Legal Question in Business Law in California

Improper distribution of assets by nonprofit mutual benefit corp
Section 7411 of Cal Corporations code states that distri- bution of assets is not permitted, yet I am a member of one that has greater expenses than revenues and covers up the loss by using a budget not in conformity with the accounting system, then reporting only a budget reconcili- ation to members. When the actual financial report reviewed by a CPA is requested, the member is threatened with expulsion by the corporate counsel;the request for the report is treated as a complaint not in the interests of the corporation. Question: Is CorpC 7411 enforced by Justice or is it a civil matter? I am currently under a coerced agreement not to contact any agency of the state or federal government and I feel this infringes on my rights.

Asked on 5/03/02, 3:33 pm

2 Answers from Attorneys

Bryan Whipple Bryan R. R. Whipple, Attorney at Law

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Re: Improper distribution of assets by nonprofit mutual benefit corp

Since you know about Section 7411 I assume you also know about Corp. Code Section 7236 which provides penalties for improper distributions.

There isn't a lot of reported case law on these and related sections. I found no annotated cases on WestLaw. Therefore, I'm not in a very good position to give you specifics on how the courts will interpret and apply the law.

My guess is that if the wrongdoing you seem to suspect can be proven, the responsible parties would be liable to the corporation for all harm to it in consequence of the wrongs.

The agreement you say was coerced from you is very possibly unenforceable against you because of the coercion and/or because it would be against public policy to allow its enforcement. That doesn't mean you should ignore it; the resulting legal battle could be costly and time consuming even if you prevail.

The agreement doesn't seem to prohibit your conferring with an attorney. My suggestion would be to gather up as much information about the corporation (Articles of Incorporation, bylaws, material submitted to obtain and maintain its status, meeting minutes, books of account,etc.) as you can lawfully obtain, plus evidence of the alleged improper practices, and schedule an appointment with an attorney who has a practice area that might include public interest matters such as this.

The proper approach depends upon the strength of your proof, the amount of money involved, and your personal stake in the matter. Without knowing more, I can't give you specific advice.

Answered on 5/03/02, 4:09 pm

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