New Law Permits Washington Nonprofit Corporations to Use Electronic Communication

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 online 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.