Can A Member Bring A Derivative Action On Behalf Of A California Nonprofit Corporation?

Allen Matkins
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Allen Matkins

Like many questions in the law, the answer to the question of whether a member of a California nonprofit corporation may maintain a derivative action is "it depends". 

First, the answer depends upon the type nonprofit corporation.  Sections 5710 and 7710 of the California Corporations Code, governing public benefit and mutual benefit corporations respectively, impose specific conditions on the institution and maintenance of derivative suits by members.  The Nonprofit Religious Corporation Law includes no provision analogous to Sections 5710 or 9710.  Hence the negative implication is that derivative suits by members of corporations organized under that law are not permitted.  

Second, the answer depends upon whether a person is a "member" as defined in Section 5056 of the Corporations Code.  Pursuant to  Sections 5332 and 7333, a nonprofit public or mutual benefit corporation may “refer to persons associated with it as ‘members’ even though such persons are not members” as defined and therefore do not have any of the rights of a member.  Thus, someone may be a member but not a member for purposes of bringing a derivative action.

Third, even if a person is a "member", as defined, of a either a public or mutual benefit corporation, that person must still satisfy the conditions set forth in Sections 5710 or 7710, as the case may be.  These statutes basically mirror the analogous provision of the General Corporation Law, Section 800, and should be interpreted consistent with that statute, mutatis mutandis.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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