), 198.13 (4), 199.08, 199.17, 227.485 (2) (b), 232.07 (2), 234.94 (2) (b) (intro.), 252.12 (1) (c), 255.05 (1) (b), 255.06 (1) (c), 281.68 (1) (e), 301.235 (1) (c), 440.03 (2), 440.92 (6) (b) 1., 560.05 (1) (a), 560.20 (1) (d), 560.60 (18m), 560.80 (7) (b) (intro.), 611.01 (2), 611.07 (1), 611.07 (2), 611.07 (4), 611.10, 611.12 (2) (intro.), 611.12 (2) (a), 611.12 (3), 611.12 (4), 611.29 (1), 611.29 (3), 611.29 (5), 611.42 (1), 611.51 (1), 611.51 (6), 611.51 (7), 611.51 (8), 611.51 (9) (a), 611.53 (3), 611.53 (4), 611.54 (2), 611.56 (3) (d), 611.56 (5), 611.62 (1), 611.62 (2), 611.62 (3), 611.62 (4), 611.63 (1), 611.73 (title), 611.73 (3), 611.74 (1), 611.74 (2), 611.74 (3), 611.76 (1) (c), 611.78 (1), 612.01 (4), 612.03, 612.04 (1), 612.04 (2), 612.11 (2) (a), 612.11 (2) (b), 612.12 (1) (c), 612.13 (6) (b), 612.21 (title), 612.21 (1), 612.21 (2) (intro.), 612.21 (2) (b), 612.21 (6), 612.21 (7), 612.22 (title), 612.22 (1), 612.22 (2) (intro.), 612.22 (2) (b), 612.22 (6), 612.22 (7), 612.70, 613.01 (1), 613.01 (2), 613.01 (3), 613.01 (5), 613.01 (6), 613.07 (1), 613.07 (2), 613.07 (4), 613.10, 613.12 (1) (intro.), 613.12 (1) (a), 613.12 (2), 613.29 (1), 613.29 (3), 613.40 (1), 613.40 (2), 613.40 (3), 613.51 (2), 613.51 (4), 613.51 (5), 613.51 (6), 613.51 (7), 613.52 (1), 613.52 (2), 613.56 (3) (d), 613.62 (1), 613.62 (2), 613.62 (3), 613.63 (1), 613.63 (2), 613.69 (1), 613.72 (title), 613.72 (1), 613.72 (2), 613.72 (5), 613.74 (1), 613.74 (2), 613.74 (3), 613.74 (4), 613.78 (1), 614.01 (6), 614.07 (1), 614.07 (2), 614.07 (4), 614.09, 614.12 (2), 614.12 (3), 614.12 (4), 614.51 (1), 614.53, 614.74 (1), 614.74 (2), 614.74 (3), 618.21 (title), 814.245 (2) (a) and 946.82 (4); to repeal and recreate chapter 181, 613.51 (1) and 613.69 (title); and to create 234.94 (2) (b) 2m., 611.12 (2) (am), 611.42 (1e), 611.42 (1m), 611.51 (9) (am), 611.51 (9) (b) (title), 611.51 (9) (c) (title), 611.73 (1) (b), 611.73 (1) (c), 611.73 (1) (d), 611.73 (2) (b), 611.78 (1m), 613.12 (1) (am) and 613.56 (5) of the statutes; relating to: the nonstock corporation law and providing penalties.

Analysis by the Legislative Reference Bureau

This bill revises this state's nonstock corporation law. In addition to reorganizing and modernizing the language of the state's nonstock corporation law, this bill makes a number of substantive changes, some of which are based on the revised model Nonprofit Corporations Act, as adopted in 1987 by a subcommittee of the American Bar Association's Business Law Section. The bill modifies the law to more closely track the state's stock corporation law. In addition, among other changes the bill: 1) permits "for-profit" nonstock corporations; 2) requires foreign nonstock corporations to obtain a certificate of authority to do business in this state; 3) allows foreign nonstock corporations to domesticate in this state; 4) provides for derivative actions in the right of nonstock corporations; and 5) eliminates the role of the county registers of deeds in recording documents relating to nonstock corporations. These and other changes included in the bill are discussed below.

