I’m a member of a private club in Los Angeles. (Nothing sinister, just a club house and bar that only members can enter, though it’s very easy to become a member.) Anyway, we have a board of directors.
Recently the board posted their minutes online with financial information as to what they are each getting as compensation for meals during meetings. Basically, the board is not paid, and they get a certain amt of money for food from our restaurant which is not run by the club. No problem so far.
Except that in the minutes, the amts were shown as follows:
board member 1: _________
board member 2: _________
etc.
Yes, the dollar figures were blank. When a member asked what the amounts were, the minutes were changed and that entire section was removed, even the fact that they are getting meal compensations at all.
Is this as illegal as I think it is? I don’t mind them getting compensation, but aren’t they obligated under California law to list the amounts in the official minutes?
Also, they have this annoying habit of announcing whether or not an issue that was voted on passed or failed… but they absolutely refuse to list who voted yes and who voted no.
Are there laws in place that I can show them to force them to list the financial amounts, and list who voted which way on every issue? I’m tired of their shenanigans and am willing to sue for the information if I have to (I don’t want any money, just want to force them to stop with the absurd secrecy), but I have a feeling that if I had access to the exact statues of corporate law – which I don’t have a clue how to research, having never done this before – I could force them into compliance without resorting to the court system.
IAAL, but in Canada, so can’t help you, except to provide you this link which is to the California Corporations Code. Part 2 of the Code appears to cover Nonprofit Public Benefit Corporations, while Part 3 covers Nonprofit Mutual Benefit Corporations. There are chapters in each part speaking to Directors and Management. I hope this least provides you a place to start in answering your question.
Boards of directors do have fiduciary duties, but they generally have them to the stockholders, not members of a club. Unless members of a club are stockholders, I don’t think they have a duty of disclosure to you. As far as I can tell, this is not a publicly traded company, so they don’t have to go along with SEC rules regarding disclosure rules. So, even if the members were stockholders, the members of the board may not have to disclose the amount paid for lunches. Granted, this is California, and I’ve only really studied Delaware codes and the SEC rules, but I can’t imagine they have a duty of disclosure required by law, to their club members, about their voting records or meal subsidies.
The short of it is that I don’t think it’s illegal for the board of directors not to state exactly how must the restaurant is paying for their lunches to the members of the club, unless it is specifically mentioned in the bylaws. Read your bylaws for further details.
IANAL, yet, but I’m studying business law and mergers.
Not a lawyer, but my take on it, based on my experience working with small businesses, is the same as Elysian’s. Even an incorporated enterprise, if it isn’t publicly traded, doesn’t face a lot of constraints in terms of how it conducts its internal business.
Legal process, in any case, strikes me as the wrong tool for this situation. Instead, raise hell at your next annual meeting. Point out that redacting the comp amounts invites suspicion that the directors are skimming club dues for personal gain. Amend the by-laws to require disclosure and recorded votes. Run a new slate of directors. If none of the above work, quit the club.
This appears to be the part of the statute that covers required financial disclosures. It does not seem to require the company to report what you are seeking. Without more information I can’t be sure that this is indeed the correct statute, so take it with a grain of salt.
I agree that these seem to be your options. You can try to gather together a voting block of your fellow club members in order to vote in the directors that you choose. Then those directors can amend the bylaws to specify disclosure rules.
Gfactor, asking to view the books and minutes isn’t going to help him a whole lot if they aren’t writing the things he want to know down. It appears he’s already looking at the minutes anyway.
Do you really want to elect your own directors? That can split the club into factions and may break the whole club up. You can always try to petition for changes in the bylaws and bring that up in the next meeting.
Although I am not a California lawyer, if the accounting books are so deficient that they don’t show the expenses of the corporation in reasonable detail, I would interpret this statute as allowing access to the checking account statements. Presumably, these restaurant expenses are reimbursed (or perhaps paid directly) by check. If paid directly, it’s likely that the entire board’s expenses are aggregated in one check, though.
Indeed a member could argue that not producing accounting books kept according to accounting practices was a refusal to produce them. Which would then permit a court to order an audit. During the audit, the auditors would surely check out whatever financial records were necessary to justify expenditures made by the company.
Moreover, non-profits are required to keep books and records that are accurate and correct.
Failing to maintain required records might even be grounds for involuntary dissolution.
Are members like shareholders? Yes, except when they aren’t.
That said, members have voting rights, just as shareholders do in a corporation. But just as corporations can issue non-voting shares, non-profits can create non-voting membership classes.