Current Status Introducing Body:House Bill Number:4180 Ratification Number:437 Act Number:384 Primary Sponsor:Harrison Type of Legislation:GB Subject:Nonprofit Corporation Act of 1993 Companion Bill Number:768 Date Bill Passed both Bodies:19940420 Computer Document Number:4180 Governor's Action:S Date of Governor's Action:19940510 Introduced Date:19930512 Date of Last Amendment:19940412 Last History Body:------ Last History Date:19940510 Last History Type:Act No. 384 Scope of Legislation:Statewide All Sponsors:Harrison Wells Gonzales Wright Barber R. Smith Fulmer D. Wilder Klauber Jennings A. Young Corning Type of Legislation:General Bill
Bill Body Date Action Description CMN Leg Involved
---- ------ ------------ ------------------------------ --- ------------
4180 ------ 19940510 Act No. 384
4180 ------ 19940510 Signed by Governor
4180 ------ 19940504 Ratified R 437
4180 Senate 19940420 Read third time, enrolled for
ratification
4180 Senate 19940419 Read second time
4180 Senate 19940414 Introduced, read first time,
placed on Calendar without
reference
4180 House 19940413 Read third time, sent to
Senate
4180 House 19940412 Amended, read second time
4180 House 19940406 Debate adjourned until
Tuesday, April 12, 1994
4180 House 19940405 Debate adjourned until
Wednesday, April 6, 1994
4180 House 19940330 Debate adjourned until
Tuesday, April 5, 1994
4180 House 19940302 Committee Report: Favorable 25
with amendment
4180 House 19930512 Introduced, read first time, 25
referred to Committee
View additional legislative information at the LPITS web site.
(A384, R437, H4180)
AN ACT TO AMEND CHAPTER 31, TITLE 33, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO NONPROFIT CORPORATIONS, SO AS TO ENACT THE SOUTH CAROLINA NONPROFIT CORPORATION ACT OF 1994 SO AS TO FURTHER PROVIDE FOR THE MANNER IN WHICH NONPROFIT CORPORATIONS OPERATE AND TRANSACT BUSINESS IN THIS STATE; TO AMEND SECTIONS 15-9-210, AS AMENDED, 15-9-240, 15-9-245, AND 15-9-430, AS AMENDED, RELATING TO SERVICE OF PROCESS, SO AS TO FURTHER PROVIDE FOR THE APPLICABILITY OF THESE SECTIONS TO BUSINESS OR NONPROFIT CORPORATIONS, OR BOTH; TO AMEND SECTION 33-11-101, RELATING TO MERGERS OF BUSINESS CORPORATIONS, SO AS TO MAKE THE PROVISIONS OF THE SECTION APPLICABLE TO NONPROFIT CORPORATIONS; TO AMEND SECTION 33-20-103, RELATING TO THE APPLICABILITY OF THE SOUTH CAROLINA BUSINESS CORPORATION ACT TO NONPROFIT CORPORATIONS, SO AS TO FURTHER PROVIDE FOR THIS APPLICABILITY IN REGARD TO NONPROFIT CORPORATIONS AND ELECTRIC AND TELEPHONE COOPERATIVES; TO ADD SECTION 33-49-690 SO AS TO PROVIDE FOR IMMUNITY FROM LIABILITY FOR DIRECTORS, TRUSTEES, OR MEMBERS OF THE GOVERNING BODIES OF ELECTRIC COOPERATIVES UNDER CERTAIN CONDITIONS; TO AMEND THE 1976 CODE BY ADDING SECTION 62-7-507 SO AS TO PROVIDE THAT CERTAIN STATUTORY PROVISIONS OF LAW SHALL NOT BE CONSTRUED TO CAUSE FORFEITURE OR REVERSION OF TRUST PROPERTY; AND TO REPEAL CHAPTER 33 OF TITLE 33 RELATING TO CHURCH CORPORATIONS.
Be it enacted by the General Assembly of the State of South Carolina:
South Carolina Nonprofit Corporation Act of 1994
SECTION 1. Chapter 31, Title 33 of the 1976 Code is amended to read:
Section 33-31-101. Short title. This chapter may be cited as the South Carolina Nonprofit Corporation Act of 1994.
OFFICIAL COMMENT
The short title provides a common name for use in referring to the state's nonprofit corporation act.
The Introduction to the Model Act provides a general background and description of the Act, its basic approach, and significant additions and changes from the last revision of the Model Act.
SOUTH CAROLINA REPORTERS' COMMENTS
This act is derived from the Revised Model Nonprofit Corporation Act adopted in 1987 by the Subcommittee on the Model Nonprofit Corporation Law of the Business Law Section of the American Bar Association. The Official Comments following each section were prepared by the Subcommittee on the Model Nonprofit Corporation Law of the Business Law Section of the American Bar Association. They are reproduced with permission. These Official Comments describe the substantive decisions made in the drafting process and in many cases explain the meaning and purpose of the section.
This act was prepared for introduction in South Carolina by a committee of the South Carolina Law Institute. This drafting committee was chaired by Theodore J. Hopkins. The drafting committee members included: Rudolph C. Barnes, Sr., Arthur M. Bjontegard, C. C. Burgess, James R. Burkhard, Preston H. Callison, Shawn M. Flanagan, William L. Ivey, R. Bentz Kirby, E. Crosby Lewis, Andrew B. Marion, Burnett R. Maybank, III, William S. McMaster, Martin C. McWilliams, Jr., C. Pinckney Roberts, Edward C. Roberts, Lester S. Schwartz, Paul J. Ward, Roger A. Way, Jr., David Wheeler, and Mitchell M. Willoughby. References in the South Carolina Reporters' Comments to `the committee' refer to this committee. The South Carolina Reporters' Comments which follow each section were drafted as part of the preparation of this act by Professors Martin C. McWilliams, Jr., and James R. Burkhard of the University of South Carolina School of Law. These South Carolina Reporters' Comments are primarily intended to explain the differences, if any, between the section and the former law, and any differences between the section and the official text of the Revised Model Nonprofit Corporation Act (`Revised Model Nonprofit Corporation Act').
The Official and South Carolina Reporters' Comments are intended to assist those who use and interpret this act to determine the intention of the drafters and the interrelationship between the various sections. As such, the comments serve the same function and purposes as the comments to the Uniform Commercial Code, Title 36, of the 1976 Code. They can be useful particularly in a state like South Carolina because the State does not have a large body of nonprofit corporation case law. The comments are not, however, part of the statutory law and, therefore, are not binding on any court or other adjudicatory body.
Section 33-31-102. Reservation of power of amend or repeal.
The General Assembly of South Carolina has power to amend or repeal all or any part of Chapter 31, Title 33 at any time, and all domestic and foreign corporations subject to Chapter 31 of this title are governed by the amendment or repeal.
OFFICIAL COMMENT
States may amend the Model Act from time to time without violating any rights a corporation has as a result of the Act's statutory provisions. While section 1.02 may not be necessary, it lays to rest concern that cases like Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat) 518 (1819) may have vitality today. That case held that a state could not apply a new statute to an existing corporation and suggested that a reservation of power provision might have allowed the court to uphold the new statute. By setting forth a reservation of power provision might have allowed the court to uphold the new statute. By setting forth a reservation of power provision section 1.02 allows the legislature to amend the Model Act's provisions without concern for the vested rights argument.
SOUTH CAROLINA REPORTERS' COMMENTS
Exhaustive commentary regarding the power of the State to modify its corporate laws is contained in the Reporters' Comments to Section 33-1-102. Those comments are generally applicable to the authority of South Carolina to modify the charter of any nonprofit corporation. However, the South Carolina Business Corporation Act grants to the legislature the specific authority to promulgate regulations. It was the consensus that any regulations for this South Carolina Nonprofit Corporation Act should be proposed by the appropriate state agency and then submitted to the legislature for its approval, all in accordance with the procedures established in Title 1, Chapter 23 of the 1976 Code.
There is at least one case dealing with the state's reserved power. Epworth Orphanage v. Wilson, County Treas., 185 S.C. 243, 253, 193 S.E. 644 (1937), contains the clear statement, "It cannot be denied that the Legislature has constitutional power to amend and alter charter rights and privileges." In this case, the court indicated that the orphanage's charter, which was granted by an act of the legislature in 1896 was later impliedly amended by additional statutes dealing generally with the taxation of property owned by certain public charities.
However, if the legislature has granted a specific power to a specific corporation by action taken before 1900, nothing in this Chapter 31, Title 33 will specifically modify that power. See Section 33-31-305. There is, of course, a significant difference between a power and the manner in which members act, the board is elected, or other mechanics of the operations of the corporation.
Section 33-31-120. Filing requirements. (a) A document must satisfy the requirements of this section, and of any other section that adds to or varies these requirements, to be entitled to filing by the Secretary of State.
(b) This chapter must require or permit filing the document in the office of the Secretary of State.
(c) The document must contain the information required by this chapter. It may contain other information as well.
(d) The document must be typewritten or printed.
(e) The document must be in the English language. However, a corporate name need not be in English if written in English letters or Arabic or Roman numerals, and the certificate of existence required of foreign corporations need not be in English if accompanied by a reasonably authenticated English translation.
(f) The document must be executed:
(1) by the presiding officer of its board of directors of a domestic or foreign corporation, its president, or by another of its officers;
(2) if directors have not been selected or the corporation has not been formed by an incorporator; or
(3) if the corporation is in the hands of a receiver, trustee, or other court-appointed fiduciary, by that fiduciary.
(g) The person executing a document shall sign it and state beneath or opposite the signature his or her name and the capacity in which he or she signs. The document may, but need not, contain:
(1) the corporate seal;
(2) an attestation by the Secretary or an assistant secretary; or
(3) an acknowledgement, verification, or proof.
(h) If the Secretary of State has prescribed a mandatory form for a document under Section 33-31-121, the document must be in or on the prescribed form.
(i) The document must be delivered to the office of the Secretary of State for filing and must be accompanied by one exact or conformed copy, except as provided in Sections 33-31-503 and 33-31-1509, the correct filing fee, and any franchise tax, license fee, or penalty required by this chapter or other law.
OFFICIAL COMMENT
Section 1.20 standardizes the filing requirements for all documents required or permitted by the Model Act to be filed with the secretary of state. In a few instances, other sections of the Act impose additional requirements which must also be complied with if the document in question is to be filed. Section 1.20 relates only to documents which the Model Act expressly requires or permits to be filed with the Secretary of State; it does not authorize or direct the Secretary of State to accept or reject for filing other documents relating to corporations and does not treat documents required or permitted to be filed under other statues.
The purpose of the filing requirements of chapter 1 are: (1) to simplify the filing requirements by the elimination of formal or technical requirements that serve little purpose,
(2) to minimize the number of pieces of paper to be processed by the Secretary of State, and
(3) to eliminate all possible disputes between persons seeking to file documents and the Secretary of State as to the legal efficacy of documents.
The requirements of section 1.20 may be summarized as follows:
1. Form
To be eligible for filing, a document must be typed or printed and in the English language (except to the limited extent permitted by section 1.20 (e)). The Secretary of State is not authorized to prescribe forms (except to the extent permitted by section 1.21) and as a result may not reject documents on the basis of form (see section 1.25)if they contain the information called for by the specific statutory requirement and meet the minimal formal requirements of this section.
2. Execution
To be filed a document must simply be executed by a corporate officer. . . . No specific corporate officer is designated as the appropriate officer to sign though the signing officer must designate his office or the capacity in which he signs the document. Among the officers who are expressly autho- rized to sign a document is the . . . [presiding officer] of the board of directors, a choice that may be appropriate if the corporation has a board of directors but not appointed officers. If a corporation has not been formed or has neither officers nor a board of directors, an incorporator may execute the document.