Organization, articles of incorporation and bylaws

The bill changes the incorporation procedure for nonstock corporations. Under current law, the department of financial institutions (DFI) is required to issue a certificate of incorporation upon the filing of articles of incorporation of a nonstock corporation. The bill repeals the requirement that such a certificate be issued. Under the bill, the nonstock corporation's existence begins with the filing of the articles of incorporation by DFI. Under current law, if a corporation has members with voting rights, all amendments to the articles of incorporation must be adopted by members by a two-thirds vote. This bill allows the directors of a nonstock corporation to make certain specified types of minor amendments without member approval. For other types of amendments, the bill requires a vote of two-thirds of the votes cast by members or a majority of the voting power of members, unless the articles or bylaws require a greater vote or provide for voting by class. Unlike current law, the bill contains provisions governing class voting on amendments to the articles of incorporation and bylaws. The bill also permits the articles of incorporation to require that all amendments to the articles or bylaws be approved in writing by a specified person other than the board. Such a provision may be amended only with the approval in writing of that person.

The bill creates statutory authorization for "emergency bylaws" and "emergency powers", which are effective only if a catastrophic event prevents a quorum of the corporation's directors or members from being readily assembled. Under the bill, during an emergency, the board may modify the lines of succession to accommodate the incapacity of directors, officers, employes or agents. Emergency bylaws may contain procedures necessary for managing the corporation during the emergency, such as different procedures for calling board meetings, different quorum requirements or procedures for the designation of additional or substitute directors. The bill also allows directors or members to seek judicial relief when it is impractical or impossible for the corporation to call or conduct a meeting of directors or members or when a required meeting is not held as scheduled. Under the judicial relief provisions created by the bill, the court may issue an order dispensing with requirements in the articles of incorporation or the bylaws relating to meetings or voting.

Directors, officers and members

The bill addresses a number of issues relating to directors, officers and members that are either not specifically addressed under current law or are addressed under current law with far less detail. For example, the bill creates specific provisions governing: 1) the admission of members to a nonstock corporation; 2) certificates evidencing membership; 3) the lack of personal liability of members for the acts, debts, liabilities or obligations of the corporation; 4) the purchase of memberships; 5) creditors' actions against members for dues, assessments and fees; 6) record dates of member meetings; 7) voting agreements and voting power; 8) resignation of directors; and 9) removal of directors by judicial proceeding.

Under current law, action may be taken by directors or members of a nonstock corporation without a meeting if the directors or members act by unanimous written consent. Under the bill, if permitted by the articles of incorporation, the board of directors may take action without a meeting by written consent signed by two-thirds of the directors then in office. If action by written consent is permitted to be taken by less than all directors, all directors must be noticed immediately of the text of the written consent and of its effective date and time. The bill also changes provisions relating to action by members without a meeting. Under the bill, unless limited or otherwise provided in the articles of incorporation or the bylaws, members may take action without a meeting if the action is approved by members holding at least 80% of the voting power, or by a different percentage, not less than 50%, specified in the articles of incorporation or bylaws. Separately, the bill creates provisions authorizing action by written ballot. In order for action by written ballot to be effective, the written ballot procedure must be permitted by the articles of incorporation or bylaws. Under the procedure, a ballot must be provided to every member entitled to vote on the matter and the number of votes cast by ballot must equal or exceed the quorum and voting requirements which would apply if the action were taken at a meeting.

