Amended  IN  Assembly  March 23, 2023

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Assembly Bill
No. 1229

Introduced by Assembly Member Haney

February 16, 2023

An act to add Part 2.5 (commencing with Section 21500) to Title 3 of the Corporations Code, relating to associations.


LEGISLATIVE COUNSEL'S DIGEST


AB 1229, as amended, Haney. Associations. Unincorporated associations: decentralized nonprofit associations.
Existing law sets forth certain requirements and other provisions applicable to unincorporated associations, including nonprofit associations, as those terms are defined.
This bill would add provisions governing decentralized nonprofit associations, defined as an unincorporated association consisting of at least 100 members with a primary common purpose other than to operate a business for profit whose governance and operations are reliant, in full or in part, on a blockchain or other distributed ledger technology, as defined. Under the bill, an action against a decentralized nonprofit association may be brought in the county where it has appointed an agent for service of process. The bill would authorize a member of a decentralized nonprofit association to transfer their membership interest or rights. The bill provides that a member, administrator, or agent is not liable for a debt, obligation, or liability of the decentralized nonprofit association, including a contractual liability, unless specified conditions are met.

This bill would state the intent of the Legislature to enact legislation to create a category within existing statutes related to unincorporated associations and nonprofit associations appropriate for the decentralized operations of blockchain networks and smart contract protocols.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NO   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Part 2.5 (commencing with Section 21500) is added to Title 3 of the Corporations Code, to read:

PART 2.5. Decentralized Nonprofit Associations

CHAPTER  1. Definitions

21500.
 For purposes of this part, the following definitions apply:
(a) (1) “Administrator” means a member authorized by the governing principles of the decentralized nonprofit association to fulfill specific administrative or operational tasks at the direction of the membership.
(2) An administrator is an agent of the decentralized nonprofit association for purposes of this title, except as provided in this part.
(3) An administrator has no authority to act on behalf of the decentralized nonprofit association other than the specific authorization granted in the selection process.
(b) (1) “Decentralized nonprofit association” means an unincorporated association consisting of at least 100 members with a primary common purpose other than to operate a business for profit whose governance and operations are reliant, in full or in part, on a blockchain or other distributed ledger technology.
(2) A decentralized nonprofit association may carry on a business for profit and apply the profit that results from the business activity to an activity in which it may lawfully engage.
(c) (1) “Digital asset” means an electronic record in which a person has a right or interest.
(2) A digital asset does not include the recorded underlying asset unless the asset is itself an electronic record.
(d) “Distributed ledger technology” means a distributed ledger protocol, including a designated regulatory model of software that governs the rules, operations, and communication between intersection and connection points in a telecommunication network, and supporting infrastructure, including computer software or hardware, that utilize or enable a distributed ledger, including blockchain, that uses a distributed, shared, and replicated ledger, whether it be public or private or permissioned or permissionless, and that may include the use of digital assets as a medium of electronic exchange.
(e) “Governing document” means a constitution, articles of association, bylaws, or other writing that governs the purpose or operation of an unincorporated association or the rights or obligations of its members, including information inscribed on a blockchain or other distributed ledger technology that is retrievable in a perceivable form.
(f) “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in a perceivable form, including information inscribed on blockchain or other distributed ledger technology.
(g) “Smart contract“ means an event-driven computer program that executes on blockchain or other distributed ledger technology used to automate transactions that include, but are not limited to, any of the following:
(1) Taking custody over and instructing a transfer of assets on a ledger.
(2) Creating and transmitting a digital asset.
(3) Synchronizing information.
(4) Authenticating user rights and conveying access to a software application.

CHAPTER  2. General Provisions

21510.
 In addition to establishing venue under any legally recognized method, venue of an action against a decentralized nonprofit association may be brought in the county where it has appointed an agent for service of process.

21511.
 Except as otherwise provided in the decentralized nonprofit association’s governing document, a member’s interest or any right thereunder is freely transferable to another person. The conveyance of a membership interest or other property shall confer upon the recipient a voting right within the decentralized nonprofit association.

CHAPTER  3. Liability

21520.
 A member, administrator, or agent of a decentralized nonprofit association is not liable for a debt, obligation, or liability of the association solely by reason of being a member, administrator, or agent.