The requirement in earlier versions of the Model Act and in many state statues that documents must be acknowledged or verified as a condition for filing has been eliminated. These requirements serve little purpose in connection with documents filed under corporation statutes. (See in this connection section 1.29, which makes it a criminal offense for any person to sign a document for filing with knowledge that it contains false information.) On the other hand, many organizations, like lenders or title companies, may desire that specific documents include acknowledgements, verifications, or seals; section 1.20(g) therefore provides that the addition of these forms of execution does not affect the eligibility of the document for filing.
3. Contents
A document must be filed by the Secretary of State if it contains the information required by the Model Act. The document may contain additional information or statements and their presence is not ground for the Secretary of State to reject the document for filing. These documents must be accepted for filing even though the Secretary of State believes that the language is illegal or unenforceable. In view of this very limited discre- tion granted to secretaries of state under this section, section 1.25(d) defines the Secretary of State's role as `ministerial' and provides that no inference or presumption arises from the fact that the Secretary of State accepted a document for filing. See the Official Comments to sections 1.25 and 1.30.
4. Number of Copies
Section 1.20(i) requires that a document filed with the Secretary of State must be accompanied by `one exact or conformed copy.' The requirement in early versions of the Model Act and in many state statutes that `duplicate originals' (each being executed as an original document) be submitted has been eliminated. Under section 1.20(i) an `exact' copy is a reproduction of the executed original document by photographic or xerographic process; a `conformed' copy is a copy on which the existence of signatures is entered or noted on the copy. The substitution of exact or conformed copies for duplicate originals reflects advances in the art of office copying machines that permit the routine reproduction of exact copies of executed documents. However, a person submitting `duplicate originals' meets the requirement of this section since the Secretary of State may treat the duplicate original as a `conformed copy.' The reasons for requiring an exact or conformed copy of a filed document to accompany the signed original, and the processing of these documents by the Secretary of State, are discussed in the Official Comment to Section 1.25.
Official Comment to section 1.20 of the Model Business Corporation Act.
SOUTH CAROLINA REPORTERS' COMMENTS
This provision contains the mechanical requirements for preparing various documents. It is similar to the formerly applicable statute, Section 33-1-200 of the South Carolina Business Corporation Act.
1. Content of forms
This section does not specify the content of any forms. For the substantive requirements of the more commonly used forms please see:
Section 33-31-128 Certificate of existence
Section 33-31-202 Articles of incorporation
Section 33-31-402 Reserved name
Section 33-31-403 Registered name of a foreign corporation
Section 33-31-404 Notice of name change
Section 33-31-502 Change of registered office or registered agent
Section 33-31-505 Notice of change of principal office
Section 33-31-1005 Articles of amendment
Section 33-31-1104 Articles of merger
Section 33-31-1404 Articles of dissolution
Section 33-31-1503 Application for certificate of authority (foreign nonprofit corporation)
Section 33-31-1504 Amended certificate of authority
Section 33-31-1508 Change of registered office or registered agent of foreign corporation
Section 33-31-1515 Notice of change of principal office
Section 33-31-1520 Application for certificate of withdrawal
A more comprehensive listing of forms filed with the Secretary of State is found in Section 33-31-122.
2. Who may execute documents
The prior law had almost no direction as to who should execute documents that were to be filed for public record. However, prior Section 33-31-20 required the signature of two or more officers or agents to file the "declaration" that a nonprofit corporation was being formed. This new Section 33-31-120 combined with Section 33-31-202(c) modifies this former procedure. Now the articles of incorporation are signed by the incorporators and directors named in the articles.
3. Verification
Although not previously required by statute, the former form "declaration" of incorporation provided for a verification. The verification is now an optional provision. A verification, following former procedure, could specify that each signer:
a. has read and understands the meaning and purport of the statements contained in the document;
b. asserts that the statements are true or he is informed or believes that the statements are true;
c. has signed the document, and, in the case of one signing in a representative capacity, that he has the authority so to sign.
4. Seal
Former Section 33-31-100(7) granted authority for nonprofit corporations to adopt seals. The new law clearly permits a nonprofit corporation to adopt a seal, but its use is purely ceremonial. The use of the seal in no way enhances the efficacy of the document. It has been suggested that out-of-state parties might require that various corporate documents be sealed, but since this is not required by statute, the absence of the seal should cause no problems.
Section 33-31-121. Forms.
(a) The Secretary of State may prescribe and furnish on request forms for:
(1) an application for a certificate of existence;
(2) a foreign corporation's application for a certificate of authority to transact business in South Carolina;
(3) a foreign corporation's application for a certificate of withdrawal; and
(4) the notice of change of principal office. If the Secretary of State so requires, use of these forms is mandatory.
The Secretary of State through regulation may prescribe a mandatory form with regard to any other forms required or permitted by Chapter 31, Title 33 to be filed in his office. All mandatory forms must comply with the statutory requirements contained in Chapter 31.
(b) The Secretary of State may prescribe and furnish on request forms for other documents required or permitted to be filed by this chapter, but their use is not mandatory.
OFFICIAL COMMENT
As described in the Official Comment to section 1.20, documents are entitled to filing under the Model Act if they meet the substantive and formal requirements of the Act; they may also contain additional information if the person submitting the document so elects. See the Official Comments to sections 1.20 and 1.25. In these circumstances it is not appropriate to vest the Secretary of State with general authority to establish mandatory forms for use under the Model Act. Certain types of reports and requests for documents may be processed efficiently only if uniform forms are prescribed by the Secretary of State. Certificates of existence, for example, should require specific information located at specific places on the form; similarly, processing of large-volume, largely routine filings is expedited if standardized forms are required. Also, the disclosure requirements of the annual report may be administered on a systematic basis if a standardized form is mandated. Section 1.21(a) recognizes that these considerations for which the Secretary of State is authorized to establish mandatory forms.
Section 1.21(b) authorizes (but does not require) the Secretary of State to prepare forms suitable for use for other documents required or permitted to be filed under the Act. However, the use of these forms is permissive and cannot be required by the Secretary of State. Official Comment to Section 1.21 of the Model Business Corporation Act.
SOUTH CAROLINA REPORTERS' COMMENTS
1. Secretary of State to provide forms
This section provides that the Secretary of State may prescribe certain forms. If he prescribes a form he shall furnish a copy of the form. However, nothing in this section imposes a duty upon the Secretary of State to furnish more than one copy (or a nominal number) upon request therefor.
2. Former law
Although under the prior law of former Chapter 31, Title 33 there was little explicit authority for the Secretary of State to promulgate required or optional forms, the Secretary has developed various forms. Prior law, Section 33-31-20(6) "Written declaration," specifically gave the Secretary of State the authority to require any information he desired to be included in the "declaration" ("articles"). It has been customary to use the forms promulgated by the Secretary of State which formerly included:
a. Declaration and Petition for Incorporation
b. Initial Annual Report of Corporations (Tax Form CL-1)
c. Application for Amendment of Eleemosynary Charter
d. Statement of Dissolution
3. Non-Model Act provision
Different from the Model Act, this Section 33-31-121 permits the Secretary of State to adopt by regulation other mandatory forms. Any such additional form, such as a required articles of incorporation format, will be valid only if it meets all the requirements of this act. The need for standardization is important primarily in regard to simplifying the review process and facilitating the clerical process in of the various applications. The Secretary of State's office will be able to review more quickly and then file documents if standard forms are used. This will save time for South Carolina nonprofit corporations and make the Secretary of State's office more efficient. There is little risk that any additional forms might not be sufficiently flexible to meet a particularly unique need, since Section 33-31-200(c) says that any document to be filed with the Secretary of State may contain any information so desired by the client. By requiring that any future mandatory forms be promulgated through the regulation process, lawyers and affected nonprofit corporations will have an opportunity to raise any concern that the proposed forms might either not meet statutory requirements or might cause practical problems.
Section 33-31-122. Filing, service, and copying fees.
(a) The Secretary of State shall collect the following fees when the documents described in this subsection are delivered for filing:
(1) Articles of incorporation $25.00
(2) Application for use of
indistinguishable name $10.00
(3) Application for reserved name $10.00
(4) Notice of transfer of reversed name$ 3.00
(5) Application for registered name$10.00
(6) Application for renewal of
registered name $10.00
(7) Corporation's statement of
change of registered agent or
registered office or both $10.00
(8) Agent's statement of change of
registered office for each
affected corporation $ 2.00
(9) Agent's statement of resignation$ 3.00
(10) Amendment of articles of
incorporation $10.00
(11) Restatement of articles of
incorporation with amendments $10.00
(12) Articles of merger $10.00
(13) Articles of dissolution $10.00
(14) Articles of revocation of dissolution$10.00
(15) Certificate of administrative
dissolution No fee
(16) Application for reinstatement
following administrative dissolution$25.00
(17) Certificate of reinstatement No fee
(18) Certificate of judicial dissolutionNo fee
(19) Application for certificate of authority$10.00
(20) Application for amended
certificate of authority $10.00
(21) Application for certificate of withdrawal$10.00
(22) Certificate of revocation of
authority to transact business No fee
(23) Notice of change of principal office$10.00
(24) Articles of correction $10.00
(25) Application for certificate of
existence or authorization $10.00
(26) Notification by existing corporation$10.00
(27) Irrevocable election to be governed$25.00
(28) Any other document required or
permitted to be filed by
this chapter $10.00
(b) The Secretary of State shall collect a fee of ten dollars each time process is served on him under Chapter 31 of this title. The party to a proceeding causing service of process is entitled to recover this fee as costs if he prevails in the proceeding.
(c) The Secretary of State shall collect the following fees for copying and certifying the copy of any filed document relating to a domestic or foreign corporation:
(1) for copying, one dollar for the first page and fifty cents for each additional page; and
(2) two dollars for the certificate.
OFFICIAL COMMENT
Section 1.22 establishes in a single section the filing fees for all documents that may be filed under the Model Act. The dollar amounts for each document should be inserted by each state as it adopts the Act.
The list of documents in section 1.22 includes all documents that are authorized to be filed with the Secretary of State under the Model Act. The catch-all in subdivision (26) will apply to any document for which a state does not establish a specific filing fee plus any document that later amendments to the statute may authorize or direct be filed with the Secretary of State without establishing a specific filing fee.
Subdivision (9) states that no fee is applicable to filing the resignation of a registered agent. This provision permits a person who is named as a registered agent without his consent, or who agrees to serve as registered agent for a fee and the fee is not paid, to eliminate any reference to himself in the records of the Secretary of State without expense.
Subdivision (8) contains a maximum fee for filing a change of address of a registered agent. Since corporation service companies serve as registered agents for thousands of corporations in many jurisdictions, their change of address may require a very large number of filings. Hence, the fee is broadly based on the number of corporations affected but a maximum fee is specified to reflect that as the number of changes increases the cost per change should decrease. Official Comment to Section 1.22 of the Model Business Corporation Act.
SOUTH CAROLINA REPORTERS' COMMENTS
1. Similar to business corporation fees
The new fee schedule is essentially the same as for business corporations. However, the fee for filing the articles, which is the most common fee, has been increased and is a uniform $25.00 charge regardless of the type of corporation. In the past, religious entities paid $3.00 and all others $15.00. Many of these fees are new because there previously had been no statutory authority in the nonprofit laws for the procedures to which the new fees relate.
2. Non-Model Act provisions
South Carolina did not adopt the 1987 Model Act Official Text which recommends a total dollar limit on the fee when an agent who represents multiple corporations changes his office.
Section 33-31-123. Effective date of document.