The bill authorizes members of nonstock corporations to bring derivative actions in the right of the corporation. Generally, a derivative proceeding may be brought by one or more members of the corporation having 5% or more of the voting power of the corporation or by 50 members, whichever is less. The members bringing the action must have generally been a member of the corporation at the time of the act or omission complained of and must fairly and adequately represent the interests of the corporation in enforcing the right of the corporation. The members wishing to bring a derivative proceeding must have presented a written demand to the corporation to take appropriate action and, unless the demand is rejected by the corporation sooner or unless irreparable injury would result, must wait 90 days before bringing the action. The court is required to dismiss the derivative proceeding if a majority of independent directors or a court-appointed panel determine that the maintenance of the derivative proceeding is not in the best interest of the corporation. The bill contains provisions governing payment of expenses of derivative actions. In the case of a nonmember nonstock corporation, the provisions governing derivative actions apply to directors, rather than to the members, of the corporation. The bill adds a provision, similar to that which applies under current law to stock corporations, relating to indemnification and insurance against securities law claims.

Volunteers

The bill makes certain changes to the provisions which limit the liability of volunteers who provide services to nonstock corporations on behalf of the corporation without compensation. The changes reflect the enactment, at the federal level, of the Volunteer Protection Act of 1997. Under current law, the limited liability protections do not apply to a volunteer who is licensed or certified under state law, if the act or omission is within the scope of practice under the volunteer's license, certificate, permit or registration. Under the bill, the limited liability protections apply to such a person. However, the bill's limited liability provisions do not apply where the volunteer's negligence occurs in the practice of a profession, trade or occupation that requires a license or certificate, if the volunteer does not have the required license or certificate.

Foreign corporations and domestication

Under current law, foreign nonstock corporations are not required to obtain a certificate of authority to transact business in this state. Foreign corporations are, however, subject to the same restrictions, penalties and liabilities imposed upon domestic nonstock corporations. By conducting business in this state or by holding property in this state, current law deems a foreign corporation to have appointed DFI as its agent for service of process. This bill modifies the provisions governing foreign nonstock corporations so that they track the regulation of foreign stock corporations. As a result, a foreign nonstock corporation may not transact business in this state until it obtains a certificate of authority from DFI. A foreign nonstock corporation that does not obtain the required certificate of authority is barred from maintaining a proceeding in state court until it obtains the certificate. The foreign corporation is subject to monetary penalties for failing to obtain a required certificate of authority; however, the validity of its corporate actions in this state are not impaired and the foreign corporation is not barred from defending itself in a proceeding in this state. The foreign corporation is required by the bill to continuously maintain a registered office and a registered agent in this state. The bill subjects a foreign corporation to annual reporting requirements, which, under current law, apply only to domestic nonstock corporations.

Current law does not contain a procedure allowing a foreign nonstock corporation to become a domestic nonstock corporation, although the foreign corporation may merge into or consolidate with a domestic nonstock corporation. This bill creates a procedure under which a foreign nonstock corporation may "domesticate", or become a domestic nonstock corporation. Under the bill, a foreign nonstock corporation may become a domestic corporation by filing articles of domestication that state the name of the corporation and the text of the restated articles of incorporation. The domesticating corporation must also file a certificate of authentication or status from the jurisdiction from which the corporation is domesticating and must file articles of dissolution or a similar document in the jurisdiction from which the corporation is domesticating. The effect of a domestication is as if the domesticating corporation had merged with a newly incorporated domestic corporation, except that the original date of incorporation of the domesticating corporation continues to be the date of incorporation of the domesticated corporation.

Reporting, filing and notice requirements

Under current law, documents required to be filed under the nonstock corporation law are forwarded by DFI to county registers of deeds for recording. This bill eliminates this requirement so that all new filings relating to nonstock corporations are maintained only by DFI. The bill specifies more clearly the filing duties of DFI and modifies the procedures for appealing DFI's refusal to file a document. These provisions parallel those applicable to stock corporations. The bill adds general provisions governing the effective date and time of documents filed with DFI, governing how documents filed with DFI may be corrected, governing the evidentiary effect of a copy of a filed document and governing requests for certificates of status. The bill adds a general provision regarding how notices are to be given under the nonstock corporation law.

