Tax-Exempt Organizations Advisory Bulletin
New Law Permits Washington Nonprofit Corporations
to Use Electronic Communication
By Michele
C. Osborne
[June 2004]
New Washington state legislation (ESB 6188) effective June 10,
2004, permits corporations formed under Washington’s Nonprofit
Corporation Act (the “Act”) to use electronic communication
for notices, consents, waivers, and other corporate acts. The provisions
parallel recent amendments to Washington’s Business Corporation
Act. These amendments permit nonprofit organizations to make cost-effective
use of efficient email and Internet technology.
To take advantage of these new tools, many nonprofit organizations
will need to amend their bylaws.
Highlights of what the new law permits
- Directors and members may now receive notices of meetings by
electronic transmission, if they consent to do so.
- Members may now receive notices of meetings by fax.
- Where permitted by an organization’s bylaws, members may
conduct elections by mail or by electronic transmission. The corporation
must set forth in a record accompanying the meeting notice the
name of each candidate and the text of each proposal to be voted
upon, and designate an address, location or system to which the
member may electronically transmit the ballot.
- Corporations may give notice of a meeting by posting notice
on an electronic bulletin board or website if the corporation
delivers a separate record of the posting, with details on how
to access the posting, to the members or directors who are invited
to attend the meeting.
- For membership organizations that permit voting by proxy, members
may submit electronic proxies.
- Directors and members may use electronic transmissions to execute
written consents, rather than a manual signature, provided that
the transmission provides sufficient information to determine
the sender’s identity.
- Where the Secretary of State’s rules permit, the amendments
change filing requirements to accommodate electronic filing of
records with the Secretary of State.
Because technology advances at a rapid pace, the Act does not
refer to the “Internet,” “websites,” or
“email.” Instead, the amendments define “electronic
transmission” as a communication not directly involving the
physical transfer of a record in a tangible medium, in a communication
that may be retained, retrieved, and reviewed by the sender and
the recipient thereof, and that may be directly reproduced in a
tangible medium by a sender and recipient.
What the new law does not permit
The new law does not change underlying substantive principles
regarding board meetings and the need for directors to discuss any
issues where there is not unanimous agreement. Specifically:
- Directors may not vote by proxy.
- An “email” vote by directors that is not unanimous
is not a valid action of the board.
A quorum of directors must be present to hear one another’s
views at a meeting or telephone conference; or directors may act
by unanimous written consent, including unanimous consents by email.
Prior consent to receive electronic transmissions and other protections
The amendments incorporate a variety of protections regarding the
use of electronic communication. Organizations, directors and members
are not required to use electronic communications.
Members and directors must consent to receive electronically transmitted
notices and must provide direction on the address to which such
transmission should be sent and the format in which it must be transmitted.
Without such prior consent, electronic notice is not effective.
A member or director may revoke his or her consent at any time.
The consent is presumed revoked if there is a failure to transmit
two consecutive notices and the person responsible for transmitting
the notice is aware of the failure. If the corporation inadvertently
does not treat such a failure as a revocation, however, the corporate
action is not invalidated.
The definition of “electronic transmission” has safeguards
as well. A record is not electronically transmitted within the meaning
of the Act unless both the sender and the recipient can retain,
retrieve, review and reproduce the communication.
Welcome news
The amendments were drafted by the Nonprofit Corporations Committee
of the Washington State Bar Association Business Law Section with
input from the Attorney General’s Office and the Secretary
of State’s Office. The Act’s amendments will pave the
way for the Secretary of State’s Office to develop more efficient
on-line filing systems. In general, the Act’s amendments are
a welcome validation to practices that were already prevalent among
many of our state’s 45,000 nonprofit organizations.
For more information, please contact:
LaVerne
Woods, Seattle, (206) 628-7792, lavernewoods@dwt.com
This TEO Advisory Bulletin is a publication
of the Tax-Exempt Organizations Practice Group of Davis Wright Tremaine
LLP, under the supervision of LaVerne Woods, Editor. Our purpose
in publishing this Advisory is to inform our clients and friends
of recent developments in tax-exempt and nonprofit organizations
law. It is not intended, nor should it be used, as a substitute
for specific legal advice as legal counsel may be given only in
response to inquiries regarding particular situations.
Copyright © 2004, Davis Wright Tremaine
LLP.
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