(a) Except as provided in subsection (b), a document is effective:
(1) at the time of filing on the date it is filed, as evidenced by the Secretary of State's endorsement on the original document; or
(2) at the time specified in the document as its effective time on the date it is filed.
(b) A document may specify a delayed effective time and date and if it does so the document becomes effective at the time and date specified. If a delayed effective date but no time is specified, the document is effective at the close of business on that date. A delayed effective date for a document may not be later than the ninetieth day after the date filed.
OFFICIAL COMMENT
Section 1.23(a) provides that documents accepted for filing become effective at the time and date of filing, or at another specified time on that date, unless delayed effective date is selected under section 1.23(b). This section gives express statutory authority to the common practice of most secretaries of state of ignoring processing time and treating a document as effective as of the date it is submitted for filing even though it may not be reviewed and accepted for filing until several days later.
Section 1.23(a) requires secretaries of state to maintain a date and time stamp for recording the receipt of documents and provides that documents become effective at the stamped time on the date of filing. This provision should eliminate any doubt about situations involving same-day transactions in which documents, for example articles of merger, are filed on the morning of the date the merger is to become effective. Section 1.23(a) contemplates that the time of filing, as well as the date, will be routinely recorded.
Section 1.23(b) provides an alternative method of establishing the effective date of a document. The document itself may fix as its effective date any date within 90 days after the date it is filed; it may also fix the time it becomes effective on that date. If no time is specified, the document becomes effective as of the close of business on the specified date. The Model Act also allows the effective date fixed in a document to be corrected to a limited extent. See the Official Comment to Section 1.23.
Section 1.23(b) does not authorize or contemplate the retroactive establishment of an effective date before the date of filing. Official Comment to Section 1.23 of the Model Business Corporation Act.
SOUTH CAROLINA REPORTERS' COMMENTS
This section has no counterpart in the former nonprofit statutes. The former law required a three-day public notification of an intent to form a nonprofit corporation and then an investigation by the Secretary of State before the nonprofit charter could be issued (former Sections 33-31-20 and 33-31-60). Former Section 33-31-50 did provide that upon filing the Declaration, First Report, and $25 in fees that the Secretary of State was to issue the Certificate of Incorporation for the proposed term. This section is, however, identical to Section 33-1-230 of the South Carolina Business Corporation Act.
Section 33-31-124. Correcting filed document.
(a) A domestic or foreign corporation may correct a document filed by the Secretary of State if the document:
(1) contains an incorrect statement; or
(2) was defectively executed, attested, sealed, verified, or acknowledged.
(b) A document is corrected:
(1) by preparing articles of correction that:
(i) describe the document, including its filing date, or attach a copy of it to the articles;
(ii) specify the incorrect statement and the reason it is incorrect or the manner in which the execution was defective; and
(iii) correct the incorrect statement or defective execution; and
(2) by delivering the articles of correction to the Secretary of State.
(c) Articles of correction are effective on the effective date of the document they correct except as to persons relying on the uncorrected document and adversely affected by the correction. As to those persons, articles of correction are effective when filed.
OFFICIAL COMMENT
Section 1.24 permits making corrections in filed documents without refiling the entire document or submitting formal articles of amendment. This correction procedure has two advantages: (1) filing articles of correction may be less expensive than refiling the document or filing articles of amendment, and (2) articles of correction do not alter the effective date of the underlying document being corrected. Indeed, under section 1.24(c), event the correction relates back to the original effective date of the document except as to persons relying on the original document and adversely affected by the correction. As to these persons, the effective date of articles of correction is the date the articles are filed.
A document may be corrected either because it contains an `incorrect statement' or because it was defectively executed (including defects in optional forms of execution that do not affect the eligibility of the original document for filing). Official Comment to Section 1.24 of the Model Business Corporation Act.
SOUTH CAROLINA REPORTERS' COMMENTS
This section has no counterpart in the former provisions of Chapter 31, Title 33. Former Section 33-31-90 provided that:
No irregularity in complying with the provisions of this article shall be held to vitiate the incorporation until a direct proceeding to set aside and annul the charter be instituted by the proper authorities of the State. And all acts done and contracts entered into shall have the same force and effect as if no irregularity had existed. Any corporation heretofore formed for any of the purposes enumerated in Section 33-31-20 shall be deemed to have qualified under the provisions of Section 33-31-10.
This new Section 33-31-124, however, is identical with Section 33-1-240 of the South Carolina Business Corporation Act.
Section 33-31-125. Filing duty of the Secretary of State.
(a) If a document delivered to the office of the Secretary of State for filing satisfies the requirements of Section 33-31-120, the Secretary of State shall file it.
(b) The Secretary of State files a document by stamping or otherwise endorsing `filed', together with his name and official title and date and time of receipt, on both the original and document copy, together with a further endorsement that the document is a true copy of the original document. After filing a document, except as provided in Sections 33-31-503 and 33-31-1510, the Secretary of State shall deliver the document copy to the domestic or foreign corporation or its representative and the document copy must be retained as part of the permanent records of the corporation.
(c) Upon refusing to file a document, the Secretary of State shall return it to the domestic or foreign corporation or its representative within five days after the document was delivered, together with a brief, written explanation of the reason or reasons for the refusal.
(d) The Secretary of State's duty to file documents under this section is ministerial. His filing or refusing to file a document does not:
(1) affect the validity or invalidity of the document in whole or in part;
(2) relate to the correctness or incorrectness of information contained in the document; or
(3) except as provided in Section 33-31-127, create a presumption that the document is valid or invalid or that information contained in the document is correct or incorrect.
OFFICIAL COMMENT
1. Filing Duty in General
Under section 1.25 the Secretary of State is required to file a document if it `satisfies the requirements of section 1.20.' This language should be contrasted with earlier versions of the Model Act (and many state statutes) that required the Secretary of State to ascertain whether the document `conformed with law' before filing it. The purpose of this change is to limit the discretion of the Secretary of State to a ministerial role in reviewing the contents of documents. If the document submitted is in the form prescribed and contains the information required by section 1.20 and the applicable provision of the Model Act, the Secretary of State under section 1.25 must file it even though it contains additional provisions the Secretary of State may feel are irrelevant or not authorized by the Model Act or by general legal principles. Consistently with this approach, section 1.25(d) states that the filing duty of the Secretary of State is ministerial and provides that filing a document with the Secretary of State does not affect the validity or invalidity of any provision contained in the document and does not create any presumption with respect to any provision. Persons adversely affected by provisions in a document may test their validity in a proceeding appropriate for that purpose. Similarly, the Attorney General of the state may also question the validity of provisions of documents filed with the Secretary of State in an independent suit brought for that purpose; in neither case should any presumption or inference be drawn about the validity of the provision from the fact that the Secretary of State accepted the document for filing.
2. Mechanics of Filing Section 1.25(b) provides that when the Secretary of State files a document, he stamps or endorses it as filed, retains the signed original document for his records, and returns the exact or conformed copy (which must accompany the document under section 1.20(i) to the corporation or its representative with the Secretary of State's fee receipt or acknowledgement of receipt if no fee is required. This will establish that a document has been filed in the form of the copy. Considerations was given to dispensing with the document copy entirely and providing only for the return of a fee receipt or equivalent document. Several states currently follow this practice with respect to articles of incorporation and other documents. It was felt to be important, however, to continue a practice by which each corporation receives back from the Secretary of State for its records a document that on its face shows that it is an exact or conformed copy of the document that was filed with the Secretary of State. This copy is usually placed in the minute book and is available for informal inspection without requiring a person to examine the records of the Secretary of State. Of course, a person desiring a certified copy of any filed document may obtain it from the office of the Secretary of State by paying the fee prescribed in section 1.22(c).
3. Elimination of Certificates of Incorporation and Similar Documents
Section 1.25(b) provides that acceptance of articles of incorporation or other documents is evidenced merely by the issuance of a fee receipt or acknowledgement of receipt if no fee is required. Earlier versions of the Model Act and the statutes of many states provided that acceptance by the Secretary of State is evidenced by a `certificate' (e.g., of incorporation, of merger, or of amendment). This older practice was not retained in the revised Model Act because it was felt desirable to reduce the number of pieces of paper issued by the Secretary of State. Under the older practice most state offices routinely issued both fee receipts and certificates. A single document -- the fee receipt or acknowledgment -- should sufficiently indicate that the document has been accepted for filing, and in fact many states in recent years have dispensed with the formal certificate.
4. Rejection of Document by Secretary of State
Because of the simplification of formal filing requirements and the limited discretion granted to the Secretary of State by the Model Act it is probable that rejection of documents for filing will occur only rarely. Section 1.25(c) provides that if the Secretary of State does reject a document for filing he must return it to the corporation or its representative within five days together with a brief written explanation of his reason for rejection. This rejection may be the basis of judicial review under section 1.26. Official Comment to Section 1.25 of the Model Business Corporation Act.
SOUTH CAROLINA REPORTERS' COMMENTS
1. Substantial revisions.
This section is a major change from the former provisions of Chapter 31, Title 33. In the past, former Sections 33-31-60, 33-31-70, and 33-31-80 imposed on the Secretary of State's office a duty to investigate whether the proposed corporation was entitled to be formed. In addition, former Section 33-31-170, Filing and recording of papers, provided that:
All papers required to be filed hereunder and all charters or amendments thereof that may be granted shall be filed under proper numbers and indexed by the Secretary of State. The charter or amendment shall be recorded within thirty days after receipt in the officer of the clerk of court or register of mesne conveyances in the county in which the corporation is organized.
The effect of the new law is to eliminate any duty (or authority) of the Secretary of State's office to make any initial investigations. (Earlier versions of the statute directed the Department of Welfare to review only proposed "charitable" nonprofit corporations, see 1944-45 Op.S.C. Attorney General, 166.) It likewise makes clear that the Secretary of State has a mandatory ministerial duty to file all documents proffered in the form prescribed by Section 33-31-120, and deletes any authority or discretion of the Secretary of State to withhold the filing of any document properly completed. There is no longer any requirement that the articles be filed in any county office.
2. Non-Model Act provisions
This section differs from the 1987 Model Act Official Text in four ways:
a. Continuing existing practice, the Secretary of State will endorse on the copy that it is a "true copy" of the original.
b. The Secretary of State has not, and will not, issue a separate receipt of payment. The conformed, stamped copy (and any canceled check)is sufficient verification of payment.
c. Also continuing existing South Carolina practice, subsection (b) requires the corporation to retain the conformed copy of the articles and any document as part if its official records.
d. Although the actual filing of a document does not generally create any presumption that the information contained in the document is correct, a certified document, pursuant to Section 33-31-127 shall be treated as being prima facie evidence of the facts therein stated.
3. Rejection of document within five days
There was debate whether it was reasonable, as is now required in the South Carolina Business Corporation Act, to require the Secretary of State to reject a document within 5 days, or whether he should have a longer time. The conclusion was to require the five-day period.
Section 33-31-126. Appeal from Secretary of State's refusal to file document.
(a) If the Secretary of State refuses to file a document delivered for filing to the Secretary of State's office, the domestic or foreign corporation may appeal the refusal to the court of common pleas for Richland County. The appeal is commenced by petitioning the court to compel filing the document and by attaching to the petition the document and the Secretary of State's explanation of the refusal to file.
(b) The court may summarily order the Secretary of State to file the document or take other action the court considers appropriate.
(c) The court's final decision may be appealed as in other civil proceedings.