21521.
 A member of a decentralized nonprofit association is not liable for a contractual obligation of the association unless one of the following conditions is satisfied:
(a) The member expressly assumes personal responsibility for the obligation in a signed writing that specifically identifies the obligation assumed.
(b) The member expressly authorizes or ratifies the specific contract, as evidenced by a writing. This subdivision does not apply if the member authorizes or ratifies a contract solely in the member’s capacity as an administrator or agent of the association.
(c) With notice of the contract, the member receives a benefit under the contract. Liability under this subdivision is limited to the value of the benefit received.
(d) The member executes the contract without disclosing that the member is acting on behalf of the association.
(e) The member executes the contract without authority to execute the contract.

21522.
 An administrator or agent of a decentralized nonprofit association is not liable for a contractual obligation of the decentralized nonprofit association unless one of the following conditions is satisfied:
(a) The administrator or agent expressly assumes responsibility for the obligation in a signed writing that specifically identifies the contractual obligation assumed.
(b) The administrator or agent executes a contract without disclosing that the administrator or agent is acting on behalf of the decentralized nonprofit association.
(c) The administrator or agent executes the contract without the authority to execute the contract.

21523.
 (a) A member, administrator, or agent of a decentralized nonprofit association shall be liable for injury, damage, or harm caused by an act or omission of the decentralized nonprofit association or an act or omission of an administrator or agent of the decentralized nonprofit association, if one of the following conditions is satisfied:
(1) The member, administrator, or agent expressly assumes liability for injury, damage, or harm caused by particular conduct and that conduct causes the injury, damage, or harm.
(2) The member, administrator, or agent engages in tortious conduct that causes the injury, damage, or harm.
(3) The member, administrator, or agent is otherwise liable under any other legal basis.
(b) This section provides a nonexclusive list of existing grounds for liability and does not foreclose any common law grounds for liability.

21524.
 Notwithstanding any other provision of this part, a member, administrator, or person in control of a decentralized nonprofit association may be subject to liability for a debt, obligation, or liability of the decentralized nonprofit association under common law principles governing alter ego liability of shareholders of a corporation, taking into account the differences between a nonprofit association and a corporation.

21525.
 Nothing in this chapter limits application of the Uniform Voidable Transactions Act (Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code).

CHAPTER  4. Governance

21530.
 (a) A decentralized nonprofit association may provide for its governance, in whole or in part, through blockchain or other distributed ledger technology, including a smart contract.
(b) The governing document for a decentralized nonprofit association may do either of the following:
(1) Specify whether any blockchain or other distributed ledger technology utilized or enabled by the decentralized nonprofit association will be fully immutable or subject to change by the decentralized nonprofit association and whether the ledger will be fully or partially public or private, including the extent of a member’s access to information.
(2) Adopt voting procedures, which may include a smart contract deployed to a blockchain or other distributed ledger technology, that provide for any of the following:
(A) Proposals from administrators or members in the decentralized nonprofit association for upgrades, modifications, or additions to software systems or protocols.
(B) Other proposed changes to the decentralized nonprofit association’s governing document.
(C) Any other matters of governance or activities within the purpose of the decentralized nonprofit association.

21531.
  In accordance with its governing document, a decentralized nonprofit association may do either of the following:
(a) Adopt a reasonable algorithmic means for establishing consensus for the validation of records, establishing requirements, processes, or procedures for conducting operations, or making organizational decisions with respect to the distributed ledger technology used by the decentralized nonprofit association.
(b) In accordance with any procedure specified pursuant to Section 21530, modify the consensus mechanism, requirements, processes, or procedures, or substitute a new consensus mechanism, requirement, process, or procedure.

21532.
 (a) A decentralized nonprofit association may carry on a business for profit and apply a profit that results from the business activity in accordance with subdivision (c).
(b) Except as otherwise provided in subdivision (c), a decentralized nonprofit association may not pay dividends or distribute any part of its income or profits to its members or administrators.
(c) A decentralized nonprofit association may do the following:
(1) Pay reasonable compensation or reimburse reasonable expenses to its members, administrators, and persons outside the organization for services rendered, including with respect to the administration and operation of the decentralized nonprofit association, which may include, but is not limited to, the provision of collateral for the self-insurance of the decentralized nonprofit association, voting, and participation.
(2) Confer benefits on its members or administrators in conformity with its common nonprofit purpose or purposes.
(3) Repurchase membership interests to the extent authorized by its governing document.
(4) Make distributions of property to members upon winding up and termination to the extent permitted by its governing document.

SECTION 1.

It is the intent of the Legislature to enact legislation to create a category within existing statutes related to unincorporated associations and nonprofit associations appropriate for the decentralized operations of blockchain networks and smart contract protocols.