Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred S.B. No. 1589 entitled:

begs leave to report as follows:

The purpose of this measure is to authorize and establish procedures for the termination of memberships or cancellation of membership classes of a nonprofit corporation, to allow members to resign, and to allow a nonprofit corporation to authorize the indemnification of its directors in advance of the establishment of any liability.

Testimony in support of this measure was submitted by Unity House, its president, and three of its employees. The Community Associations Institute-Hawaii Chapter, Neely and Anderson LLP, Waikoloa Village, Naia Properties, Inc., and Villages of Kapolei Association opposed section 2 of this measure, as received, relating to enabling a member of a nonprofit to resign at any time from the corporation.

This measure allows nonprofit corporations with large memberships to undertake more streamlined procedures for the termination of memberships should the nonprofit corporation opt to convert to a nonmembership type of nonprofit corporation. These procedures also provide members who oppose the proposed conversion with an opportunity to be heard. Additionally, this measure allows members of a nonprofit corporation to resign at any time and allows nonprofit corporations to authorize in advance of any liability arising, the indemnification of its board of directors.

Your Committee received testimony from condominium associations and other interested parties, opposing language in this measure that allows a member of a nonprofit corporation to resign at any time. Since many condominium and planned community associations are nonprofit corporations, this language would allow the members of these homeowners associations to resign and relieve themselves of the duties and obligations of the association, including responsibility for the association's common expenses. Therefore, your Committee has amended this measure by clarifying that the right to resign a membership does not apply to members of condominium associations and planned community associations.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1589, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1589, S.D. 1, and be placed on the calendar for Third Reading.