OFFICIAL COMMENT
1. The Court With Jurisdiction to Hear Appeals From the Secretary of State
The identity of the specific court with jurisdiction to hear appeals from the Secretary of State under section 1.26 must be supplied by each state when enacting this section. It is intended that this should be a court of general civil jurisdiction. It may either be the court located in the corporation's principal business office is located in the state or, if the corporation does not have a principal office in the state, the court located in the county in which its registered office is located. The annual report of the corporation must state where the principal office of the corporation (which need not be within the state) is located. See section 16.22. [South Carolina does not require an annual report.] Other sections of the Model Act also contemplate that the court with jurisdiction over substantive corporate matters will be designated in the statute.... It is expected that jurisdiction over litigation with respect to substantive matters will normally be vested in the court in the county of the corporation's principal or registered office. See the Official Comment to sections 7.03.
2. `Summary' Orders
In view of the limited discretion of the Secretary of State under the Act, a `summary' order appears to be appropriate in section 1.26. Throughout the Model Act the term `summarily order' or similar language is used where courts are authorized to order action taken and the person charged with taking the original action has little or no discretion. The word `summary' is not used in a technical sense but to refer to a class of cases where the court might appropriately order that action be taken on the face of the pleadings or after an oral hearing but without any need to resolve disputed factual issues.
3. Burden of Proof and Review Standard
The revised Model Act, unlike earlier versions, does not address either the burden of proof or the standard for review in judicial proceedings challenging action of the Secretary of State. It is contemplated that these matters will be governed by general principles of judicial review of agency action in each adopting state.
DERIVATION: Official Comment to Section 1.26 of the Model Business Corporation Act.
SOUTH CAROLINA REPORTERS' COMMENTS
It is anticipated that this section will be used very little. For governmental convenience and to reduce costs, the court of common pleas for Richland County has been designated the appropriate court to hear these actions. In regard to the burden or proof and standard of review, please see the South Carolina Reporters' Comments to Section 33-1-260 of the South Carolina Business Corporation Act.
Section 33-31-127. Evidentiary effect of copy of filed document.
A certificate attached to a copy of a document filed by the Secretary of State, bearing his signature, which may be in facsimile, and the seal of this State, is conclusive evidence that the original document is on file with the Secretary of State and must be taken and received in all courts, public offices, official bodies, and in all proceedings as prima facie evidence of the facts therein stated.
OFFICIAL COMMENT
The Secretary of State may be requested to certify that a specific document has been filed with him upon payment of the fees specified in section 1.22 (c). Section 1.27 provides that the certificate is conclusive evidence only that the original document is on file. The limited effect of the certificate is consistent with the ministerial filing obligation imposed on the Secretary of State under the Model Act.
DERIVATION: Official Comment to Section 1.27 of the Model Business Corporation Act.
SOUTH CAROLINA REPORTERS' COMMENTS
This section is identical to the formerly applicable statute, Section 33-31-260 of the South Carolina Business Corporation Act.
This section, which goes beyond the Model Act, does two things. First, in keeping with Section 19-5-510 of the 1976 Code, Uniform Photographic Copies of Business and Public Records as Evidence Act, the statute "authenticates" certified copies. Second, this section provides an exception to the hearsay rule. The contents of the document are prima facie evidence of the truth of that stated in the document. This second feature is a non-Model Act provision, but is in conformity with the Federal Rules of Evidence, Rule 803(8), and in conformity with existing South Carolina common law. According to Prof. Walter A. Reiser, Jr. Comparison of the Federal Rules of Evidence With South Carolina Evidence Law, 53 (3rd. Ed. 1987):
The leading South Carolina case is State v. Pearson, 223 S.C. 377, 76
S.E.2d 151 (1953), which holds that `where public officers are under a duty to keep a record of transactions, which occur in the course of their public service, the official records and writings so made by such officers, or under their supervision, are of public nature and are ordinarily admissible in evidence as proof of their contents, even though not proved by the person who actually made the entries.'
The Secretary of State is routinely subpoenaed to testify in cases where all that is being asked of him is to confirm that a document is on file and does contain the information in the copy, for example, that a corporation was formed and named certain people as its initial directors. This type of information is basically uncontroverted, and thus to require the Secretary to actually testify in these many proceedings truly would be an unreasonable request and policy. There was discussion as to whether the language provided sufficient protection to the Secretary of State from being needlessly required to testify as to the content of various filed forms. The identical language in the South Carolina Business Corporation Act has been effective. This provision should be equally effective.
Section 33-31-128. Certificate of existence.
(a) A person may apply to the Secretary of State to furnish a certificate of existence for a domestic corporation or certificate of authorization for a foreign corporation.
(b) The certificate of existence or authorization sets forth:
(1) the domestic corporation's corporate name or the foreign corporation's corporate name used in this State;
(2) that (i) the domestic corporation is duly incorporated under the law of this State, the date of its incorporation, and the period of its duration if less than perpetual; or (ii) that the foreign corporation is authorized to transact business in this State;
(3) that all fees, taxes, and penalties owed to the Secretary of State have been paid;
(4) that the Secretary of State has not mailed notice to the corporation pursuant to either Section 33-31-1421 or 33-31-1531 that the corporation is subject to being dissolved or its authority revoked;
(5) that articles of dissolution have not been filed; and
(6) other facts of record in the office of the Secretary of State that may be requested by the applicant.
(c) Subject to any qualification stated in the certificate, a certificate of existence or authorization issued by the Secretary of State may be relied upon as conclusive evidence that the domestic or foreign corporation is in existence or is authorized to transact business in this State.
OFFICIAL COMMENT
Section 1.28 establishes a procedure by which anyone may obtain a conclusive certificate from the Secretary of State that a particular domestic or foreign corporation is in existence or is authorized to transact business in the state. The certificate will probably be a standardized form. The Secretary of State is to make the judgment whether or not the corporation is in existence or is authorized to transact business from public records only and is not expected to make a more extensive investigation. In appropriate cases, the Secretary of State may issue a certificate subject to specified qualifications.
Section 1.28(b)(3) refers only to taxes, fees, or penalties collected by the Secretary of State or collected by other agencies and reported to the Secretary of State. In some states the Secretary of State may ascertain from other agencies that franchise or other taxes have been paid and include this information in the certificate. In states where this procedure does not unduly delay the issuance of certificates, section 1.28 may be revised appropriately. Section 1.28(b)(3) relates only to taxes, fees, or penalties to the extent their nonpayment affects the existence or authorization to transact business of the corporation.
A certificate of existence or authorization that may be relied on as binding and conclusive is of material assistance to attorneys who may be required to give formal legal opinions in connection with corporate transactions. Official Comment to Section 1.28 of the Model Business Corporation Act.
SOUTH CAROLINA REPORTERS' COMMENTS
1. Former law
Former Section 33-31-160, Certified copy of charter or amendment as evidence of incorporation, provided:
A certified copy of the charter and any amendment thereof from the Secretary of State or from the clerk of the court or register of mesne conveyances of the county in which such charter is required to be recorded shall be sufficient evidence of the incorporation of any corporation chartered under this article and of any amendment to its certificate of incorporation.
Obviously, this procedure has been dramatically changed.
2. Warning
The granting of the certificate of existence does not disclose whether there may be grounds which give the Secretary of State the right to begin dissolution proceedings. Nor will it disclose whether the corporation has violated the requirements of sections 33-31-170 - 33-31-173, and that the Attorney General is in the process of "canceling the corporation's articles of incorporation" for a domestic corporation or causing a foreign corporation to forfeit its right to operate in South Carolina. See section 33-31-174.
3. Certificate does not negate the possibility that other actions are pending to dissolve the corporation
The Attorney General (and in certain instances, the members) has the authority pursuant to Sections 33-31-1430 and 33-31-1431 to request that a nonprofit corporation be dissolved. Likewise, the Attorney General has the power to bring an action to revoke a foreign corporation's certificate of authority. See Section 33-31-1531. The certificate of existence will not negate the possibility that such actions are pending against the corporation or other events not within the jurisdiction of the Secretary of State. If an action has been brought under any of these sections, the corporation (or its officers or directors) will receive notice of the proceeding.
4. Differences from Model Act
Section 1.28(b)(3) of the 1987 Model Act Official Text requires the Secretary of State to provide information on unpaid taxes, fees, and penalties only if such information is available in the Secretary's records. Since the South Carolina nonprofit corporations are not required to pay either income or franchise taxes Model Act subsection (b)(3) has been revised. The South Carolina version specifies that the Secretary of State will only certify the payment of any taxes and fees owed to him.
Section 33-31-128(b)(4) differs from the Model Act in two respects. First, the annual report is not required. Second, subsection (b)(4) has been amended to require the Secretary of State to certify that he has not mailed notice to the corporation that it is subject to being dissolved. The South Carolina Secretary of State will give a "certificate of existence" for South Carolina corporations, and a "certificate of authorization to do business" for foreign corporations. This distinction is not made in the Model Act Official Text.
5. Use of term "transact business" not objectionable
It was determined that there was no real objection to borrowing the language from the South Carolina Business Corporation Act and say that a properly qualified foreign nonprofit corporation is one properly authorized to transact "business" in this State. The word "business" as used in this context is generic enough or broad enough merely to reflect that the entity is authorized to act in South Carolina.
Section 33-31-129. Penalty for signing false document
(a) A person commits an offense if he signs a document he knows is false in any material respect, including an omission of a material fact necessary in order to make the statements made in light of the circumstances under which they were made, not misleading, with intent that the document be delivered to the Secretary of State for filing.
(b) An offense under this section is a misdemeanor punishable by a fine of not to exceed five hundred dollars.
(c) A person who violates subsection (a) is liable to any person who is damaged by the violation.
OFFICIAL COMMENT
Section 1.29 makes it a criminal offense for any person to sign a document that he knows is false in any material respect with intent that the document be submitted for filing to the Secretary of State.
Section 1.29(b) is keyed to the classification of offenses provided by the Model Penal Code. If a state has not adopted this classification, the dollar amount of the fine should be substituted for the misdemeanor classification. Official Comment to Section 1.29 of the Model Business Corporation Act.
SOUTH CAROLINA REPORTERS' COMMENTS
The South Carolina Business Corporation Act contains similar language, Section 33-1-290. This provision governed the operation of nonprofit corporations prior to the adoption of this South Carolina Nonprofit Corporation Act. The South Carolina version of this Section 33-31-290 differs from the Model Act Official Text in the following respects:
(1) an intentional omission makes the document false; and
(2) any injured person has a private (civil) cause of action against the wrongdoer.
No remedy is specified for any civil cause of action which may be brought pursuant to subsection (c). This is left to the courts to determine.
Section 33-31-130. Powers.
The Secretary of State has the power reasonably necessary to perform the duties required of the Secretary of State's office by this chapter.
OFFICIAL COMMENT
Section 1.30 is intended to grant the Secretary of State the authority necessary for his efficient performance of the filing and other duties imposed on him by the Act but is not intended to give him general authority to establish public policy. The most important aspects of a modern corporation statute relate to the creation and maintenance of relationships among persons interested in or involved with a corporation; these relation- ships basically should be a matter of concern to the parties involved and not subject to regulation or interpretation by the Secretary of State. Further, even in situations where it is claimed that the corporation has been formed or is being operated for purposes that may violate the public policies of the State, the Secretary of State generally should not be the governmental official that determines the scope of public policy through administration of his filing responsibilities under the Act. Rather, the Attorney General may seek to enjoin the illegal conduct or to dissolve involuntarily the offending corporation.
Section 1.30 is more narrowly drafted than earlier versions of the Model Act and the statutes of many states. Official Comment to Section 1.30 of the Model Business Corporation Act.