Distributions

Under current law, nonstock corporations organized under the state's nonstock corporation law are required to be nonprofit corporations under Wisconsin law, which means that no part of the corporation's income may be distributed to its members, directors or officers. This bill authorizes nonstock corporations to make "for-profit" distributions, if distributions of this type are specifically permitted under the corporation's articles of incorporation, if the distribution is consistent with the corporation's purpose, if permitted by the corporation's articles of incorporation, if the corporation's assets would continue to exceed its liabilities after the distribution and if the corporation would be able to pay its debts as due after the distribution.

Mergers and dissolutions

The bill makes a number of changes regarding mergers and dissolutions of nonstock corporations. Current law provides for both mergers (under which 2 or more nonstock corporations merge into one of the corporations) and consolidations (under which 2 or more nonstock corporations consolidate into a new corporation). This bill eliminates the separate procedures for consolidating nonstock corporations, although the same effect can be achieved under the bill by forming a new corporation and having 2 or more corporations merge into the new corporation. The bill streamlines procedures for the merger of a subsidiary into a parent nonstock corporation and adds a provision stating that bequests made to a corporation that merges inure to the benefit of the surviving corporation, unless otherwise specifically provided in the instrument making the bequest.

The bill changes procedures for judicial dissolution of nonstock corporations. Under current law, a circuit court may dissolve a nonstock corporation in an action by a member or a director, if the director or member can establish that certain of the standards for judicial dissolution applies. The bill removes the ability of a director to apply for judicial dissolution. Under the bill, judicial dissolution may be ordered in an action commenced by members only if the action is brought by at least 50 members or by members representing 5% of the voting power of the corporation. The bill modifies the receivership and custodianship provisions and the dissolution provisions to track more closely the provisions applicable to stock corporations. For example, the bill eliminates provisions regarding the adoption of a plan of distribution and instead simply empowers a dissolved corporation to make provision for discharging its liabilities and obligations and disposing of its property.

Certain religious societies and insurance companies

Certain of the changes made by the bill also impact religious societies, mutual insurance companies, town mutual insurance companies, service insurance corporations and fraternal or mutual benefit societies. Current law provides that religious societies organized under the state's religious societies law have the same powers and privileges as nonstock corporations. This provision remains unchanged by the bill and, as a result, certain of the changes may impact religious societies. Similarly, current law makes certain provisions of the state's nonstock corporation law applicable to mutual insurance companies, town mutual insurance companies, service insurance corporations and fraternal or mutual benefit societies. For the most part, these same provisions, as revised by the bill, remain applicable to mutual insurance companies, town mutual insurance companies, service insurance corporations and fraternal or mutual benefit societies.

Conversion tables

Because of the bill's reorganization of the state's nonprofit corporation law (chapter 181), there is often no direct correspondence between a section in the current chapter 181 and the repealed and recreated chapter 181 contained in this bill. However, the following tables may be helpful in locating where the topic treated by a section in the current chapter 181 is treated in the chapter as repealed and recreated by this bill, and vice versa:

Current Citations to New Citations - See PDF for table

New Citations to Current Citations - See PDF for table

Fiscal information

For further information see the state and local fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB765, s. 1 Section 1. 13.482 (2) (a) of the statutes is amended to read:

AB765,18,2 13.482 (2) (a) For the purpose of providing housing for state departments and agencies, including housing for state offices and the completion of the state office building, and to enable the construction, financing and ultimate acquisition thereof by the state, the building commission may acquire any necessary lands, and lease and re-lease any lands owned by the state and available for the purpose to the Wisconsin state public building corporation or other nonstock, nonprofit corporation organized under ch. 181 or any law amendatory thereof or supplemental thereto that is a nonprofit corporation, as defined in s. 181.0103 (17). The lease and re-lease shall be for a term or terms not exceeding 50 years each, and shall be made on the condition that such corporation shall construct and provide on such leased lands such building projects, including buildings, improvements, facilities or equipment or other capital items, as the building commission requires, and shall re-lease the same to the building commission upon satisfactory terms as to the rental, maintenance and ultimate acquisition by the state as is in its best interests in the judgment of the building commission. After such leases and re-leases are executed and until the projects are acquired by the state, they shall be operated by the building commission through the department of administration, which shall have charge of such property as provided in s. 16.85. The building commission shall operate the projects in such manner as to provide revenues therefrom sufficient to pay the costs of operation and maintenance of the project and to provide for the payments due the Wisconsin state public building corporation or other nonstock, nonprofit corporation but if the building commission finds and declares that the housing available in any such project is in excess of the current housing needs or requirements of the state departments and agencies occupying or availing themselves of the space in or capacity of such project, the building commission need not operate such project in a manner to provide revenues therefrom sufficient to pay the costs of operation and maintenance of the project and to provide for the rental payments due the Wisconsin state public building corporation or other nonstock, nonprofit corporation.

AB765, s. 2 Section 2 . 16.30 (1) (a) of the statutes is amended to read:

AB765,18,5 16.30 (1) (a) A nonstock, nonprofit corporation organized under ch. 181 that is a nonprofit corporation, as defined in s. 181.0103 (17).

AB765, s. 3 Section 3. 16.334 (2) (d) of the statutes is amended to read:

AB765,18,8 16.334 (2) (d) A nonstock, nonprofit corporation organized under ch. 181 that is a nonprofit corporation, as defined in s. 181.0103 (17).

AB765, s. 4 Section 4. 16.352 (1) (b) 4. of the statutes is amended to read:

AB765,18,12 16.352 (1) (b) 4. A private nonprofit organization, as defined under s. 108.02 (19), or a nonstock, nonprofit corporation that is organized under ch. 181 and that is a nonprofit corporation, as defined in s. 181.0103 (17).

AB765, s. 5 Section 5. 19.32 (1) of the statutes is amended to read:

AB765,18,24 19.32 (1) "Authority" means any of the following having custody of a record: a state or local office, elected official, agency, board, commission, committee, council, department or public body corporate and politic created by constitution, law, ordinance, rule or order; a governmental or quasi-governmental corporation except for the Bradley center sports and entertainment corporation; a local exposition district under subch. II of ch. 229; any public purpose corporation, as defined in s. 181.79 (1); any court of law; the assembly or senate; a nonprofit corporation which receives more than 50% of its funds from a county or a municipality, as defined in s. 59.001 (3), and which provides services related to public health or safety to the county or municipality; a nonprofit corporation operating the Olympic ice training center under s. 42.11 (3); or a formally constituted subunit of any of the foregoing.

AB765, s. 6 Section 6. 19.62 (8) of the statutes is amended to read:

AB765,19,6 19.62 (8) "State authority" means an authority that is a state elected official, agency, board, commission, committee, council, department or public body corporate and politic created by constitution, statute, rule or order; a state governmental or quasi-governmental corporation; a public purpose corporation, as defined in s. 181.79 (1); the supreme court or court of appeals; the assembly or senate; or a nonprofit corporation operating the Olympic ice training center under s. 42.11 (3).

AB765, s. 7 Section 7. 19.82 (1) of the statutes, as affected by 1995 Wisconsin Act 27, is amended to read:

AB765,19,18 19.82 (1) "Governmental body" means a state or local agency, board, commission, committee, council, department or public body corporate and politic created by constitution, statute, ordinance, rule or order; a governmental or quasi-governmental corporation except for the Bradley center sports and entertainment corporation; a local exposition district under subch. II of ch. 229; any public purpose corporation, as defined in s. 181.79 (1); a nonprofit corporation operating the Olympic ice training center under s. 42.11 (3); or a formally constituted subunit of any of the foregoing, but excludes any such body or committee or subunit of such body which is formed for or meeting for the purpose of collective bargaining under subch. I, IV or V of ch. 111.