SOUTH CAROLINA REPORTERS' COMMENTS
This section is identical to Section 33-1-300 of the South Carolina Business Corporation Act. Certain specific duties required of the Secretary of State under the former nonprofit statutes have been repealed by this South Carolina Nonprofit Act. For example, the Secretary of State no longer has the duty (or the authority) to conduct an investigation of the claimed eligibility or status of the organization (former Section 33-31-60), to obtain the approval of any grand lodge before issuing a charter to a subordinate lodge (former Section 33-31-70), or to refuse a charter if he suspects that the organization will operate in violation of law or will keep a place where alcoholic beverages are stored, kept, given away, or supplied to members (former Section 33-31-80).
Section 33-31-140. Definitions.
Unless the context otherwise requires;
(1) `Approved by the members' or `approval by the members' means approved or ratified by the members entitled to vote on the issue through either:
(a) the affirmative vote of a majority of the votes of the members represented and voting at a duly held meeting at which a quorum is present or the affirmative vote of the greater proportion including the votes of any required proportion of the members of any class as the articles, bylaws, or this chapter may provide for specified types of member action; or
(b) a written ballot or written consent in conformity with this chapter.
(2) `Articles of incorporation' or `articles' include amended and restated articles of incorporation and articles of merger.
(3) `Board' or `board of directors' means the individual or individuals vested with overall management of the affairs of the domestic or foreign corporation, irrespective of the name by which the individual or individuals are designated, except that no individual or group of individuals is the board of directors because of powers delegated to that individual or group pursuant to Section 33-31-801(c).
(4) `Bylaws' means the code or codes of rules, other than the articles, adopted pursuant to this chapter for the regulation or management of the affairs of the corporation irrespective of the name or names by which the rules are designated.
(5) `Class' refers to a group of memberships which have the same rights with respect to voting, dissolution, redemption, and transfer. For the purpose of this section, rights are considered the same if they are determined by a formula applied uniformly.
(6) `Conspicuous' means so written that a reasonable person against whom the writing is to operate should have noticed it. For example, printing in italics or boldface or contrasting color or typing in capitals or underlined is conspicuous.
(7) `Corporation' means public benefit, mutual benefit, and religious corporation.
(8) `Delegates' means those persons elected or appointed to vote in a representative assembly for the election of a director or directors or on other matters.
(9) `Deliver' includes mail.
(10) `Directors' means natural persons, designated in the charter or bylaws or elected by the incorporators, and their successors and natural persons elected or appointed to act as members of the board, irrespective of the names or titles by which these persons are described.
(11) `Distribution' means the direct or indirect transfer of assets or any part of the income or profit of a corporation to its members, directors, or officers. The term does not include:
(a) the payment of compensation in a reasonable amount to its members, directors, or officers for services rendered;
(b) conferring benefits on its members in conformity with its purposes; or
(c) repayment of debt obligations in the normal and ordinary course of conducting activities.
(12) `Domestic corporation' means a corporation.
(13) `Effective date of notice' is defined in Section 33-31-141.
(14) `Employee' includes an officer but not a director. A director may accept duties that make him also an employee.
(15) `Entity' includes corporation and foreign corporation; business corporation and foreign business corporation; profit and nonprofit unincorporated association; corporation sole; business trust, estate partnership, trust, and two or more persons having a joint or common economic interest; and state, United States, and foreign government.
(16) `File', `filed', or `filing' means filed in the office of the Secretary of State.
(17) `Foreign corporation' means a corporation organized under a law other than the law of this State which would be a nonprofit corporation if formed under the laws of this State.
(18) `Governmental subdivision' includes authority, county, district, and municipality.
(19) `Includes' denotes a partial definition.
(20) `Individual' includes the estate of an incompetent individual.
(21) `Internal Revenue Code' means the Internal Revenue Code of 1986, or any future federal tax code or succeeding statute of like tenor and effect, and any reference to a section of the Internal Revenue Code also shall mean the corresponding section of any future federal tax code.
(22) `Means' denotes a complete definition.
(23) (a) `Member' means a person entitled, pursuant to a domestic or foreign corporation's articles or bylaws, without regard to what a person is called in the articles or bylaws, to vote on more than one occasion for the election of a director or directors or any other matter which under the terms of this chapter requires approval by the members.
(b) A person is not a member by virtue of any of the following:
(A) any rights the person has as a delegate;
(B) any rights the person has to designate or appoint a director or directors; or
(C) any rights the person has as a director.
(24) `Membership' refers to the rights and obligations a member has pursuant to a corporation's articles, bylaws, and this chapter.
(25) `Mutual benefit corporation' means a domestic corporation which either is formed as a mutual benefit corporation pursuant to Sections 33-31-201 through 33-31-207, is designated a mutual benefit corporation by a statute, or does not come within the definition of public benefit or religious corporation.
(26) `Notice' is defined in Section 33-31-141.
(27) `Person' includes any individual or entity.
(28) `Principal office' means the office, in or out of this State, so designated in the articles of incorporation, application for certificate of authority, or in a notice of change of principal office filed pursuant to either Section 33-31-505 or 33-31-1515 where the principal office of a domestic or foreign corporation is located.
(29) `Proceeding' includes civil suit and criminal, administrative, and investigatory action.
(30) `Public benefit corporation' means a domestic corporation which is formed as a public benefit corporation pursuant to Sections 33-31-201 through 33-31-207 or is required to be a public benefit corporation pursuant to Section 33-31-1707.
(31) `Record date' means the date established under Sections 33-31-601 through 33-31-640 or Sections 33-31-701 through 33-31-730 on which a corporation determines the identity of its members and their membership rights for the purposes of this chapter. The determinations must be made as of the time of close of transactions on the record date unless another time for doing so is specified at the time the record date is fixed.
(32) `Religious corporation' means a domestic corporation which is formed as a religious corporation pursuant to Sections 33-31-201 through 33-31-207 or is required to be a religious corporation pursuant to Section 33-31-1707.
(33) `Secretary' means the corporate officer to whom the board of directors has delegated responsibility under Section 33-31-840(b) for custody of the minutes of the directors' and members' meetings and for authenticating the records of the corporation.
(34) `State', when referring to a part of the United States, includes a state and commonwealth, and their agencies and governmental subdivisions, and a territory, and insular possession, and their agencies and governmental subdivisions of the United States.
(35) `United States' includes district, authority, bureau, commission, department, and any other agency of the United States.
(36) `Vote' includes authorization by written ballot and written consent.
(37) `Voting power' means the total number of votes entitled to be cast on the issue at the time the determination of voting power is made, excluding a vote which is contingent upon the happening of a condition or event which has not occurred at the time. Where a class is entitled to vote as a class for directors, the determination of voting power of the class must be based on the percentage of the number of directors the class is entitled to elect out of the total number of authorized directors.
OFFICIAL COMMENT
With a few exceptions, all the definitions in the Model Act are set forth in section 1.40. A few "special definitions" appear in subchapters or sections to which they apply.
The following is a discussion of some of the more important definitions:
1. Approved by (or Approval by) the Members
This definition sets forth the minimum statutory requirements for having a matter approved by the members. Approval may be by a vote of the members at a membership meeting or by written ballot or written consent. Compare sections 7.01, 7.02, 7.08 and 7.04.
To be approved by the members the following minimum conditions must be met:
1. A quorum must be present. See section 7.22. Presence may be established by physical presence, presence by proxy or by signing a written consent or written ballot.
2. A majority of the votes represented and voting must vote in favor of a proposal. While abstentions may be counted in the quorum, abstentions are not counted as no votes in determining whether a majority of the votes have been cast in favor of approving a proposal.
3. The votes cast for a proposal must constitute a majority of the required quorum.
The following example illustrates the interplay of these requirements. A quorum is a majority of the votes entitled to be cast. Assume the number of votes entitled to be cast is 100, the number of votes present is 60. If 26 votes are cast in favor of a proposal, 17 against the proposal and 17 abstain, the proposal is approved. The 26 votes for the proposal constitute a majority of the required quorum of 51. If, however, there are 25 votes in favor of a proposal, 12 against the proposal and 23 abstain, the proposal is defeated. The 25 votes for the proposal are not a majority of the required quorum. Consequently the proposal is defeated even though the number of affirmative votes is greater than the number of negative votes.
In addition to the minimum requirements, the Model Act or a corporation's articles or bylaws may mandate a higher vote or a vote by class or some other unit or grouping. If so, unless the relevant article or bylaw provision contravenes a Model Act requirements, a matter cannot be approved by the members unless it is approved by the higher vote.
2. Board or Board of Directors
The definition of board of directors distinguishes between the board of directors and the group or groups to which the articles may delegate some or all of the powers of the board. See section 8.01(c). Such groups are not treated as the board for purposes of the Model Act. They do, however, assume the duties and responsibilities of the board insofar as they have been delegated some or all of the powers of the board.
3. Bylaws
The term "bylaws" has a particularly expansive definition. The term refers to the code or codes of rules, other than the articles, adopted for regulation or management of corporate affairs regardless of the name by which such rules are designated.
4. Delegates
Professional associations, churches, political parties and numerous other organizations hold representative assemblies from time to time at which major corporate and policy decisions are made. These representative assemblies may be called conventions, annual meetings or some other name. See sections 1.40(7) and 6.40. The people elected or appointed to vote at these representative assemblies are "delegates" for purposes of the Model Act even if they are called by some other name.
5. Distribution
"Distribution" is defined in section 1.40(10) as "the payment of a dividend or any part of the income or profit of a corporation to its members, directors or officers." The payment of any part of the income or profit of a corporation to its members, directors or officers does not include:
(i) the payment of compensation in a reasonable amount to its members, directors or officers for services rendered; or
(ii) conferring benefits upon its members in conformity with its purposes.
This definition is based on and represents no substantive change from section 26 of the prior version of the Model Nonprofit Corporation Act.
6. Member
A "member" is a person who is given the right under a corporation's articles or bylaws to vote for a director or directors of the corporation. See section 1.40(21). Whenever the Model Act refers to members it is referring to them based on the definition set forth in section 1.40(21). If a person is called a member by a nonprofit corporation, but does not have the right to vote for directors, that person is not a member for the purposes of the Model Act. Persons who cannot vote for directors but are called members, associates, affiliates or some other name may have common law or other rights. The question of what rights they have is left to a state by state determination.
A corporation is not required to have "members." Once it has decided to have such members, these members are afforded basic protections and rights by the Model Act. People who have the right to vote for directors are treated as members for Model Act purposes regardless of the name by which they are called.
As a result of section 1.40(21) three categories of people who select directors are not treated as members by the Model Act. Section 1.40(21) provides that a person is not a member because of any rights that person has as a delegate. Therefore, a delegate who votes for directors is not a member. A person may be a delegate and a member if he or she has the right to vote for directors and that right does not arise out of that person's rights as a delegate.
The Model Act does not treat delegates as members for two reasons. The first reason is practical. The Act provides notice and other rights to members on the assumption that the members can always be identified. Often delegates are not identified until they appear or are accredited at a convention. By that time it is often too late to fulfill notice and other procedural requirements of the Model Act. Moreover there is a question of how long a person remains a delegate and what a delegate's role is between conventions. The law in this area is unclear and in an early stage of development. It would be premature to write statutory rules when there is no consensus as to what the law should be. See section 6.40 which recognizes and legitimizes the role delegates play.
The fact that the Model Act does not provide specific right to delegates does not mean that delegate are without rights. A corporation's articles or bylaws or a state's common law may prescribe rules governing delegates and their rights and obligations.
Some individuals or public and other entities that want the right to appoint directors do not or legally cannot become members of nonprofit corporations. Therefore, the Model Act provides that the articles or bylaws of a corporation may authorize any person to appoint a director and that the person is not made a member as a result of appointing a director. See sections 1.40(21) and 8.04. Certain protections are provided to people who have the right to appoint directors. See sections 8.09, 8.10 and 10.30. Persons appointing directors may have additional rights as a result of article or bylaw provisions, negotiated agreements with the corporation, or state common law.
Directors are the third category of persons who select directors, but are not members. Directors who select other directors have adequate protection in their capacity as directors and should not be treated as members.
7. Membership
The term "membership" is defined as the totality of rights and obligations a member or members may have arising out of the articles, bylaws or the Model Act. It does not include rights and obligations that may arise out of contractual or other obligations. Two or more persons may hold one membership.
8. Mutual Benefit Corporation See the Introduction to the Model Act for a discussion of mutual benefit corporations. Section 1.40(23) distinguishes between corporations existing before and those formed on or after the effective date of the Model Act. Corporations formed on or after the effective date as mutual benefit corporations must provide in their articles that they are mutual benefit corporations. Section 17.07 requires certain corporations existing prior to the effective date to be mutual benefit corporations.
9. Principal Office
Section 16.22 requires each nonprofit corporation to designate a principal office. Section 1.40(26) defines a principal office as the office designated in the annual report as the place where the corporation's principal offices are located. [In South Carolina the principal office is designated originally in the articles or application for certificate of authority, and as is changed in a Notice of Change of Principal Office.] The place designed as a principal office should be the place, if any, that is the center of the corporation's activities. For many nonprofit corporations there is no place which is really the center of their activities, so these corporations may designate the officer or home of an officer as their principal office.
10. Public Benefit Corporation
See the Introduction to the Model Act for a discussion of public benefit corporations. Section 1.40(28) distinguishes between corporations existing before and those formed on or after the effective date of the Model Act. Corporations formed on or after the effective date as public benefit corporations must provide in their articles that they are public benefit corporations. Section 17.07 requires certain corporations existing prior to the effective date to be public benefit corporations.
11. Religious Corporation
See the Introduction to the Model Act for a discussion of religious corporations. Section 1.40(30) distinguishes between corporations existing before and those formed on or after the effective date of the Model Act. Corporations formed on or after the effective date as religious corporations must provide in their articles that they are religious corporations. Section 17.07 requires certain corporations existing prior to the effective date to be religious corporations.
SOUTH CAROLINA REPORTERS' COMMENTS
1. Prior statutes
This section has no real counterpart in the former nonprofit statutes. Some of the definitions are similar to those in the South Carolina Business Corporation Act, Section 33-1-400, but particular attention should be paid to the Official Comments to this section.
2. Non-Model Act definitions
The definitions of the following terms are different from the Model Act definitions:
Approved by the members
Board
Directors
Distribution
Employee
Member
Mutual benefit corporation
Principal office
Record date
Voting Power
In addition, this South Carolina section has a definition of the term "conspicuous" which does not appear in the Model Act.
3. Definition of a religious corporation
There was substantial consideration given to whether there should be a limiting definition of "religious corporation." The purpose of such a definition would be to limit the types of entities which could file articles in South Carolina claiming that they are a religious corporation. Consideration was given to incorporating language from Section 33-31-1707, but after significant debate it was determined that this statute should not contain a limiting definition.
For example, this statute does not regulate whether or not a nursing home formed and operated by a religious denomination could be formed as a religious corporation. This decision is left to the parties forming the entity.
It should be noted that the only practical effect of whether or not a corporation is for South Carolina purposes a religious corporation (and not a public benefit corporation) is the degree of monitoring that will be done of that corporation. For example, if a public benefit corporation dissolves, the Attorney General must receive a report of the distribution of its assets. If the same entity were formed as a designated religious corporation and it dissolved, the corporation would not have to report to the Attorney General how it distributed its assets.
It should also be noted that the federal government, through the IRS, is very active in policing entities which claim to exist for religious purposes but do not.
Section 33-31-141. Notice.
(a) Notice may be oral or written.
(b) Notice may be communicated in person; by telephone, telegraph, teletype, facsimile transmission (FAX), or other form of wire or wireless communication; or by mail or private carrier. If these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published; or by radio, television, or other form of public broadcast communications.
(c) Oral notice is permissible if reasonable under the circumstances and is effective when communicated if communicated in a comprehensible manner. Oral notice also includes notice through broadcast transmission.
(d) Written notice, if in a comprehensible form, is effective at the earliest or the following:
(1) when received;
(2) five days after its deposit in the United States mail, if mailed correctly addressed and with first class postage affixed;
(3) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee;
(4) fifteen days after its deposit in the United States mail, if mailed correctly addressed and with other than first class, registered, or certified postage affixed.
(e) Written notice is correctly addressed to a member of a domestic or foreign corporation if addressed to the member's address shown in the corporation's current list of members.
(f) A written notice or report delivered as part of a newsletter, magazine or other publication regularly sent to members constitutes a written notice or report if addressed or delivered to the member's address shown in the corporation's current list of members, or in the case of members who are residents of the same household and who have the same address in the corporation's current list of members, if addressed or delivered to one of such members, at the address appearing on the current list of members.
(g) Written notice is correctly addressed to a domestic or foreign corporation, authorized to transact business in this State, other than in its capacity as a member, if addressed to its registered agent or to its secretary at its principal office shown in its most recent Notice of Change of Principal Office and if none has been filed, in its articles of incorporation or application for certificate of authority.
(h) If Section 33-31-705(b) or any other provision of this chapter prescribes notice requirements for particular circumstances, those requirements govern. If articles or bylaws prescribe notice requirements, not inconsistent with this section or other provisions of this chapter, those requirements govern.
OFFICIAL COMMENT
Section 1.41 sets forth the rules for determining the effective date of notices given under the Model Act.
Unless the Act otherwise provides, notice may be oral or written. Oral notice is effective when communicated in a comprehensible manner. Written notice must be in a comprehensible form to be effective. The effective date of written notice depends on the means used to send the written notice. Written notice is effective when received or at any of the following times if they are earlier:
1. Five days after the notice is deposited in the United States mail correctly addressed with first class postage;
2. On the date shown on the signed return receipt for mail sent by registered or certified mail; or
3. Thirty days [15 in South Carolina] after the notice is deposited in the United States mail correctly addressed with other than first class postage.
As a result of the above rules nonprofit corporations can be sure of the effective date of a mailing even if the mail does not reach the intended person. The Model Act recognizes that many nonprofit corporations have special mailing privileges. These organizations can send their mail at the nonprofit rate; the effective date of any such mailing is thirty days [15 in South Carolina] after the mail is deposited in the United States mail.
Many nonprofit corporations include notices in newsletters, magazines or other publications regularly sent to members. Subsection (f) allows notices or reports contained in such publications to constitute written notice. If more than one member has the same address on the corporation's current records and lives in the same household as other members, notice in a publication delivered or mailed to such member at the correct address serves as written notice to all the members at the same address.
Other provisions of the Act may override the rules set forth in section 1.41. See section 1.41(h). Moreover, if a corporation's articles or bylaws provide different notice requirements, those requirements, if not inconsistent with the Act, are valid. For example, bylaws may provide more stringent notice requirements for a meeting of the board than those set forth in section 8.22.
SOUTH CAROLINA REPORTERS' COMMENTS
There is no comparable provision in the former provisions of Chapter 31, Title 33. This section is not identical to the notice provision for business corporations, although some of the provisions are similar. See Section 33-1-410. Notice is effective after placed in the mail according to the procedures specified in this section or otherwise when given, e.g. when a broadcast is made or someone has been told of a meeting. This section varies from the Model Act in a number of ways. Oral notice is limited. The South Carolina language only permits oral notice if it is "reasonable under the circumstances." Broadcast transmission is specifically defined as oral notice. Section 33-31-141(b) provides that notice may be given by "facsimile transmission." If notice is not mailed by first class (e.g., civic club bulletin) it will be deemed effective 15 days (not 30) after properly being mailed. Section 33-31-141(d)(4) provides for 15 days rather than 30 days. Proof of mailing under this section would be made by affidavit. The Model Act states that proof would be from the postmark which is unavailable to the sender. If the sender provides an affidavit of mailing or other proof of mailing (or other notice), the burden will be on the party who claims that mailing (or other notice) was not made.
Section 33-31-150. Private foundations.
Except where otherwise determined by a court of competent jurisdiction, a corporation that is a private foundation as defined in Section 509(a) of the Internal Revenue Code:
(a) shall distribute such amounts for each taxable year at such time and in such manner as not to subject the corporation to tax under Section 4942 of the Internal Revenue Code;
(b) may not engage in any act of self-dealing as defined in Section 4941(d) of the Internal Revenue Code;
(c) may not retain any excess business holdings as defined in Section 4943(c) of the Internal Revenue Code;
(d) may not make any taxable expenditures as defined in Section 4944 of the Internal Revenue Code;
(e) may not make any taxable expenditures as defined in Section 4945(d) of the Internal Revenue Code.
OFFICIAL COMMENT
Under section 508(e)(1) of the Internal Revenue Code, a private foundation (as defined in section 509(a)) is not exempt from federal income tax under section 501(a) unless its governing instrument includes provisions the effects of which are:
(1) to require its income for each taxable year to be distributed at such time and in such manner as not to subject the foundation to tax under section 4942; and
(2) to prohibit the foundation from engaging in any act of self-dealing (as defined in section 4941(d)), from retaining any excess business holdings (as defined in section 4943(c)), from making any investments in such manner as to subject the foundation to tax under section 4944, and from making any taxable expenditures (as defined in section 4945(d)).
Section 1.508.3(d) of the Income Tax Regulations provides that a private foundation's governing instrument is deemed to conform with the requirements of section 508(e) of the Code if valid provisions of state's law have been enacted which either require the foundation to comply with the provisions of section 508(e)(1), or treat the required provisions as contained in the foundation's governing instrument.
Section 508(e)(2) of the code provides that the requirements of paragraph 1 of the section do not apply to a foundation organized before January 1, 1970 which has been excused from complying with the requirements of paragraph 1 by a court order secured in a proceeding begun before January 1, 1972.
Under the applicable Income Tax Regulation (section 1.508(3)(d)), section 1.50 requiring a corporate foundation to comply with the provisions of section 508(e) of the Code satisfies the requirement that a foundation's governing instrument include such provisions. The section applies only to foundations which are corporations, and does not satisfy the requirements of section 508(e) in the case of trusts or other entities which qualify as private foundations under section 509(a) of the Code.
The introductory clause "Except where otherwise provided by a court of competent jurisdiction" incorporates the exception specified under paragraph 2 of section 508(e) for foundations organized prior to January 1, 1970 which have been relieved from the requirements of paragraph 1 by a timely judicial proceeding.
SOUTH CAROLINA REPORTERS' COMMENTS
This section is very similar to former Section 33-31-310. The former statute stated that these provisions are incorporated into the articles - but this new statute simply states that these requirements govern the corporation. No change was intended by this rewording. The former statute also provided that certain acts, such as "taxable expenditures" were only wrongful if they would result in a tax. This proposed Model Act language makes all such acts, whether or not a tax will result, as being impermissible. Again, no substantive change is intended. Non-Model Act language is used to refer to the Internal Revenue Code.
The former statutes also included three provisions related to Section 33-31-310 (namely, former Sections 33-31-320 through 33-31-340). These additional provisions have been retained as Sections 33-31-151, 33-31-152, and 62-7-507.
Section 33-31-151. Express amendment excluding application of Section 33-31-150.
A corporation may amend its articles of incorporation expressly to include the application of Section 33-31-150, or any portion of that section.
OFFICIAL COMMENT
None
SOUTH CAROLINA REPORTERS' COMMENTS
This provision was formerly contained in Section 33-31-320 and has been renumbered as Section 33-31-151 to come within the scheme of this revised act.
Section 33-31-152. Rights of State are not impaired.
Nothing in Sections 33-31-150, 33-31-151, 62-7-506, and 62-7-507 impairs the rights and powers of the courts or the Attorney General of this State with respect to a corporation.
OFFICIAL COMMENT
None
SOUTH CAROLINA REPORTERS' COMMENTS
This provision was formerly contained in Section 33-31-340 and has been renumbered as Section 33-31-152 to come within the scheme of this revised act.
Section 33-31-160. Judicial relief.
(a) If for any reason it is impractical or impossible for a corporation to call or conduct a meeting of its members, delegates, or directors, or otherwise obtain their consent, in the manner prescribed by its articles, bylaws, or this chapter, then upon petition of a director, officer, delegate, member, or the Attorney General, the court of common pleas for the county in which the principal office designated on the last filed notice of change of principal office, articles, or application for authority to transact business is located, or if none within South Carolina, then the Richland County Court of Common Pleas, may order that such a meeting be called or that a written ballot or other form of obtaining the vote of members, delegates, or directors be authored, in such a manner as the court finds fair and equitable under the circumstances.
(b) The court, in an order issued pursuant to this section, shall provide for a method of notice reasonably designed to give actual notice to all persons who would be entitled to notice of a meeting held pursuant to the articles, bylaws, and this chapter, whether or not the method results in actual notice to all such persons or conforms to the notice requirements that would otherwise apply. In a proceeding under this section, the court may determine who the members or directors are.
(c) The order issued pursuant to this section may dispense with any requirement relating to the holding of or voting at meetings or obtaining votes, including any requirement as to quorums or as to the number or percentage of votes needed for approval, that would otherwise be imposed by the articles, bylaws, or this chapter.
(d) Whenever practical, any order issued pursuant to this section shall limit the subject matter of meetings or other forms of consent authorized to items, including amendments to the articles or bylaws, the resolution of which will or may enable the corporation to continue managing its affairs without further resort to this section. However, an order under this section may also authorize the obtaining of whatever votes and approvals are necessary for the dissolution, merger, or sale of assets.
(e) Any meeting or other method of obtaining the vote of members, delegates, or directors conducted pursuant to an order issued under this section and that complies with all the provisions of such order, is a valid meeting or vote, as the case may be, and has the same force and effect as if it complied with every requirement imposed by the articles, bylaws, and this chapter.
OFFICIAL COMMENT
Section 1.60 provides an escape valve allowing nonprofit corporations to conduct meetings or obtain the consent of members, delegates or directors when it is otherwise impractical or impossible to do so. For example, a corporation may have a high quorum requirement preventing it from holding a meeting of members because the required number of members won't attend a meeting. It may have inaccurate records and be unable to identity its members or directors. The section allows directors, officers, delegates, members or the Attorney General to petition the appropriate court for an order allowing the members or directors to vote or hold a meeting even if the order dispenses with requirements of the Model Act, the articles or bylaws concerning voting or holding meetings. The court in exercising its discretion should provide a procedure that is fair and equitable under all the circumstances.
Judicial relief should not be granted under this section if the nonprofit corporation has duly adopted a viable method for holding meetings or obtaining consent. In a hierarchical church, for example, the church hierarchy may be empowered to determine the manner of holding meetings or obtaining consent.
Whenever practical the court order should limit the matters considered to those matters which will allow the corporation to continue its activities without further resort to section 1.60. Once the impediment to member or director action is removed, the members and directors can act without court aid.
If the corporation cannot locate or identify the members or directors, the court is empowered to authorize notice by any method reasonably designed to give actual notice even if the method does not result in actual notice or comply with the notice requirements that would otherwise apply. In appropriate cases, notice to members or directors may be by publication. See section 1.41(b).
SOUTH CAROLINA REPORTERS' COMMENTS
This section is entirely new and has no counterpart in the South Carolina Business Corporation Act. Although the language of this Section 33-31-160 grants the court discretionary authority as to whether or not it will hear a petition for judicial relief, it was the clear intent of the legislature that if after two consecutive notices had been given in any manner authorized by Section 33-31-141 calling either a meeting of the members or the directors, and any person certifies that there was no quorum for any such called meeting, the court of common pleas upon a complaint filed by any person identified in Section 33-31-160(a) shall grant a hearing and shall endeavor to provide the relief as specified in this Section 33-31-160. Likewise, if any person who was elected as an officer, director, or delegate (and whose position has not been affirmatively terminated by appropriate action of the corporation) certifies to the court that it is impractical to determine the identity of either a majority of the members or directors of the corporation, and he or she petitions the court for relief as provided in this Section 33-31-160, the court shall grant a hearing and endeavor to provide the relief as specified in this Section 33-31-160. These are merely examples of situations which will trigger the court's obligation to hear a complaint filed under this section and are not the exclusive situations in which the court has a duty to hear a complaint filed pursuant to Section 33-31-160.
Section 33-31-170. Attorney General. (a) The Attorney General must be given notice of the commencement of any proceeding that this chapter authorizes the Attorney General to bring but that has been commenced by another person.
(b) Whenever a provision of this chapter requires that notice be given to the Attorney General before or after commencing a proceeding or permits the Attorney General to commence a proceeding:
(1) if no proceeding has been commenced, the Attorney General may take appropriate action including, but not limited to, seeking injunctive relief;
(2) if a proceeding has been commenced by a person other than the Attorney General, the Attorney General, as of right, may intervene in the proceeding.
OFFICIAL COMMENT
Subsection (a) requires that the Attorney General be given notice of any proceeding that could have been brought by the Attorney General, but is commenced by another person. Subdivision (b)(1) grants the Attorney General independent authority to act when notice is required under subsection (a) or any other provision of the Model Act. This carries out the policy implicit in such notice requirements by specifically empowering the Attorney General to protect the public interest when it may be adversely affected. Subdivision (b)(2) permits the Attorney General to intervene in any proceeding that the Attorney General could have commenced but that was brought by another person, such as a director, or member. To protect the public interest, the Attorney General may either commence a proceeding or intervene in a proceeding commenced by another person who is authorized to do so.
Section 1.70 does not detract from the jurisdiction the Attorney General may otherwise have in states adopting the Model Act.
SOUTH CAROLINA REPORTERS' COMMENTS
This section is entirely new and has no counterpart in the South Carolina Business Corporation Act. Former Sections 33-31-410 through 33-31-450 granted the Attorney General rights to investigate the organization, conduct, and management of any nonprofit corporation. The information obtained was confidential and was obtained upon written request. Failure to comply with an investigation would result in the forfeiture of the corporation's charter. These provisions have been retained as Sections 33-31-171, 33-31-172, and 33-31-173. This new section expands upon these former/retained sections. Other rights are specified in other sections, e.g., the right to dissolve a nonprofit corporation which is abusing its authority is granted in Section 33-31-1430.
Section 33-31-171. Investigation by Attorney General authorized.
The Attorney General, or any of his assistants or representatives when authorized by the Attorney General, may make investigations into the organization, conduct, and management of a nonprofit corporation, domestic or foreign, operating in this State. Every such corporation shall permit the Attorney General or any of his authorized assistants or representatives to examine and take copies of all its books, accounts, records, minutes, letters, memoranda, documents, checks, vouchers, telegrams, articles, bylaws, and any and all other records of any such corporation as often as the Attorney General may deem it necessary to show or tend to show that the corporation has been, or is, engaged in acts or conduct in violation of its charter rights and privileges or in violation of any law of this State.
SOUTH CAROLINA REPORTERS' COMMENTS
This is neither a Model Act provision nor similar to any provision in the South Carolina Business Corporation Act. It is essentially identical with the former Section 33-31-410 of the 1976 Code.
Section 33-31-172. Requesting permission to make examinations.
A written request must be made to the president or another officer of the nonprofit corporation at the time the Attorney General or his assistants or representatives desire to examine the affairs of the corporation, and it is the duty of the officer or his agent to immediately permit the Attorney General, or his authorized assistants or representatives, to inspect and examine any of the documents of the corporation.
SOUTH CAROLINA REPORTERS' COMMENTS
This is neither a Model Act provision nor similar to any provision in the South Carolina Business Corporation Act. It is essentially identical with the former Section 33-31-420 of the 1976 Code.
Section 33-31-173. Use of information is restricted.
The Attorney General, or his authorized assistants or representatives, may not make public or use any document, copy, or other information derived in the course of an examination authorized by Sections 33-31-170 through 33-31-175, except in a judicial proceeding to which the State is a party or in a suit by the State to revoke the certificate of authority or cause the articles of the corporation to be forfeited or to collect penalties for a violation of the laws of this State or for the information of any officer of this State charged with the enforcement of its laws.
SOUTH CAROLINA REPORTERS' COMMENTS
This is neither a Model Act provision nor similar to any provision in the South Carolina Business Corporation Act. It is essentially identical with the former Section 33-31-430 of the 1976 Code.
Section 33-31-174. Forfeiture of right to operate for refusing examination.
A foreign nonprofit corporation operating in this State under certificate of authority granted under the laws of this State, or any officer or agent thereof, or any domestic nonprofit corporation which fails or refuses to permit the Attorney General or his authorized assistants or representatives to examine or take copies of any of its documents as provided in Sections 33-31-170 through 33-31-175, whether they be situated within or without this State, shall forfeit its right to operate in this State and its articles of incorporation or certificate of authority shall be canceled or forfeited.
SOUTH CAROLINA REPORTERS' COMMENTS
This is neither a Model Act provision nor similar to any provision in the South Carolina Business Corporation Act. It is essentially identical with the former Section 33-31-440 of the 1976 Code.
Section 33-31-175. Provisions are cumulative.
The provisions of Sections 33-31-170 through 33-31-175 are cumulative of all other laws now in force in this State and may not be construed as repealing any other means afforded by law for securing testimony or inquiring into the affairs of domestic or foreign nonprofit corporations.
SOUTH CAROLINA REPORTERS' COMMENTS
This is neither a Model Act provision or similar to any provision in the South Carolina Business Corporation Act. It is essentially identical with the former Section 33-31-450 of the 1976 Code.
Section 33-31-180. Religious corporations; Constitutional protections.
If religious doctrine governing the affairs of a religious corporation is inconsistent with the provisions of this chapter on the same subject, the religious doctrine controls to the extent required by the Constitution of the United States or the Constitution of South Carolina, or both.
OFFICIAL COMMENT
As a result of history, policy, and constitutional principles, religious corporations are entitled to protections not available to business or other nonprofit corporations. Courts have been reluctant to interfere with the internal affairs of religious organizations. They will not decide between conflicting religious doctrine or determine the "true" faith. However, courts have often decided internal property disputes by applying neutral principles of contract or corporate law to organizational documents of religious organizations. See Mansfield, "The Religious Clauses of the First Amendment and the Philosophy of the Constitution," 72 Calif. L. Rev. 847 (1984); Ellman, "Driven from the Tribunal: Judicial Resolution of Internal Church Disputes," 69 Calif. L. Rev. 1878 (1981).
This reluctance is based in part on the First Amendment to the United States Constitution which provides: "Congress shall make no law respecting an establishment of religion, or prohibiting the exercise thereof . . . ." The establishment clause applies to states [Everson v. Board of Education, 330 U.S. 1 (1947)], as does the free exercise clause [Cantwell v. Connecticut, 310 U.S. 296 (1940]. The Model Act attempts to walk the thin line between the establishment clause and the free exercise clause. It allows religious corporations to be formed and gives them the same rights and privileges as other corporations. The Model Act avoids interfering with the free exercise of religion by negating or allowing religious corporations to negate provisions of the Model Act that might result in excessive entanglement in religious activities by the state. By limiting state intrusion the Model Act uses the least restrictive means to provide an orderly structure in which religious corporations can be formed and operate.
Section 1.80 is based on the recognition that some provisions of the Model Act may conflict with the United States Constitutions or state constitutions. The exact scope of constitutional imitations is less than clear and is subject to debate. Section 1.80 overcomes this difficulty by providing that to the extent religious doctrine applicable to a religious corporation sets forth provisions inconsistent with provisions of the Model Act, the religious doctrine law shall control to the extent required by the United States Constitution or applicable state constitutions. Section 1.80 was derived from 15 Pa. C.S.A. section 7106.
While in one sense section 1.80 simply states the obvious, it is helpful to remind those dealing with the religious corporations that they must consider constitutional mandates. The approach of section 1.80 also allows a case-by-case determination of difficult questions and automatically conforms the Model Act to the opinions of the United States Supreme Court and the applicable state courts.
SOUTH CAROLINA REPORTERS' COMMENTS
This section is entirely new. As noted in Section 33-31-140, there is no limiting definition as to what entities may be incorporated as religious corporations. The main distinction in regard to South Carolina law between a religious corporation and a public benefit corporation is that there is more public monitoring of religious corporations, particularly by the Attorney General. This is in recognition of the separation of church and state.
Section 33-31-201. Incorporators.
One or more persons may act as the incorporator or incorporators of a corporation by delivering articles of incorporation to the Secretary of State for filing.
OFFICIAL COMMENT
Section 2.01 allows one or more persons to incorporate a corporations by delivering to the Secretary of State the articles of incorporation. The term "person" is broadly defined in section 1.40(25) to allow a wide variety of individuals or entities to serve as incorporators. Anyone serving as an incorporator must sign the original of the articles of incorporation. Sections 1.20(f), (g), and 2.02(c).
Section 1.20(i) requires an original and one exact or conformed copy of the articles to be delivered to the Secretary of State. An "exact" copy is a photographic or similar reproduction of the executed original articles. A "conformed" copy is a copy of the original articles on which the existence of any signature of signatures is noted. The prior law required delivery of "articles of incorporation in duplicate" to the Secretary of State. While this is no longer a requirement, a person submitting duplicate originals to the Secretary of State would meet the requirement of having filed an original and a "conformed" copy.
An exact or conformed copy of the articles is required so that the incorporator(s) will have a record of the incorporation. See the Official Comment to Section 2.03.
In addition to filing the articles, the incorporators are authorized to complete the formation of the corporation as set forth in section 2.05.
SOUTH CAROLINA REPORTERS' COMMENTS
This section is a significant modification from prior practice but in conformity with the South Carolina Business Corporation Act (Section 33-2-101). Note that a corporation may serve as the incorporator since the definition of "person" includes an entity (Section 33-31-140). If desired, the incorporators may verify the filing but this is not required. Note that Section 33-31-129 mandates both criminal penalties and civil liabilities for any wrongful statement in a filed document.
Section 33-31-202. Articles of incorporation.
(a) The articles of incorporation must set forth:
(1) a corporate name for the corporation that satisfies the requirements of Section 33-31-401;
(2) one of the following statements:
(i) This corporation is a public benefit corporation.
(ii) This corporation is a mutual benefit corporation.
(iii) This corporation is a religious corporation;
(3) the street address of the corporation's initial registered office with zip code and the name of its initial registered agent at that office;
(4) the name, address, and zip code of each incorporator;
(5) whether or not the corporation will have members;
(6) provisions not inconsistent with law regarding the distribution of assets on dissolution; and
(7) the address, including zip code, of the proposed principal office for the corporation which may be either within or outside South Carolina.
(b) Unless the articles provide otherwise, no director of the corporation is personally liable for monetary damages for breach of any duty to the corporation or members. However, this provision shall not eliminate or limit the liability of a director:
(1) for any breach of the director's duty of loyalty to the corporation or its members;
(2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
(3) for any transaction from which a director derived an improper personal benefit; or
(4) under Sections 33-31-831 through 33-31-833.
This provision shall not eliminate or limit the liability of a director for an act or omission occurring before the date when the provision becomes effective.
(c) The articles of incorporation may set forth:
(1) the purpose for which the corporation is organized which may be, either alone or in combination with other purposes, the transaction of any lawful activity;
(2) the names, addresses, and zip codes of the individuals who are to serve as the initial directors;
(3) provisions not inconsistent with law regarding:
(i) managing and regulating the affairs of the corporation;
(ii) defining, limiting, and regulating the powers of the corporation, its board of directors, and members, or any class of members; and
(iii) the characteristics, qualifications, rights, limitations, and obliga- tions attaching to each or any class of members;
(4) any provision that under this chapter is required or permitted to be set forth in the bylaws.
(d) Each incorporator and director named in the articles must sign the articles.
(e) The articles of incorporation need not set forth any of the corporate powers enumerated in this chapter.
OFFICIAL COMMENT
1. Introduction
Section 2.02 allows a simple one- or two-page document to serve as a corporation's articles of incorporation. While there are numerous standard provisions that must be contained in the articles, there is no single standard form of articles.
Section 2.02 requires certain provisions to be in the articles of incorporation and allows the articles to contain other optional provisions. If no limitation is placed on the duration of the corporation and no optional provisions are contained in the articles, the corporation will have perpetual existence, the purposes set forth in section 3.01 and the broad powers enumerated in section 3.02. However, as a result of sections 2.02(b)(3)(ii) and 3.02, a corporation may limit its duration and corporate powers.
To meet the requirements of Internal Revenue Code section 501 or equivalent state tax provisions, the articles of many nonprofit corporations must contain limitations on corporate activity and restrictions on the use and distribution of corporate assets. In addition, the articles of all nonprofit corporations must contain provisions dealing with the disposition of corporate assets on dissolution.
2. Required Provisions
The articles of incorporation must contain the following information:
(a) A corporate name that meets the requirements of section 4.01.
(b) A statement that the corporation is a public benefit, a mutual benefit or a religious corporation. This election requires those forming a nonprofit corporation to choose between public benefit, mutual benefit and religious status at the time of incorporation. See the Introduction to the Model Act for comments on the significance of this distinction. This election will avoid confusion as to the status of nonprofit corporations under the Model Act. See Los Angeles County Pioneer Society v. Historical Society of Southern California, 40 Cal. 2d 852, 257 P.2d 1 (1953); Lynch v. Spilman, 67 Cal. 2d 251, 62 Cal. Rptr. 12, 431 P.2d 636 (1967). Assets held by public benefit and religious corporations may not be distributed to members, directors, officers or controlling persons in violation of section 13.01 and may only be distributed on dissolution as set forth in section 14.06. If a mutual benefit corporation holds assets in charitable trust, the same limitations apply to distribution of those assets. Other assets held by mutual benefit corporations may not be distributed to members, directors, officers or controlling persons until the corporation dissolves. See chapter 13 that governs distributions.
(c) The address of the corporation's initial registered office and the name of its initial registered agent.
(d) The name and address of each incorporator.
(e) Whether or not the corporation will have members. The term "members" has a limited meaning which is set forth in section 1.40(17). Many nonprofit corporations do not have members. They operate with a self-perpetuating board of directors, delegates, or some other system. Those corporations that will not have members must so indicate in their articles. Those corporations that will have members must indicate that there will be members. However, the bylaws and not the articles usually set forth the characteristics, qualifications, rights, limitations and obligations of the members. See initial Comment 3(c)(ii) regarding optional provisions setting forth rights and obligations of members.
(f) The disposition of assets on dissolution. A nonprofit corporation, unlike a business corporation, must provide for the distribution of its assets on dissolution. If a business corporation dissolves, its net worth will be distributed to its shareholders. Upon dissolution of a nonprofit corporation, its assets are not necessarily distributed to its members. In fact, the assets of public benefit and religious corporations and organizations that have section 501(c)(3) status generally cannot be distributed to members. See chapter 13 and section 14.06.
Some provision for distribution must be set forth in a corporation's articles. There are a wide variety of dissolution provisions ranging from those specifying a specific organization to those authorizing the directors to choose any organization or to choose among various organizations or types of organizations. A dissolution provision must be consistent with the type of tax exempt status the corporation is seeking.
3. Optional Provisions
Section 2.02(b) allows the article to contain a number of optional provisions. In determining whether to insert an optional provision in the articles, a person forming a corporation should consider the advantages and disadvantages of making the provision subject to public scrutiny, the procedure necessary to amend articles, and the requirements of federal and state income and property tax laws.
Optional provisions include:
(a) A broad or a limited purpose clause. To obtain tax exempt status under federal and state law, many nonprofit corporations will elect to limit their corporate purpose. As the tax laws differ for various types of organizations and change from time to time, it is not feasible to mandate particular limitations. Those forming a corporation, however, should be careful not to limit the purposes or impose more limitations than required by the tax laws unless they have a particular reason to do so. For example, while it may be necessary to irrevocably dedicate assets of a section 501(c)(3) organization to charitable, educational, or certain other activities, it may not be necessary to irrevocably dedicate a corporation's assets to such purposes in order to obtain other exempt status. By irrevocably dedicating assets when such dedication is not required, the incorporators may inadvertently impress the assets of a corporation with unintended restrictions and obligations. While a narrow purpose clause may serve to identify the existence of the corporation, a narrow purpose clause may unduly restrict corporate activity. For example, if the articles limit the corporate purpose to operating a hospital, the corporation may not be able to only operate outpatient clinics. See Queen of Angels Hospital v. Younger, 66 Cal. App. 3d 359, 136 Cal. Rptr. 36 (1977).
(b) The names and addresses of the individuals who are to serve as initial directors. Section 2.02(e) requires all individuals named as initial directors to sign the articles to evidence their consent to serving as directors. This requirement prevents people from being named as initial directors without their consent. This problem is more acute in nonprofit corporations than in business corporations. In nonprofit corporations incorporators sometimes name respected or famous individuals as directors in the hope that they will serve as directors.
If initial directors are named in the articles, they have the powers set forth in section 2.05 and may continue to serve as directors subject to being replaced as set forth in the Model Act or the bylaws of the corporation.
(c) Provisions not inconsistent with the law regarding management or regulation of the affairs of the corporation including.
(i) Defining, limiting, and regulating the powers of the corporation, its directors and members. It is not necessary to set forth any corporate powers enumerated in the Act. See section 3.02.
(ii) The characteristics, qualifications, rights, limitations, and obligations of the members. Typically, provisions relating to members' rights and obligations are set forth in the bylaws of a corporation and not in its articles. This is for two reasons. First, it allows membership provisions to be contained in a private or semi-private document and not in the articles that are filed with the Secretary of State. Second, amendments to the article always require a vote of members which may be cumbersome and time consuming. Compare sections 10.01-10.08 with sections 10.20-10.22. Thus, more privacy and greater flexibility are obtained by putting membership provisions in bylaws.
(iii) Any provision that under the Act is required or permitted to be set forth in the bylaws. See the Official Comment to Section 2.06.
SOUTH CAROLINA REPORTERS' COMMENTS
1. Similarities to former statutes
Although this is a major revision, both the old law (found in prior Chapter 31, Title 33) and this new law require the name of the corporation to be on the articles. Whereas the old law required a specific purpose to be identified, the new law simply requires the corporation to identify whether it is a public benefit, mutual benefit, or religious corporation, and permits the articles to identify the purpose or purposes for which the corporation is organized which may be, either alone or in combination with other purposes, the transaction of any lawful activity. The old law and new law both permit the inclusion of certain "other provisions." The corporation's powers are not specified in the articles; however, in addition to irrevoc